Malaysia surpassed the average global index of 59.3 and currently ranks 16th in the 2019 Melbourne Mercer Global Pension Index just behind Hong Kong as compared to 2018 where it was ranked 20. — Reuters photo
KUCHING: Malaysia scored an index of 60.6 on the 2019 Melbourne Mercer Global Pension Index (MMGPI) which suggests that a strong correlation exists between the levels of pension assets and net household debt.
The 2019 Melbourne Mercer Global Pension Index (MMGPI) documents 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 suggests as pension assets increase, individuals feel wealthier and therefore are likely to borrow more.
Malaysia surpassed the average global index of 59.3 and currently ranks 16th in the 2019 Melbourne Mercer Global Pension Index just behind Hong Kong as compared to 2018 where it was ranked 20.
Janet Li, Wealth Business Leader, Asia, Mercer said, “with the improvement of Malaysia’s index rating from C in 2018 to C+ this year, it’s particularly pleasing to see Malaysia’s excellent 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.”
The MMGPI, supported by the Victorian Government of Australia, is a collaborative research project between the Monash Centre for Financial Studies (MCFS) – a research centre based within Monash Business School at Monash University in Melbourne – and professional services firm, Mercer.
The Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 40 indicators.
Dr David Knox from Mercer, author of the study, said the growth in assets held by pension funds means households feel more financially secure in having future income from their nest egg, thereby allowing them to borrow funds prior to retirement to improve their current and future living standards.
“As the wealth of an individual grows, whether it be in home ownership, investment portfolios or their retirement savings, so does their comfort with amassing debt.
“The evidence suggests on a global basis, for every extra dollar a person has in pension assets, their net household debt rises by just under 50 cents,” Dr Knox said.
The Index compares 37 retirement systems across the globe and covers almost two-thirds of the world’s population. It highlights the broad spectrum and diversity of the world’s pension systems, demonstrating even the world’s best systems have shortcomings. The 2019 Index includes three new systems – Philippines, Thailand and Turkey.
While each pension system has a unique set of circumstances, the report makes clear there are common improvements which can be made to the challenges all regions are facing.
“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens. It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future,” said Dr Knox.
The 2019 Index takes a new approach to calculate the net replacement rate, that is, the level of retirement income provided to replace the previous level of employment earnings.
While most previous Index reports have calculated a net replacement rate based on the median income earner, the current report uses a range of income levels based on the Organisation for Economic Co-operation and Development data to represent a broader group of retirees.
Measuring the likelihood a current system will be able to provide benefits into the future, the sustainability sub-index continues to highlight the weakness of many systems.
In particular, the sustainability issue of many South American and Asian systems has been confirmed with an average sustainability grade of D. For example, although Chile achieves a strong 71.7 in this sub-index, Brazil and Argentina scored 27.7 and 31.9, respectively. Similarly, in Asia, while Singapore achieves 59.7, Japan scored only 32.2.
However, this issue is not restricted to developing economies. Many European economies face similar pressures. Although Denmark achieves the highest score for the sustainability sub-index at 82.0, Italy and Austria scored only 19.0 and 22.9, respectively.