Singapore's retirement system is the best in Asia: report

The island topped the adequacy index in Asia.

Singapore’s retirement system takes the top spot amongst Asian countries and regions, and ranked seventh out of 37 retirement systems globally, according to the latest Melbourne Mercer Global Pension Index (MMGPI).

Singapore alone received a B- grade in Asia and was the only Asian country to break the 70 mark (70.8) index value in the region. Hong Kong and Malaysia followed, both improving to C+ from C- previously.

Assessing retirement systems across the sub-indices of adequacy, sustainability and integrity, Singapore topped the adequacy index in Asia—which measures benefits, savings, tax support, home ownership, and growth in assets among others.

Also read: Lack of security threatens Singapore's dominance in retirement finance

Hong Kong’s governance, regulation, and operating costs were hailed across Asia, ranking fourth out of 37 retirement systems globally in the integrity sub-index.

In Asia, D-grade systems were China (48.7), India (45.8), Japan (48.3), Korea (49.8). Joining them are newcomers Philippines (43.7) and Thailand (39.4), with Thailand having the lowest index value of all the systems studied. Indonesia achieved a C-grade (52.2).

Asia fell 10 points short of the global adequacy average of 50.3, and was also nine points below the global integrity average. The region is also 2.3 points below the global sustainability average of 50.4.

Although Asia’ retirement systems “were on the right track,” the region’s governments, employers, and individuals are called to consider sustaining intergenerational retirement systems which would not put undue burden onto future generations, said Janet Li, Mercer’s wealth business leader for Asia.

Li added that whilst each system is different, there are common denominators that they should all consider. “This includes increasing the minimum level of support for our poorest aged individuals, ensuring that a portion of retirement benefits is taken as an income stream, and raising the age at which older people can access their retirement savings in line with increasing life expectancy,” she said.

The Netherlands recorded the highest index value (81.0), and has consistently held first or second position for 10 of the past 11 MMGPI reports.

For each sub-index, the highest scores were Ireland for adequacy (81.5), Denmark for sustainability (82.0) and Finland for integrity (92.3). The lowest scores were Thailand for adequacy (35.8), Italy for sustainability (19.0) and Philippines for integrity (34.7).

The MMGPI compares retirement systems across the globe and covers almost two-thirds of the world’s population. It is 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, and is supported by the Victorian Government of Australia.

This year’s report documented the “wealth effect”, or the tendency for spending to increase with rising wealth, in relation to pension assets. MMGPI’s data suggests that as pension assets increase, individuals feel wealthier and therefore are likely to borrow more.

“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 that 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. David Knox, author of the study, noted.

Professor Deep Kapur, Director of the MCFS, said the move away from defined benefit schemes towards defined contribution plans was playing an increasingly important role in the accumulation of individuals’ retirement savings. “Maximising risk-adjusted investment returns for defined contribution plans by diversifying the assets held by a pension fund is critical,” he said.

“It’s essential the state pension or retirement age is reconsidered in line with increasing longevity – a step some governments have already taken – to reduce the costs of publicly financed pension benefits.”