KUALA LUMPUR: Malaysia's retirement income system ranked third in Asia with C+ grade and placed 19th overall according to Mercer CFA Institute Global Pension Index 2020.
The index, which measures each retirement system through three sub-indices (sustainability, adequacy and integrity) studied 39 retirement income systems worldwide covering almost two-thirds of the world's population.
The report highlighted that Malaysia's overall index value had fallen slightly, from 60.6 in 2019 to 60.1 in 2020, due to several small movements in the sustainability sub-index.
Of the study's three sub-indexes, Malaysia scored highest for integrity (78), followed by sustainability (58.6), and adequacy (50.1). The global average sits at 71.3 for integrity, 50 for sustainability and 60.8 for adequacy.
Malaysia is ranked 13th for sustainability which measures the likelihood a system will be able to provide benefits into the future, 18th for integrity which considers factors such as regulation, governance, communication and operating costs, and 31st for adequacy which looks at benefits, system design, levels of savings, and home ownership among others to determine its ability to provide adequate retirement income.
Mercer Asia Wealth Business Leader Janet Li said Malaysia continued to rank above the global average for integrity and sustainability.
"The overall index value for the Malaysian system could be improved by increasing the minimum level of support for the poorest aged individuals as well as raising the level of household saving and lowering the level of household debt," she said in a statement today.
She said as life expectancy increases, the pension age should also be raised, while a requirement for retirement benefit must be taken as an income stream should also be considered.
"Malaysia retained its C+ grade, connoting a pension system that has some good features, but also major risks or shortcomings that should be addressed.
"Malaysia was awarded the same grade as a number of developed economies such as Hong Kong, France and the United States," Li said.
Mercer also revealed that the widespread economic impact of Covid-19 was heightening the financial pressures which retirees face, both now and in the future.
Coupled with increasing life expectancies and the rising pressure on public resources to support the health and welfare of ageing populations, it said Covid-19 was exacerbating retirement insecurity.
It noted that the average sustainability score dropped by 1.2 in 2020 due to the negative economic growth experienced in most economies due to Covid-19.
Mercer senior partner and lead author Dr David Knox said the economic recession caused by the global health crisis had led to reduced pension contributions, lower investment returns and higher government debt in most countries.
"Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement
"It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees," he said.
Even before Covid-19, many public and private pension systems globally were under increasing pressure to maintain benefits, said CFA Institute president and chief executive officer Margaret Franklin.
"We have learned a lot about the effectiveness of pension systems over the years, and while there is no single pension system model that will work for every country, the Global Pension Index provides comparative information to differentiate what is possible and practical in each market," she said.