Malaysia moves up in global pension index

Ranking improves to 16th from 20th last year

KUALA LUMPUR: Malaysia moved up in the 2019 Melbourne Mercer Global Pension Index to C+ from C as pension assets increase and individuals feel wealthier, hence they are likely to borrow more.

Malaysia achieved an index of 60.6 surpassing the average global index of 59.3. The country currently ranks 16th in the index, just behind Hong Kong, compared to a ranking of 20th last year, ” it said in a statement.

The report said a strong correlation exists between the levels of pension assets and net household debt, with the 2019 pension index documenting for the first time in an international study on the

“wealth effect”, that is the tendency for spending to increase with rising wealth – in relation to pension assets.

Janet Li, wealth business leader, Asia, Mercer said with the improvement of Malaysia’s index rating from C last year to C+ this year, “it’s particularly pleasing to see Malaysia’s excellent rating in the sustainability and integrity sub-indices”.

Both values are above the global average which are 51.3 and 71.7 for 2019. Malaysia scored 60.5 and 76.9 respectively.

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

Malaysia’s retirement income system is based on the Employees Provident Fund (EPF). Under the EPF, some benefits are available for withdrawal at any time (under pre-defined circumstances including education, home loans, or severe ill health) with other benefits preserved for retirement.

The overall index value for the Malaysian system could be increased by four methods:

> Raising the minimum level of support for the poorest aged individuals;

> Raising the level of household saving and lowering the level of household debt;

> Introducing a requirement that part of the retirement benefit must be taken as an income stream; and

> Increasing the pension age as life expectancy continues to increase.

The Malaysian index increased in value from 58.5 in 2018 to 60.6 in 2019 primarily due to the updated data on the net replacement rate published by the OECD.