Asia in the ageing century: part II - retirement income

Asia\u27s general reliance on defined benefit schemes could potentially lead to unfunded liabilities similar to those experienced in some countries in Europe, once the tipping point is reached. Some segments of the population lack meaningful pensions, a feature of many developing economies in the region, which means the whole system of retirement income in Asia needs urgent attention. Summary• This is the second research brief in a three-part series that looks at Asia in the ageing century, with a particular focus on the countries of East and South-East Asia.• The context is outlined in the first brief, which describes population, urbanisation and social trends in the region. Specifically, it notes that population ageing in East and South-East Asia is happening faster and at a lower level of economic development than in the West. Many Asian countries now have a decade or so to prepare for the later stages of demographic transition.• With the challenges set out, we turn to responses and opportunities. In this regard, Parts II and III of the series focus on two areas of economic activity which are both pertinent and have enormous scale: providing retirement income (covered in the present brief) and healthcare (outlined in Part III). Getting these right could result in favourable macro-economic rebalancing of growth in the region – where individuals can pool risks and reduce the need for excessive precautionary savings.• As in Europe, Asia’s reliance on defined benefit schemes may result in unfunded liabilities when the ratio of pension recipients to contributors increases, unless sustainability features are built in. China’s generous urban workers’ scheme is only affordable because it is not yet mature or widespread. And poorly designed access arrangements can result in excessive costs and disincentives to work that waste the potential of healthy older people. For example, pension access ages are low in East and South-East Asian countries: on average 59 for men and 57 for women.• Alongside issues of sustainability, adequacy of pension benefits remains important. Many Asians have no pension entitlements. This is not surprising given the region’s economic development, but if demographic and social development is considered, the situation demands more urgent action. Adequacy also depends on ensuring regular retirement income, which is unlikely in the absence of preservation and annuities.• There are also private sector opportunities, including providing financial services to help Asian workers transition into retirement as has happened with assets accrued by baby boomers in the West. The size of pension assets already offers opportunities, but there are varying strategies for foreign entrants to choose from with different levels of capital investment – from opening local branches to building long-term links.• Lastly, a viable private pension sector requires the right set of preconditions. Here, experts from countries such as Japan and Australia have an opportunity to contribute to developing the region’s pension and insurance infrastructure. Both countries have experience in population ageing research and policy implementation.&nbsp