ASIA is in a good starting position to thrive during the 2020s as it weathered the pandemic crisis in relatively good shape.
Allianz SE notes while economic activity in the region declined by less than 2% in 2020, gross domestic product (GDP) contracted by more than 4% at the global level and by almost 8% in Latin America.
The main reasons for Asia’s resilience, the multinational insurance group says, is robust growth of 2.3% in China, the only big economy of the world to grow at all during the pandemic.
According to Allianz chief economist Ludovic Subran (pic), while Asia has gained a headstart over other regions, it cannot ignore the looming demographic crisis.
“By ignoring the looming demographic crisis, it could easily forfeit its advantage. Next generations of Asians would have to pay a heavy price for such negligence, ” Subran says.
“Not addressing pension reform, key for social justice and resilience, could even spell the premature end of the Asian century, ” he adds.
Allianz noted the main cause of concern with respect to the long-term sustainability of pension systems is the retirement age in many markets which does not reflect the gains in life expectancy over the last decades. And although some markets are discussing an increase in the retirement age, the planned changes might not be sufficient to mitigate the expected increases in further life expectancy.
The 15 Asian markets in scope of its report fare very differently in the Allianz Pension Indicator (API), reflecting the diverging state of play in pension reform efforts.
Allianz notes while, for example, Indonesia has already decided to raise the retirement age significantly, other markets are still dragging their feet. Only four markets (China, Japan, South Korea and Taiwan) have already included a demographic factor in their pension formula, while in Singapore the annuity payments are regularly adjusted.
It points out a strong capital-funded pillar can be found in just a few markets, for example, Singapore and Japan. As a result, rankings in sustainability and adequacy differ widely among Asian markets, it says.
But with no Asian market ranking among the global Top 10, it is clear that all of them have still some homework to do to make their pension systems demography-proof. The rapid demographic change does not allow to put pension and financial system reforms on the back burner.
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