Pension Systems in AsiaPacific: Main Issues and Diagnosis

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Pension Systems in Asia-Pacific Main Issues and
Diagnosis

• Presentation by
• Michiel Van der Auwera
• 16 October 2007
• AFDC

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Overview

• Socio-economic challenges
• Review of existing pension situation in Asia
• Way forward
• identifying need for reform
• contribution of multilateral development banks

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I . Socio-economic challenges

• Ageing population
• Declining family support for elderly people
• Globalization

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Ageing population

• Asian population grew from 1.4 billion people in
  1950 to 3.7 billion in 2000
• Demographic transition from high fertility and
  mortality rates to low fertility and mortality
  rates

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Demographic dividend
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Demographic dividend
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1
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Rapid ageing
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results in increased public spending on pensions

• If the past relationship between demography and
  public spending on old-age pensions continue
• Expenditure of national income devoted to
  pensions in Asia, excluding China, will rise from
  2 in 1990 to 10 in 2050
• Expenditure of national income devoted to
  pensions in China will rise from 3 in 1990 to
  over 13 in 2050

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2. Declining family support for elderly

• Traditionally, Asian families provide support for
  the elderly relatives
• Increased mobility from rural to urban areas is
  weakening traditional support
• Changing family structure declining birth rates,
  increasing number of single head households

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needs to be supplemented by formal mechanisms

• Pure market solutions (individual savings) work
  to some extent, but often fail
• Shortsighted behavior, leading to insufficient
  saving when young
• Lack of reliable savings instruments
• Governments interventions are required
• Mandatory pensions plans, means-tested assistance
• Regulation and supervision, information,

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3. Globalization

• Increased integration of markets and growing
  mobility across the world
• Labor market policies need to balance between
  addressing inequality and efficiency

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requires adjusted pension design

• Public programs, including pension schemes, will
  have to be adjusted
• Pension designed to accommodate mobility of the
  labor force, not only between public and private
  sector, but also across states

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II. Pension systems in Asia
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Major areas of concern

• DB schemes fiscal sustainability link between
  contributions and benefits
• Funded schemes investment policy and performance
• Overall
• governance and management of the pension systems
• limited coverage

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Changing environment for Asian pension systems

• New requirements
• Increased demand for old-age protection
• Increased formalization
• Increased flexibility
• Existing situation
• Limited coverage
• Need for improved governance
• Need for improved pension design

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III. Way forward

• Objective pension systems that deliver adequate
  and affordable benefits in sustainable way
• Reform towards multi-pillar pension systems
• A long-term endeavor!
• World Bank. 2005. Old-Age Income Support in
  the Twenty-first Century An International
  Perspective on Pension Systems and Reform
  (Holzmann, R. and others)

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Basic goals of pensions

• Reducing or preventing poverty among the elderly
• Providing adequate retirement income, maintaining
  same standard of living, smoothing of lifetime
  consumption
• Encourage economic growth through increased
  saving
• These goals can be addressed by a multi-pillar
  pension system

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Multi-pillar pension system
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Interaction between pillars Example Finland
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Role of Multilateral Development Banks

• Raise awareness among policy makers
• Assist in pension reform when support is required
• Available tools
• TA to prepare reform
• Loan programs to assist in implementation

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ADB pension projects, 19902004
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Pension reform needs

• Following Asian financial crisis focus on
  strengthening financial market institutions
• Emerging reform needs
• sustainability of the maturing pension systems
• adequacy and affordability of the pension systems
  for the ageing population
• Pension reform in Asia and Pacific is still at
  the initial stage

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For More Information

• (Michiel Van der Auwera, e-mail
  mvanderauwera_at_adb.org)
• Web site www.adb.org