Malaysia's Pension System is Third Best in Asia

Malaysia's retirement system was placed third in Asia and 23rd globally in the 13th annual Mercer CFA Institute Global Pension Index (MCGPI), despite a modest decline in the overall index value from 60.1 in 2020 to 59.6 this year.

The study of 43 retirement income systems worldwide, which evaluates each system based on three weighted sub-indices (adequacy, sustainability, and integrity), now adds four new systems: Iceland, Taiwan, the United Arab Emirates, and Uruguay.

Malaysia improved its adequacy score to 50.6 this year, the highest of the three sub-indices included in the 2021 Global Pension Index. According to the report, the country ranked highest in integrity (76.8), followed by sustainability (57.5) and adequacy.

Malaysia is ranked:

• 15th in the sustainability sub-index, which assesses the system's ability to provide benefits in the future; 

• 20th in the integrity sub-index, which considers factors affecting citizens' confidence in the retirement system; and 

• 34th in the adequacy sub-index, which assesses the country's system's design to provide adequate retirement benefits.

Malaysia's outperforming other Asian countries

Mercer's Wealth Business Leader for Asia, Janet Li, said that it is encouraging that Malaysia continued to outperform the Asia average in each of the three sub-indices. 

As life expectancy increases, the government can consider strategies to raise both the minimal level of support available to the poorest retirees and the labour force participation rate, particularly among the elderly.

She added that if Malaysia can also increase household savings and reduce household debt, it will help boost both the adequacy and sustainability scores and, ultimately, the total index value for its retirement system.

President of the CFA Society of Malaysia, Justin Ong, said that the Covid-19 pandemic has made it even more difficult for Malaysians to retire comfortably. 

According to him, less for more is a global trend, with low interest rates and rising life expectancy putting unprecedented strain on public and private pension systems worldwide. In Malaysia, the problem is aggravated further by Malaysians' lack of financial awareness.

Malaysia's pension system downgraded

Malaysia's pension system was downgraded from a C+ to a C grade this year, indicating that it has some positive characteristics and significant risks or deficiencies that should be addressed. Malaysia's economic structure earned the same rating as several other Asian economies, including China, Indonesia, and Taiwan.

Additionally, the 2021 Global Pension Index discovered that Asia's retirement systems continue to fall behind the rest of the world. Asia's average index value was 52.2, compared to the global average of 61.

Iceland's retirement income scheme (84.2) was named the finest in the world in its debut, followed by the Netherlands (83.5) and Denmark (83.5). (82).

Iceland's adequacy (82.7) and sustainability (84.6) scores were the highest, while Finland's integrity score was the lowest (93.1). India had the lowest values across all sub-indices (33.5), Italy had the lowest value for sustainability (21.3), and the Philippines had the lowest score for integrity (35.0).

The Global Pension Index is a collaborative research project sponsored by the CFA Institute, the world's largest association of investment professionals, in collaboration with the Monash Centre for Financial Studies, a unit of Monash University's Monash Business School, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

Source: Bernama

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