Asia's Pension Systems Unprepared for Rapidly Aging Populations - ADB

News Release | 25 September 2012

MANILA, PHILIPPINES - Pension systems in many parts of developing Asia are unprepared and underfunded to meet the needs of the region's rapidly aging population, especially as globalization breaks down traditional family support, says a new book launched today by the Asian Development Bank (ADB).

"Across Asia, great divides exist in pensions available in rural and urban areas, between retirees from the public and private sectors, and those leaving the informal and formal job sectors," said ADB Principal Economist Donghyun Park and editor of Pension Systems in East and Southeast Asia: Promoting Fairness and Sustainability. "Without far-reaching reforms, the financial burden of these schemes on future workers may become more than they can bear."

Pension systems need to be fair in coverage, net benefits and retirement age, according to the book. These systems also need to be financially sustainable to assure people that the benefits promised at the end of their working lives are in fact delivered.

A key part of Asia's economic success story in recent decades has been its youthful population. The increase in the working population has significantly contributed to the expansion of the labor force, widespread growth and greater savings. This demographic dividend is tailing off, however, and falling fertility and rising longevity mean Asia's median age is rapidly becoming older.

The book urges Asian policymakers to provide adequate old-age income support, offering key lessons from the People's Republic of China (PRC), Indonesia, Korea, Malaysia, Philippines, Singapore, Thailand and Viet Nam.

In the PRC, for example, where the number of elderly already outstrips the combined total of senior citizens in all European countries, multiple pension systems cover urban enterprises, rural dwellers and civil servants, and will need to be rationalized to create a balanced, sustainable pension framework.

In more youthful Indonesia, the existing system covers just 14% of all private formal sector workers, and pension programs will have to expand by more than 700% to cover both formal and informal sectors. Singapore, by comparison, has a single-tier pension system with nearly universal coverage; however, the average funds per member will be insufficient as the population ages in the next 20 years.

The book also highlights the roles that changing social norms and globalization are playing in the need for pension reforms. In many countries, family-based old-age support mechanisms, such as with children supporting their elderly parents, are breaking down, particularly as globalized labor markets trigger a surge in migrant workers. Strong social protection systems, including pensions, can mitigate the insecurity that globalization brings.