Malaysia rises to 16th place in ranking of world’s best retirement schemes, and is third best in Asia: Mercer

Malaysia’s retirement schemes are now on par with advanced economies like the US and UK, the report said.
The Straits Times

Worried about retirement? Well, say no more.

Malaysia has the third best retirement scheme in Asia, and ranks 16th out of 37 systems globally, according to the 2019 Melbourne Mercer Global Pension Index (MMGPI).

While it was not in the top 10, Malaysia improved four spots on the ranking, and is now on par with advanced economies like the United States and Great Britain, the report said.

Assessing retirement systems across the sub-indices of adequacy, sustainability and integrity, MMGPI compares retirement systems across the globe and covers almost two-thirds of the world’s population.

The country scored high scores of 60.5 and 76.9 for the sustainability and integrity sub-indices. The global averages for these indices were 51.3 and 71.7.

However, it did not do as well on the adequacy sub-index –  which measures benefits, savings and tax support among other things – with a score of 50.5.

Janet Li, Mercer’s business leader for Asia, was also quoted by The Edge Markets as saying that “the overall C+ rating shows that the system has some good features, but improvements can be made to increase long-term sustainability and provide more benefits”.

“We remain hopeful with the recent Budget 2020 by the Malaysian government that more policies will be tabled to address this pressing issue,” she said.

Meanwhile, neighbouring Singapore has the number one retirement system in Asia, and ranks seventh. It was also the only Asian country to receive a B grade and achieved 70.8 in overall index value.

Globally, the Netherlands had the highest overall index value of 81.0 and was graded A along with runner-up Denmark. The Netherlands has also consistently held first or second place in 10 of the past 11 MMGPI reports.

The lowest sub-index scores went to Thailand for adequacy (35.8), Italy for sustainability (19.0) and Philippines for integrity (34.7).
Melbourne Mercer Global Pension Index

More improvements needed in Asia, including raising minimum age to access retirement savings

In Asia, Singapore was followed by Hong Kong SAR (14th globally) and Malaysia, which both received improved ratings of C+ from C- previously.

Apart from Hong Kong and Malaysia, Indonesia also achieved a C-grade (52.2).

The six systems graded D in Asia were China (48.7), India (45.8), Japan (48.3), Korea (49.8), as well as newcomers Philippines (43.7) and Thailand (39.4), which was also in last place globally.

When compared by region, Asia fell 10 points short of the global adequacy average of 50.3, and was also nine points below the global integrity average. The region was also 2.3 points below the global sustainability average of 50.4.

Li said in a statement that the region’s governments should continue to focus on “adequacy and integrity where we are falling short of the global average”, although retirement systems have shown improvement.

“We need to consider sustaining inter-generational retirement systems which do not put undue burden onto future generations,” she said.

While there are no one size fits all solutions to retirement systems, Li said that there are some common recommendations that the region’s governments should consider.

This includes “increasing the minimum level of support for our poorest aged individuals” to ensure that a portion of retirement benefits are taken as an income stream and raising the age at which older people can access their retirement savings, she added.

The “wealth effect” is causing more individuals to amass debt

This year’s MMGPI also studied the relation of pension assets to a phenomenon known as the “wealth effect” – the tendency for spending to increase with rising wealth.

According to MMGPI, there was also a strong correlation observed between the levels of pension assets and net household debt. As pension assets increase, individuals feel wealthier and are therefore more likely to borrow more, it said.

“The evidence suggests that on a global basis, for every extra dollar a person has in pension assets, their net household debt rises by just under 50 cents,” Dr. David Knox, author of the study, noted.

“It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future,” he said.

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