Global Pension Index 2021: Malaysia goes from C+ to C with slight drop in overall index value


  • 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
  • Malaysia’s overall index value dropped to 59.6 garnering a C-grade this year
  • 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

Malaysia, October 19, 2021 – Malaysia’s retirement system has been 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 13th annual Mercer CFA Institute Global Pension Index (MCGPI)[1], a study of 43 retirement income systems across the globe, which measures each retirement system through three weighted sub-indices (adequacy, sustainability and integrity) includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

Of the three sub-indices measured in the 2021 Global Pension 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 for the sustainability sub-index, which measures the likelihood of the system’s ability to provide benefits in the future; 20th for integrity, where factors which affect the 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.

 

Janet Li, Mercer’s Wealth Business Leader for Asia, said: “It is encouraging that Malaysia continued to achieve scores that were well above the Asia average in each of the three sub-indices. 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 labor force participation rate, especially at older ages. If Malaysia can also raise the level of household savings and lower the level of household debt, it will help boost both the adequacy and sustainability scores, and eventually the overall index value for its retirement system.”

 

Justin Ong, CFA, President of CFA Society Malaysia, said, “The ongoing COVID-19 pandemic has 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 amongst Malaysians.”

 

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.

 

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.

 

The World Economic Forum’s 2021 Global Gender Gap report showed widening gender gaps in economic participation and opportunity for Malaysia. The income gap remains large with only 61.9% closed so far, only 55.5% of working-age women are in the country’s workforce and the share of women in senior roles is 23.3%, which shows that access to high levels of decision making and good employment opportunities are limited for women. As a result, Malaysia only ranked 112th among 156 countries, with 67.6% of its overall gender gap closed to date.

 

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.

 

Ms Li, added, “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. 

About CFA Society Malaysia

CFA Society Malaysia is an association of local investment professionals. As one of CFA Institute’s member societies, our society connects members to a global network of investment professionals. CFA Society Malaysia has a network of more than 800 members, 1,800 CFA Program candidates, 11 Affiliated Universities and 10 Recognized Employer Partners. We promote ethical and professional standards within the investment industry, encourage professional development through the CFA Program and continuing education, facilitate the exchange of information and opinions among people within the local investment community and beyond, and work to further the public’s understanding of the CFA designation and investment industry. For more information, visit https://www.cfasociety.org/malaysia/Pages/default.aspx

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