Malaysia's Pension System Ranked 12th in Asia

Malaysia’s pension system is ranked 12th in Asia and 61st globally, according to Allianz’s first edition of its Global Pension Report.

The report takes the pulse of pension systems around the world with its proprietary pension indicator, the Allianz Pension Indicator (API)

The API is based on three pillars

1. The first pillar combines demographic change and the public financial situation (financial leeway). 

2. The second pillar is sustainability, measuring how systems react to demographic change. 

3. The third pillar rates the adequacy of a pension system, questioning whether it provides a satisfactory standard of living in old age.

The indicator follows a simple procedure:

1. It starts the analysis with the demographic and fiscal prerequisites and then continues to examine pension systems along their two decisive dimensions: 

   • sustainability 

   • adequacy. 

2. It is then based on three pillars and takes all in all 30 parameters into account, which are rated on a scale of 1 to 7 (1 being the best grade). 

3. By adding up all weighted subtotals, the API assigns each of the analysed 70 countries a grade from 1 to 7, thus providing a comprehensive look of the individual pension system.

Room for improvement

Malaysia's pension system is still lagging when it comes to sustainability, according to Allianz. This is because the country has not introduced any measures that link the retirement age or the benefit ratio to the increasing life expectancy of its population. 

"This might be owed to the circumstance that Malaysia, with its young society, is still very well positioned in terms of financial leeway and demographic change – actually ranking fifth in this API - exempting it from any immediate reform pressure.

"With respect to adequacy, Malaysia's ranking also only in the lower third," it said in a statement today.

Apart from it, Allianz said even though the existence of a compulsory capital-funded saving scheme for individuals who worked in the private sector, the Employee Provident Fund (EPF), pension coverage is still quite low.

EPF manages the compulsory savings plan and retirement planning for private sector workers in Malaysia.

Moreover, according to Allianz, Malaysia's pension system could still be improved when it comes to financial accessibility and financial literacy.

Concerning the level of private household’s net financial assets compared to gross domestic product (GDP), Malaysia’s ranking is only at mid-field. This was despite the government’s efforts to raise the awareness of the need for private old-age provision in recent years.

"Against the background that other countries in the region like Indonesia with similar favourable demographic and financial conditions have already stepped up their reform efforts, Malaysia should reconsider its reform approach as long as there is still room to manoeuvre," it added.

Source: New Straits TImes

Are You Short on Staff? Reach four millions of job seekers on Maukerja, Ricebowl, LinkedIn, and more when you post a job on AJobThing.com Register today!