Singapore, Hong Kong, and Malaysia have the best retirement systems in Asia: Report

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Following them are China, Taiwan, Indonesia, India, the Philippines, and Thailand. Looking at global rankings, however, the top three countries with the best retirement systems are: Iceland, the Netherlands, and Denmark.

Singapore's retirement system ranks the best in Asia, and the 10^th in the world with the likes of Finland, the United Kingdom, and Sweden, according to Mercer's Global Pension Index Report. Following Singapore, Hong Kong and Malaysia rank 18^th and 23^rd respectively. Other Asian countries are ranked:

• 28^th - China;
• 34^th - Taiwan;
• 35^th - Indonesia;
• 40^th - India;
• 41^st - Philippines, and
• 43^rd - Thailand

Using a global lens, the top three countries with the best retirement system are Iceland, Netherlands, and Denmark—which are each described as having "a first-class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity."

To understand how these rankings are generated, each country's retirement system has an overall index value that is calculated based on three indices: adequacy (40% weightage), sustainability (35%), and integrity (25%). Adequacy looks at factors such as benefits, system design, and savings, while sustainability comprises pension coverage, total assets, and government debt, and integrity includes regulation, governance, and protection.

On that note, the top three European countries hold (A-grade) values of 84.2, 83.5, and 82 respectively. Singapore, on the other hand, has a (B-grade) value of 70.7 which is considered "a system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system"; Hong Kong has (C+) 61.8, and Malaysia has (C) 59.6, which are described as "a system that has some good features, but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned". 

Speaking on Singapore's retirement system, Chong Chee Loong, Wealth Business Leader, Mercer, Singapore said: "The Singapore pension system is one of the oldest and most developed national schemes in Asia and it’s great to see the system topping the Asian rankings once again, signifying a leading pension arrangement in the region with strong integrity."

With regard to Asia Pacific's retirement system, Mary Leung, CFA, Head, Advocacy, Asia Pacific, at CFA Institute, said: "While Asia has fared relatively well compared with most other regions during COVID-19, there is no market in Asia that doesn’t need urgent pension reforms. We have been operating in an extremely challenging environment with historically low interest rates and, in some cases, negative yields clearly impacting returns. Policymakers and industry stakeholders must take collective action to ensure the adequacy and sustainability of retirement benefits."

Can we improve our retirement system?

Based on the report, the short answer is yes. The long answer is, to do so, each country has to look at how it can:

• Increase coverage of employees (including non-standard workers) and the self-employed in private pensions;
• Increase the state pension age and/or retirement age over time to reflect increasing life expectancy;
• Promote higher labour force participation at older ages;
• Encourage higher levels of private saving to reduce future dependence on public pensions;
• Reduce the leakage from the retirement savings system prior to retirement, and
• Improve the governance of private pension plans and introduce greater transparency to improve the confidence of plan members and the broader community.

Using that framework in every country, China, for instance, can consider increasing the minimum level of support for the poorest aged individuals, or introducing a requirement that part of the supplementary retirement benefit must be taken as an income stream. Meanwhile, India can consider increasing coverage of pension arrangements for the unorganised working class, or improving the regulatory requirements for the private pension system.

As for Indonesia, the country can look at increasing coverage of employees in occupational pension schemes thereby increasing the level of contributions and assets, or increasing the pension age as life expectancy continues to rise. Meanwhile, Thailand can do the same as China.

If Singapore wants to improve its value, then Chong suggests it reduces the barriers to establishing tax-approved group corporate retirement plans, and open the Central Provident Fund (CPF) to more non-Singaporean employees who currently make up a significant percentage of the labour force. "This can be further complemented by increasing the age CPF members can access their retirement savings as well as enhancing communication on CPF to Singaporeans," he added.

For Malaysia, it can explore raising the level of household saving and lowering the level of household debt, while for Hong Kong, it can introduce requirements to protect all the pension interests of both parties in a divorce, for instance.

Gender differences in pension outcomes

One interesting finding from the report is that all retirement systems have to introduce a range of measures to reduce the gender pension gap. This is an issue that is multifold with employment-related, pension design and socio-cultural issues—for instance, women face longer periods of the workforce due to caring responsibilities, or eligibility restrictions in some pension arrangements which require a minimum income or a minimum number of hours to be worked.

Janet Li, Mercer’s Wealth Business Leader for Asia, said: "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."

ALSO READ: 45% of Singaporeans surveyed have not started planning for retirement

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