Malaysia gets a ‘C’ in Global Pension Index

KUALA LUMPUR: The Malaysian Global Pension Index, part of the Melbourne Mercer Global Pension Index (MMGPI), increased to 57.7 in 2017 from 55.7 in 2016 primarily due to the inclusion of the new economic growth question in the sustainability sub-index.

Malaysia scored a ‘C’ rating, signifying that it has a system that has some good features, but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned.

At 57.7, Malaysia is ahead of most Asian countries, but still with lots of room for improvement.

Commenting on Malaysia’s Global Pension Index score, Mercer Malaysia CEO Hash Piperdy said Malaysia has a strong pension infrastructure with some good features, however there are several major risks that should be addressed before the country can move up to a ‘B’ or even an ‘A’ rating. These improvements are vital for the longterm 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.

Malaysia’s retirement income system is based on the Employee Provident Fund (EPF), which covers all private sector employees and non-pensionable public sector employees. Under the EPF, some benefits are available to be withdrawn at any time with other benefits preserved for retirement.

The MMGPI states that the overall index value for the Malaysian system could be increased by; increasing the minimum level of support for the poorest aged individuals; raising the level of household saving; introducing a requirement that part of the retirement benefit must be taken as an income stream; increasing coverage of employees in occupational pension schemes thereby increasing the level of contributions and assets; increasing the pension age as life expectancy continues to increase and increasing the labour force participation rate at older ages as life expectancies rise.

Now measuring 30 countries and covering 60% of the world’s population, this year’s ninth edition of the MMGPI urges countries with unsustainable pension systems to take action now, rather than risk the need to take even more drastic action in the future.

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

In maintaining the integrity and relevance of the index, two new questions have been included, which has resulted in no country achieving the elusive ‘A’ grade. The first question addresses real economic growth in the sustainability sub-index, while the second question makes some allowance for voluntary pensions.

The MMGPI uses three subindices – adequacy, sustainability and integrity – to measure each country’s retirement income system against more than 40 indicators.