Malaysia’s retirement system once again ranked third in Asia despite drop in index value

As life expectancy continues to rise, the government can look at ways to increase the minimum level of support for the poorest retirees as well as the labour force participation rate, especially at older ages, said Janet Li, Mercer’s wealth business leader for Asia. (Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

As life expectancy continues to rise, the government can look at ways to increase the minimum level of support for the poorest retirees as well as the labour force participation rate, especially at older ages, said Janet Li, Mercer’s wealth business leader for Asia. (Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

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KUALA LUMPUR (Oct 19): Malaysia’s retirement system is ranked third in Asia and 23rd globally despite a slight decrease in the country’s overall index value from 60.1 in 2020 to 59.6 in 2021.

This is according to the Mercer CFA Institute 2021 Global Pension Index, a study of 43 retirement income systems across the globe, which measures each retirement system through three weighted sub-indices (adequacy, sustainability and integrity).

In the 2020 ranking, Malaysia was also the third among Asian retirement systems and 19th among 39 retirement income systems worldwide.

Of the three sub-indices measured in the 2021 index, Malaysia saw an improvement in its adequacy score to 50.6 this year. The country scored highest for integrity (76.8), followed by sustainability (57.5) and adequacy.

Malaysia is ranked 15th in the sustainability sub-index, which measures the likelihood of the system’s ability to provide benefits in the future; 20th for integrity, where factors affecting citizens’ confidence in the retirement system are considered; and 34th for adequacy, which considers how the country’s system is designed to provide adequate retirement benefits.

“Malaysia went from a C+ rating to a C- grade this year, connoting a pension system that has some good features, but also major risks or shortcomings that should be addressed.

“The Malaysian system achieved the same grade as a number of other Asian economies like China, Indonesia and Taiwan,” said Mercer in a statement on Tuesday.

“It is encouraging that Malaysia continued to achieve scores that were well above the Asian average in each of the three sub-indices,” Janet Li, Mercer’s wealth business leader for Asia, said in the statement.

As life expectancy continues to rise, the government can look at ways to increase the minimum level of support for the poorest retirees as well as the labour force participation rate, especially at older ages, said Li.

“If Malaysia can also raise the level of household savings and lower the level of household debt, it will help boost both its adequacy and sustainability scores, and eventually the overall index value of its retirement system,” she added.

Justin Ong, the president of CFA Society Malaysia, said the Covid-19 pandemic had made it even harder for Malaysians to retire peacefully.

“Less for more is a global trend, where low interest rates and an increasing life expectancy have put unprecedented pressure on both public and private pension systems around the world.

“In Malaysia, the issue is further exacerbated by inadequate financial literacy among Malaysians,” Ong said.

The 2021 Global Pension Index also found that Asia’s retirement systems continued to lag the world’s. Asia’s overall index value average was 52.2 — against the global average of 61. 

Globally, Iceland’s retirement income system (84.2) was named the world’s best in its debut, closely followed by the Netherlands (83.5) and Denmark (82). 

For each sub-index, the systems with the highest values were Iceland for adequacy (82.7), Iceland for sustainability (84.6) and Finland for integrity (93.1). The systems with the lowest values across the sub-indices were India for adequacy (33.5), Italy for sustainability (21.3) and the Philippines for integrity (35.0).

S Kanagaraju