Asia climbs up global pensions index

Asia Pacific pension systems are growing in strength and sophistication, according to a new report – but far more is needed in order to meet future demand.

Singapore became a top 10 system this year, ranking seventh, with a sustainability ranking – reflecting pension coverage relative to government debt and the ageing of the population – higher than that of Canada.

China (16th), Japan (17th) and India (19th) all improved their ranking, while Indonesia scored sufficiently highly to be included in the survey for the first time at 20th place.

The only Asian nation to decline was South Korea, a consequence of a significantly increased life expectancy measurement by the United Nations – which, while good news for Koreans, increases the burden on the pension system.

The Melbourne Mercer Global Pension Index, run by international asset consultancy Mercer alongside the Australian Centre for Financial Studies, ranks pensions covering 55% of the world’s population on adequacy, sustainability and integrity, rather than overall asset size.

The survey’s ranking is led by developed world nations such as Denmark, the Netherlands and Australia, but the presence of emerging nations is growing. The news will be encouraging for Asian governments who have tried to bring urgency to pension system development in the world’s most populous region.

“Pension systems in many Asian countries are in an embryonic phase and we expect them to gradually strengthen in coming years,” said David Knox, senior partner at Mercer and author of the study.

“However, many Asian countries are also facing an ageing population at a rate beyond some Western countries, which makes it particularly challenging, and urgent, to develop a sustainable pension system.”

The challenge will become particularly acute as Asia’s demographic gradually matures. “Providing economic security for the elderly may well be the single biggest social and economic challenge facing developing Asia in the 21st century,” said Asian Development Bank (ADB) economists Donghyun Park and Gemma Estrada in a paper on Asian pension systems earlier this year.

They spoke of “a seismic demographic transition which is fundamentally reshaping Asia’s demographic profile. A young continent reaping the demographic dividend of a large youthful workforce is giving way to a greying continent where the ratio of retirees to workers is on the rise.” It said most Asian countries were “ill prepared” to provide for the looming number of retirees.

Contrary to the popular perception of Asia as a continent with a favourable demographic focused on young workers, the ADB says that by 2050 the median age in China, Indonesia, Korea, Malaysia, Singapore, Thailand and Vietnam will all exceed the world average.