Ageing Asia’s looming pension crisis

Ageing Asia’s looming pension crisis

Improving the returns from assets managed by Asian pension funds

Due to population ageing, weakening of family-based support, and related factors, old-age income support is becoming an issue of growing importance throughout Asia. This paper provides a broad overview of the current state of the pension systems in eight East and Southeast Asian countries, identifying their major structural weaknesses, and suggesting some specific policy directions for them.

The paper finds the following key systemic failures in the pension systems under study: low coverage, inadequate benefits, lack of financial sustainability, and insufficient support for the elderly poor. These weaknesses impede the ability of pension systems to fulfill their basic objectives such as enabling consumption smoothing and relieving poverty. Thus, the paper suggests that Asian pension systems still have quite a way to go if they are to achieve their main objectives.

The paper concludes with some specific policy directions for pension reform to strengthen the capacity of Asian pension systems in delivering economic security for the growing cohorts of the elderly in the region. The areas of reform can be summarised as follows:

  • strengthening the institutional and administrative capacity of Asian pension systems, which is the point of departure for pension reform in Asia
  • governance and regulation of Asian pension systems, considering their crucial role in the operational efficiency
  • expanding coverage to first target the formal sector and later extend into the informal sector
  • enhancing financial sustainability especially in countries with defined benefit (DB) pension systems
  • improving the returns from the assets that Asian pension funds manage
  • doing a much better job of protecting the elderly poor through pension funds
  • seeking to change the parameters facing the pension system, such as the demographic indicators