Malaysia Scores a C in Global Pension Index. What Does That Mean for Your Future?
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When it comes to old age, financial security is a major priority. Malaysians are having trouble to even afford retirement. However, Malaysia is not alone in this problem as retirement income systems worldwide are under pressure.
Leading global professional services firm, Mercer has just launched its annual Melbourne Mercer Global Pension Index (MMGPI). This index reveals how 34 countries are preparing for the future’s ageing world.
Source: Mercer
Netherland and Denmark leads the index, both offering first class retirement income system with good benefits. Malaysia ends up with C rating, ahead of South Korea and Japan, but behind Singapore.
However with Malaysia scoring 58.5 on the index, Hash Piperdy, CEO of Mercer Malaysia, said “Malaysia’s sustainability score has decreased from 61.2 to 60.5, based on the index. There still exists a gap which poses risks in terms of the long-term sustainability in the system due to the ageing population, and the need to address it is crucial as there are still many Malaysians without sufficient pension savings on top of the Employees Provident Fund.
“It is high time for industry and community groups to look into Private Retirement Schemes (PRS) and other ways to boost long term savings more seriously,” he said in a statement.
Source: Mercer
Employee Provident Fund (EPF) remains as Malaysia’s main retirement income system. EPF 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 Under the EPF, some benefits are available to be withdrawn at any time with other benefits preserved for retirement.
Mercer indicates that the overall index value for the Malaysian system can be raised by:
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Raising the minimum support level for the poorest aged individuals
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Increasing the level of household saving and decreasing the level of household debt
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Propose a requirement that part of the retirement benefit must be taken as an income stream
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Raising the pension age as life expectancy continues to increase.
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Increasing the labour force participation rate at older ages as life expectancies rise.
- Increasing coverage of employees in occupational pension schemes thereby increasing the level of contributions and assets.
Source: Mercer
Author of the research and Senior Partner at Mercer Australia Dr David Knox said the natural starting place to having a world class pension system is ensuring the perfect harmony between adequacy and sustainability.
The president of Mercer International David Anderson said it was the right way to see governments handle pension reform as life expectancies continue to increase.
“Developed economies have been aware of the demographic challenges facing their pension systems for some time. Where economies are less developed, it’s pleasing to see many governments recognising the same trends emerging in their own populations and taking steps now to address this.
“Such actions make future pension systems more sustainable over the longer term,” he said.
The Index uses three sub-indices: adequacy, sustainability and integrity. These sub-indices measure each retirement income system against more than 40 indicators. Each index value represents a score between zero and 100.
The Netherlands and Denmark have scored 80.3 and 80.2 respectively. Denmark previously led the ranking for 7 years until the Netherlands take over this year.