In Asia, Singapore retains top spot while Japan and Malaysia are most improved retirement income systems: Mercer CFA Institute Global Pension Index 

  • Singapore is the top Asian retirement income system, followed by Hong Kong SAR and Malaysia
  • Iceland tops the list for second year in a row, followed by the Netherlands and Denmark respectively
  • Index compares 44 retirement income systems, covering 65 percent of the world’s population
  • As more employers shift from defined benefit to defined contribution plans, retirees will take on greater financial risks

ASIA, October 11, 2022 – Singapore’s retirement system retains its top spot in Asia, ranking 9th out of 44 retirement systems reviewed in the 14th annual Mercer CFA Institute Global Pension Index (MCGPI). Hong Kong SAR and Malaysia round out the top three in the region, while ranking 19th and 23rd, respectively, against their global peers.

The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 percent 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 help provide more adequate and sustainable retirement benefits.

The 2022 MCGPI, which features Portugal as a new addition, measures each retirement system through three sub-indices: sustainability, adequacy and integrity. This year, a thorough review1 of the scoring criteria was also undertaken to improve its integrity and remove any unintended biases that may be present.

While Singapore (74.1) saw a slight dip in its overall index value in 2021, it bounced back this year due mainly to the revised scoring matrix and an increase in net replacement rates. Most retirement income systems in Asia saw overall improvements except for Mainland China (54.5), Indonesia (49.2) and the Philippines (42).

In Asia, Malaysia (63.1) and Japan (54.5) were the most improved systems with the former jumping from C to a C+ and the latter earning a C, up from its D in 2021. Aside from the revised scoring matrix, Malaysia’s increase was also due mainly to higher net replacement rates, while Japan had a revised approach relating to pension plan coverage.

Korea (51.1) was also upgraded to a C, with Hong Kong SAR (64.7), India (44.4), and Taiwan (52.9) also faring better than the year before. Thailand (41.7) still has the lowest index value globally but is showing steady progress. (Please refer to the Appendix for more details of the various systems across Asia.)

Despite progress made over the years, Asia’s retirement systems continue to lag the world with the region’s average overall index value of 53.8, falling behind the global average of 63.

Janet Li, Asia Wealth Business Leader, Mercer, said, “The economic impact of the pandemic, as well as a volatile geopolitical landscape, has led to the readjustment of priorities for not just Asian markets but the world in general. While Asia still lags the global average in the overall index value, we are seeing positive year-on-year improvements for most of the markets. That said, the challenges of longevity will persist indefinitely. Hence, governments cannot afford to put refining and improving their retirement systems on the back burner, but must prioritize and take action promptly.”

Nick Pollard, Managing Director, Asia Pacific, CFA Institute, said, “A challenging near-term outlook, largely driven by sharply higher prices, rising interest rates, currency depreciation, and capital outflows, is hitting Asia’s development at a time when many of the markets here, especially developing markets, are trying to reverse the impact of the pandemic. Longer term, Asia, and the rest of the world, face the risk that these trends persist and become a new normal. As such, there is no market in Asia that doesn’t need urgent pension reforms, and policymakers and industry stakeholders need to take collective action to ensure the adequacy of pension balance sheets and the sustainability of retirement benefits.”

Globally, Iceland’s retirement income system (84.7) has topped the list for the second time in a row, with the Netherlands (84.6) and Denmark (82) retaining second and third places, respectively.

The shift to defined contribution (DC) increases uncertainty for retirees

As employers continue to step away from the financial security which has been offered in DB plans, individuals bear the risks and opportunities before and after retirement. Unlike DB plans where an individual receives a pre-defined sum of pension benefits upon retiring, typically DC plans provide individuals with an amount accumulated in their accounts at retirement. Additionally, many governments are considering more efficient use of their budgets for broader economic impact and may impact the level of social benefits to ensure the country’s financial sustainability over the longer term.

The result is that many individuals are more exposed to potential shortcomings in financial support post-retirement. Therefore, it is essential individuals make the appropriate financial decisions during accumulation and de-cumulation stages to maximize the time value of money. Just as diversification is a key part to any investment scheme, individuals may also seek to diversify their retirement savings between regular income, appropriate protection and access to capital, as well as different sources of financial support including government, private pensions and individual savings.

Ms Li added, “The shift from DB to DC has been a trend in Asia throughout the last decade. Many markets are in the process of — or planning for — active reforms in their pension system design to combat longevity risk. While COVID-19 and political changes may have caused some delays, DB remains on track to become the dominant plan structure. We expect to see more formalized DC contributory arrangements across the region either through mandatory contribution requirements, incentives for additional voluntary contributions, or both. Broad-based financial education and appropriate product design will empower individuals to make better decisions concerning their retirement savings.”

By the numbers

The MCGPI uses the weighted average of the sub-indices of adequacy, sustainability, and integrity. For adequacy, which considers the benefits provided to the poor and a range of income earners as well as several design features and characteristics which enhance the efficacy of the overall retirement income system, the systems in Asia with the highest and lowest values were Singapore (77.3) and India (37.6) respectively.

In Asia, Singapore also had the highest value (65.4) for sustainability, which considers a number of indicators that influence the long-term sustainability of current systems like the labor force participation rate of the older population and the level of real economic growth. Thailand had the lowest value (36.4).

For integrity, which considers three broad areas of the pension system, namely regulation and governance, protection and communication for members, and operating costs, Hong Kong SAR had the highest value (87.6) with the Philippines’ retirement income system scoring the lowest (30.0) in Asia and globally.

In comparison to 2021, Mexico showed the most improvement as a result of pension reform, which improved outcomes for individuals and bolstered pension regulation.

2022 Mercer CFA Institute Global Pension Index

System

Overall Grade

Overall Score

Adequacy

Sustainability

Integrity

Iceland

A

84.7

85.8

83.8

84.4

Netherlands

A

84.6

84.9

81.9

87.8

Denmark

A

82.0

81.4

82.5

82.1

Israel

B+

79.8

75.7

81.9

83.2

Finland

B+

77.2

77.5

65.3

93.3

Australia

B+

76.8

70.2

77.2

86.8

Norway

B+

75.3

79.0

60.4

90.3

Sweden

B

74.6

70.6

75.7

79.5

Singapore (9)

B

74.1

77.3

65.4

81.0

UK

B

73.7

76.5

63.9

83.0

Switzerland

B

72.3

68.7

70.5

80.7

Uruguay

B

71.5

84.5

50.6

79.8

Canada

B

70.6

70.8

64.7

78.6

Ireland

B

70.0

75.9

53.5

83.7

New Zealand

B

68.8

64.0

64.7

82.1

Chile

B

68.3

60.0

70.3

78.9

Germany

B

67.9

80.5

44.3

80.9

Belgium

B

67.9

80.8

39.1

87.5

Hong Kong SAR (19)

C+

64.7

61.5

52.1

87.6

USA

C+

63.9

67.5

61.2

61.7

Colombia

C+

63.2

65.2

55.3

71.3

France

C+

63.2

84.6

40.9

60.1

Malaysia (23)

C+

63.1

57.2

60.2

76.9

Portugal

C+

62.8

84.9

29.7

73.9

UAE

C+

61.8

63.8

51.9

72.6

Spain

C+

61.8

80.0

28.7

78.9

Saudi Arabia

C

59.2

61.4

54.3

62.5

Poland

C

57.5

59.5

45.4

71.2

Mexico

C

56.1

63.1

57.1

43.6

Peru

C

55.8

54.7

51.5

63.7

Brazil

C

55.8

71.1

27.8

70.5

Italy

C

55.7

72.3

23.1

74.7

Austria

C

55.0

69.8

22.7

76.5

South Africa

C

54.7

44.2

49.7

78.4

Japan (35)

C

54.5

58.0

44.5

63.0

China (36)

C

54.5

64.4

39.3

60.0

Taiwan (37)

C

52.9

42.0

53.2

69.8

Korea (38)

C

51.1

40.1

54.9

63.5

Indonesia (39)

D

49.2

39.3

44.5

71.5

Turkey

D

45.3

45.6

29.8

66.6

India (41)

D

44.4

37.6

40.7

60.4

Argentina

D

43.3

55.6

29.4

42.9

Philippines (43)

D

42.0

40.5

52.3

30.0

Thailand (44)

D

41.7

41.3

36.4

50.0

About the Mercer CFA Institute Global Pension Index (MCGPI)

The MCGPI 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.

This year, the Global Pension Index compares 44 retirement income systems across the globe and covers 65 percent of the world’s population. The 2022 Global Pension index includes one new retirement income system – Portugal.

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.

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.

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

1 A thorough review of the Index was undertaken to improve its integrity and remove any unintended biases that may be present. The board wanted to ensure that the average score of each question within each sub-index was similar and that there were no statistically significant differences, which may have favored some systems over others. Hence, some scoring calculations, questions and weightings have been modified. The net effect of these changes to the model was to increase the average Index value by 1.09. Naturally, the impact on individual values varied between systems with most changes between minus one and plus two.

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 83,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including MarshGuy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.

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 190,000 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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Appendix: Overview of all the retirement systems across Asia

Retirement System (alphabetical) Recommendations to Increase the Index Value

Hong Kong SAR

The index value for Hong Kong SAR increased from 61.8 in 2021 to 64.7 in 2022, primarily due to the revised scoring and increases in the net replacement rates.

  • Introduce a requirement that part of the retirement benefit must be taken as an income stream
  • Increase the minimum pension for low-income pensioners
  • Increase the level of household savings and reduce the level of household debt
  • Increasing the labor force participation rate at older ages as life expectancies rise
  • Introduce requirements to protect all the pension interests of both parties in a divorce

India

India’s index value increased from 43.3 in 2021 to 44.4 in 2022, primarily due to an increase in the net replacement rates and the revised scoring.

  • Introduce a minimum level of support for the poorest aged individuals
  • Increase coverage of pension arrangements for the unorganized working class
  • Introduce a minimum access age so that it is clear that benefits are preserved for retirement purposes
  • Improve the regulatory requirements for the private pension system

Indonesia

Indonesia’s index value decreased from 50.4 in 2020 to 49.2 in 2022, primarily due to the revised scoring.

  • Introduce a minimum level of support for the poorest aged individuals
  • Increase coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets
  • Improve the regulatory requirements for the private pension system
  • Improve the required level of communication to members of pension arrangements

Japan

Japan’s index value increased from 49.8 in 2021 to 54.5 in 2022, primarily due to the revised scoring and a revised approach relating to pension plan coverage.

  • Continue to increase the level of private pension coverage and thereby increase the level of contributions and pension plan assets
  • Introduce an encouragement that part of the retirement benefit must be taken as an income stream, such as an annuity payment
  • Announce a further increase in the state pension age as life expectancies rise
  • Reduce the level of government debt as a percentage of GDP

Korea

Korea’s index value increased from 48.3 in 2021 to 51.1 in 2022, primarily due to a higher integrity sub-index score and the revised scoring.

  • Improve the adoption of ERSA scheme plans
  • Improve the level of support provided to the poorest pensioners
  • Introduce a requirement that part of the retirement benefit from private pension arrangements be taken as an income stream
  • Increase the level of funded contributions, thereby increasing the level of assets over time
  • Improve the governance and communication requirements for the private pension system

Mainland China

Mainland China’s index value decreased slightly from 55.1 in 2021 to 54.5 in 2022, primarily due to the updated demographic data.

  • increase the minimum level of support for the poorest aged individuals
  • continue to increase the coverage of workers in pension systems
  • introduce a requirement that part of the supplementary retirement benefit must be taken as an income stream
  • increase the state pension age over time
  • offer more investment options to members and thereby permitting greater exposure to growth assets

Malaysia

Malaysia’s index value increased from 59.6 in 2021 to 63.1 in 2022, primarily due to an increase in the net replacement rates and the revised scoring.

  • Increase the minimum level of support for the poorest aged individuals
  • Raise the level of household saving and lowering the level of household debt
  • Introduce a requirement that part of the retirement benefit be taken as an income stream
  • Increase the pension age and the labor force participation rate at older ages as life expectancies rise

Philippines

The Philippines’ index value decreased slightly from 42.7 in 2021 to 42.0 in 2022, primarily due to some minor adjustments.

  • Increase the minimum level of support for the poorest aged individuals
  • Increase coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets
  • Set aside funds in the public system for the future, thereby reducing reliance on the pay-as-you-go system
  • Introduce non-cash-out options for retirement plan proceeds to be preserved for retirement purposes
  • Improve the governance requirements for the private pension system

Singapore

Singapore’s index value increased from 70.7 in 2021 to 74.1 in 2022, primarily due to the revised scoring and an increase in the net replacement rates.

  • Reduce the barriers to establishing tax-approved group corporate retirement plans
  • Open up CPF to non-residents (who make up a significant percentage of the labor force)
  • Increase the age at which CPF members can access their savings set aside for retirement, as life expectancies rise
  • Improve the level of communication provided to CPF members

Taiwan

Taiwan’s index value increased from 51.8 in 2021 to 52.9 in 2022, primarily due to the revised scoring.

  • Increase the minimum level of support for the poorest aged individuals
  • Introduce a requirement that part of the retirement benefit must be taken as an income stream
  • Introduce a requirement to ensure benefits in all private pension plans are preserved until age 60
  • Increase the labor force participation rate at older ages as life expectancies rise

Thailand

Thailand’s index value increased from 40.6 in 2021 to 41.7 in 2022, primarily due to higher net replacement rates.

  • Increase the coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets
  • Increase the minimum level of support for the poorest aged individuals
  • Introduce a requirement that part of the retirement benefit from private pension arrangements be taken as an income stream
  • Improve the governance requirements for the private pension system