Global Pension Index 2021: Indonesia ranked sixth among Asian retirement income systems


  • Asia’s retirement systems continue to lag the world’s as the overall index value average of 52.2 trails the global average of 61
  • Indonesia’s overall index value dropped to 50.4 but maintains its C-grade
  • Iceland named the world’s best in its debut, closely followed by the Netherlands and Denmark
  • Urgent reform needed as pandemic widens gender pension gap in Asia and the world

Indonesia, October 20, 2021 – Indonesia’s retirement income system has been ranked sixth in Asia and 35th overall by the 13th annual Mercer CFA Institute Global Pension Index (MCGPI)[1], a study of 43 retirement income systems across the globe. The 2021 Global Pension Index which measures each retirement system through three weighted sub-indices (adequacy, sustainability and integrity) includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

Indonesia’s overall index value dropped marginally from 51.4 in 2020 to 50.4 in 2021, due to a fall in the country’s real economic growth rate. For each sub-index, the Indonesian retirement system scored highest for integrity (69.2), where the country posted a higher mark than the Asia average at 63.8, followed by adequacy (44.7) and sustainability (43.6).

 

The country is ranked 29th for the integrity sub-index, which looks at factors which affect the citizens’ confidence level in the system; 30th for sustainability, which measures the likelihood of the system’s ability to provide benefits in the future; and 37th for the adequacy sub-index, which considers how the country’s system is designed to provide adequate retirement benefits.

 

Jovita Sadrach, Mercer’s Wealth Business Leader in Indonesia, said: “Indonesia scored well above the Asia average for integrity but falls behind the rest of Asia in both sustainability and adequacy. With the introduction of new regulations like the Omnibus Law and Government Regulation No. 35 that have reduced the overall retirement benefits for employees, there needs to be a thorough review of the country’s public and private pension schemes to protect employees’ retirement well-being. In addition, more can be done to boost Indonesia’s score such as increasing the pension age as life expectancy continues to rise, as well as improving the level of communication to provide better pre-retirement support and education to members of pension arrangements.”

 

Representative of CFA Society Indonesia, Siti Rakhmawati, said, “Some challenges may arise in Indonesia as declining interest rates raises questions on pension fund investment strategies, longer life expectancies increases longevity risk, and we see a shift from defined benefits to defined contributions plans. Adequate and reliable annuity products are also currently unavailable to ensure a sustainable income during retirement. The gender pension gap presents additional and urgent considerations. All of these require political will from policymakers and industry stakeholders to take collective action. The Fiscal Policy Agency’s draft of the Constitution Plan on the Development and Reinforcement of Financial Sector, especially for pension funds, is expected to be a catalyst for pension system transformation.”

 

Indonesia’s maintained its “C” rating, connoting a pension system that has some good features, but also major risks or shortcomings that should be addressed. The Indonesian system achieved the same grade as a number of Asian economies like China, Malaysia and Taiwan.

 

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

 

Globally, Iceland’s retirement income system (84.2) has been 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).

 

Gender differences in pension outcomes

 

This year’s study also underscored the need for urgent reform to reduce the gender pension gap – an issue inherent in every system.

 

Across the Organisation for Economic Co-operation and Development (OECD) member countries, the gender pension gap or difference in retirement income that men and women receive, averages 26%, with the gap ranging from 3% in Estonia to 50% in Japan[2]. The MCGPI’s analysis highlighted that the causes of the gender pension gap are multifold with employment-related, pension design and socio-cultural issues contributing to women being far more disadvantaged than men when it comes to retirement income.

 

Indonesia has made considerable progress toward gender equality over the past decade, but data from the World Economic Forum’s 2021 Global Gender Gap report showed widening gender gaps in economic participation and opportunity. The income gap remains large with only 51.7% closed so far and the labor participation rate for women is only 56% compared to 84.1% for men. These figures do not take into account the estimated 56% - or around 74 million people – who work in the informal sector. Women are particularly vulnerable because 81.8% of female employment in the country is in the informal sector, compared to 79.4% of male workers.

 

While employment issues are major contributors and are well known – more female part-time workers, periods out of the workforce for caring responsibilities and lower average salaries, for example – the 2021 Global Pension Index found that pension design flaws were aggravating the issue. This includes non-mandatory accrual of pension benefits during parental leave, absence of pension credits while caring for young children or elderly parents in most systems, and the lack of indexation of pensions during retirement, which have a larger impact on women due to longer life expectancy.

 

Janet Li, Mercer’s Wealth Business Leader for Asia, said, “Closing the gender pension gap needs to be a multi-stakeholder undertaking, from employers playing an active role to ensure gender equity in pay, to individuals taking initiatives improving their financial literacy. Our study shows that failure to address the gender retirement savings gap will have long-term costs for businesses, particularly in their ability to attract and retain talent, as well as for society. We need to act now and urgently.

 

“The pension industry can take the lead by removing eligibility restrictions for individuals to join employment-related pension arrangements. This could be expanded to include part-time or informal workers, who represent a large population of working women in Asia. Credits for those caring for the young and the old could also be introduced to ensure that individuals who have had to take time out of the formal workforce due to caregiving responsibilities are not left behind.”

 

[1] The MCGPI is a comprehensive study of global pension systems, accounting for two-thirds (65 per cent) of the world’s population. It benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits

[2] Towards Improved Retirement Savings Outcomes for Women, March 2021, OECD

2021 Mercer CFA Institute Global Pension Index

System

Overall index value

Sub-index values

Adequacy

Sustainability

Integrity

 Argentina (42)

41.5

52.7

27.7

43.0

 Australia (6)

75.0

67.4

75.7

86.3

 Austria (33)

53.0

65.3

23.5

74.5

 Belgium (17)

64.5

74.9

36.3

87.4

 Brazil (30)

54.7

71.2

24.1

71.2

 Canada (12)

69.8

69.0

65.7

76.7

 Chile (16)

67.0

57.6

68.8

79.3

 China (28)

55.1

62.6

43.5

59.4

 Colombia (25)

58.4

62.0

46.2

69.8

 Denmark (3)

82.0

81.1

83.5

81.4

 Finland (7)

73.3

71.4

61.5

93.1

 France (21)

60.5

79.1

41.8

56.8

 Germany (14)

67.9

79.3

45.4

81.2

 Hong Kong SAR (18)

61.8

55.1

51.1

87.7

 Iceland (1)

84.2

82.7

84.6

86.0

 India (40)

43.3

33.5

41.8

61.0

 Indonesia (35)

50.4

44.7

43.6

69.2

 Ireland (13)

68.3

78.0

47.4

82.1

 Israel (4)

77.1

73.6

76.1

83.9

 Italy (32)

53.4

68.2

21.3

74.9

 Japan (36)

49.8

52.9

37.5

61.9

 Korea (38)

48.3

43.4

52.7

50.0

 Malaysia (23)

59.6

50.6

57.5

76.8

 Mexico (37)

49.0

47.3

54.7

43.8

 Netherlands (2)

83.5

82.3

81.6

87.9

 New Zealand (15)

67.4

61.8

62.5

83.2

 Norway (5)

75.2

81.2

57.4

90.2

 Peru (29)

55.0

58.8

44.2

64.1

 Philippines (41)

42.7

38.9

52.5

35.0

 Poland (27)

55.2

60.9

41.3

65.6

 Saudi Arabia (26)

58.1

61.7

50.9

62.5

 Singapore (10)

70.7

73.5

59.8

81.5

 South Africa (31)

53.6

44.3

46.5

78.5

 Spain (24)

58.6

72.9

28.1

78.3

 Sweden (8)

72.9

67.8

73.7

80.0

 Switzerland (11)

70.0

65.4

67.2

81.3

 Taiwan (34)

51.8

40.8

51.9

69.3

 Thailand (43)

40.6

35.2

40.0

50.0

 Turkey (39)

45.8

47.7

28.6

66.7

 UAE (22)

59.6

59.7

50.2

72.6

 UK (9)

71.6

73.9

59.8

84.4

 Uruguay (20)

60.7

62.1

49.2

74.4

 USA (19)

61.4

60.9

63.6

59.2

Average

61.0

62.2

51.7

72.1

 


About the Mercer CFA Institute Global Pension Index

The Global Pension Index benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

 

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

 

This year, the Global Pension Index compares 43 retirement income systems across the globe and covers two-thirds (65 per cent) of the world’s population. The 2021 Global Pension Index includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.

 

For more information about the Mercer CFA Institute Global Pension Index, click here.

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 78,000 colleagues and annual revenue of over $18 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

About CFA Institute 

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 175,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on Linkedin and Twitter at @CFAInstitute

About the Monash Centre for Financial Studies (MCFS)

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption. 

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