This article first appeared in The Edge Financial Daily on October 24, 2017

KUALA LUMPUR: Malaysia has retained its C rating in this year’s Melbourne Mercer Global Pension Index (MMGPI), ahead of most Asian countries, but still with lots of room for improvement.

According to Mercer, Malaysia’s overall index value saw an increase from last year’s 55.7 points to this year’s 57.7 points.

“Countries that have seen a significant improvement in their index value are those which have had high real economic growth during the last three years and where this is projected to continue during the next three years. These include China, India, Indonesia, Ireland and Malaysia,” it said in a statement yesterday.

Mercer Malaysia chief executive officer Hash Piperdy said Malaysia has a strong pension infrastructure with some good features.

“However, there are several major risks that should be addressed before we can move up to a B or even an A rating. These improvements are vital for the long-term sustainability and efficacy of the system.

“The public sector pension system will only get more expensive over time, and there are still far too many Malaysians without access to any form of pension savings. There should be a minimum level of support for the poorest individuals, and greater incentives for employers and other industry and community groups to set up private retirement schemes,” he added.

This year, 30 countries were measured in the MMGPI, covering 60% of the world’s population, all of which obtained an index value based on more than 40 indicators and three sub-indices: adequacy, sustainability and integrity. Each index value represents a score between zero and 100.

Jacques Goulet, president of health and wealth at Mercer, said the need for countries to that part of the retirement benefit is taken as an income stream address sustainability when considering pension reform.

“Increasing life expectancies and low investment returns are having significant long-term impacts on the ability of many systems around the world to deliver adequate retirement benefits both now and into the future,” he said.

“These pressures have alerted policymakers to the growing importance of intergenerational equity issues,” Goulet added, pointing to Japan, Austria, Italy, and France as examples of developed economies whose pension systems don’t represent a sustainable model that will support current and future generations in their old age.

“This is due to a combination of factors including a lack of assets set aside for the future, low labour force participation at older ages, and significant demographic changes towards an ageing population,” he said. “If left unchanged, these systems will create societal pressures where pension benefits are not distributed equally between generations.”

Dr David Knox, author of the report and senior partner at Mercer, said it is not all doom and gloom; every country can be taking action now to move towards a better pension system.

“The primary objective of the index is to benchmark each country’s retirement income system so we can learn to understand what best practice may look like, both now and into the future,” he said.

“From our research, it is clear which countries are leading the way in providing sustainable pension systems with adequate benefits and what others can learn from them to improve. Denmark, the Netherlands and Australia are three such countries which, while taking different approaches depending on their starting points, adopt a strong multi-pillar approach as highlighted in the index,” said Knox.

This year’s index revealed that Denmark, in its sixth year running, has retained the top position with an overall score of 78.9, ahead of the Netherlands and Australia at 78.8 and 77.1 respectively.

“The index is an important reference for policymakers around the world to learn from the most adequate and sustainable systems,” said Knox. “We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”

The MMGPI is published by the Australian Centre for Financial Studies, in collaboration with Mercer and the Victoria state government.