Region unprepared to manage growing financial burdens of retirement.

Asian pension systems are facing major challenges. The region is experiencing seismic demographic changes, with rapidly aging populations and declining birthrates. But investment returns are relatively low due to geopolitical uncertainty and minimal interest rates.

With the region having relatively few robust retirement systems, many Asian countries will struggle to provide adequate pensions. Governments need to take positive action now to reduce financial pressures and avoid intergenerational conflicts between the young and old later.

Life expectancy at birth in the region has increased by seven to 14 years in most countries during the last 40 years, according to the 2018 Melbourne Mercer Global Pension Index (MMGPI), which ranks pension systems round the world on adequacy, sustainability and integrity. This is an average of one additional year every four years. The increased life expectancy of a 65-year-old over the last 40 years has ranged from 1.7 years in Indonesia to 8.1 years in Singapore.

Much of the rest of the world is facing similar challenges relating to aging populations and nations are pursuing similar policy reforms. These include raising pension ages, encouraging people to work longer, increasing the funding levels set aside for retirement, and reducing the amount of money that people can take out of their pension accounts before they reach retirement age.

The 2018 MMGPI findings pose the fundamental question of what reforms can Asian governments implement to improve long-term outcomes for their retirement income systems.

The natural starting place to create a world-class pension system is ensuring the right balance between adequacy and sustainability. A system providing very generous benefits in the short-term is unlikely to be sustainable, while a system that is sustainable over many years usually provides very modest benefits.

Without changes to retirement ages and eligibility ages to access social security and private pensions, there will be increasing pressure on retirement systems, which could threaten the financial security provided to the elderly. Increased work force participation by women and older workers would help improve adequacy and sustainability.
Japan, China, and South Korea rank near the bottom of our index. Their pension systems do not represent a sustainable model to support the retirement of current and future generations. If left unchanged, these countries will suffer social conflicts since pension benefits will not be distributed equally between generations.

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