Malaysia scores C+ rating in 2019 Melbourne Mercer Global Pension Index

KUALA LUMPUR (Oct 21): Malaysia scored a C+ rating in the 2019 Melbourne Mercer Global Pension Index (MMGPI), as the country's index value increased from 58.5 in 2018 to 60.6 in 2019 largely due to updated data on the net replacement rate.

In a joint statement today, Mercer and Monash University Business School said Malaysia's index is on par with advanced economies like the United States and Hong Kong, adding that a relationship was found between level of pension assets and household debt.

They said a strong correlation exists between the levels of pension assets and net household debt, with the 2019 MMGPI documenting for the first time in an international study the "wealth effect", that is, the tendency for spending to increase with rising wealth — in relation to pension assets.

The MMGPI's data suggest that as pension assets increase, individuals feel wealthier and therefore are likely to borrow more. Malaysia achieved an index of 60.6, surpassing the average global index of 59.3.

Malaysia currently ranks 16th in the 2019 MMGPI, just behind Hong Kong as compared to 2018, when it was ranked 20.

Mercer Wealth Business Leader for Asia Janet Li said that with the improvement of Malaysia's index rating from C in 2018 to C+ this year, it was pleasing to see Malaysia's 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 proudly 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 with the recent Budget 2020 by the Malaysian government that more policies will be tabled to address this pressing issue," she said.

Li said Malaysia's retirement income system is based on the Employees Provident Fund (EPF), which covers all private sector employees and non-pensionable public sector employees.

She said under the EPF, some benefits are available to be withdrawn at any time (under pre-defined circumstances including education, home loans, or severe ill health) with other benefits preserved for retirement.

Li said 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 and lowering the level of household debt
• introducing a requirement that part of the retirement benefit must be taken as an income stream
• increasing the pension age as life expectancy continues to increase.

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