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Pension Systems in Asia-Pacific: Main Issues and Diagnosis. Presentation by Michiel Van der Auwera 16 October 2007. Overview. Socio-economic challenges Review of existing pension situation in Asia Way forward identifying need for reform contribution of multilateral development banks.

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Pension Systems in Asia-Pacific: Main Issues and Diagnosis

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Pension Systems in Asia-Pacific: Main Issues and Diagnosis

Presentation by

Michiel Van der Auwera

16 October 2007


Overview

  • Socio-economic challenges

  • Review of existing pension situation in Asia

  • Way forward

    • identifying need for reform

    • contribution of multilateral development banks


I . Socio-economic challenges

  • Ageing population

  • Declining family support for elderly people

  • Globalization


Ageing population

  • Asian population grew from 1.4 billion people in 1950 to 3.7 billion in 2000

  • Demographic transition from high fertility and mortality rates to low fertility and mortality rates


Demographic dividend

4

3

Demographic dividend

2

1


Rapid ageing …


results in increased public spending on pensions

If the past relationship between demography and public spending on old-age pensions continue:

  • Expenditure of national income devoted to pensions in Asia, excluding China, will rise from 2% in 1990 to 10% in 2050

  • Expenditure of national income devoted to pensions in China will rise from 3% in 1990 to over 13% in 2050


2. Declining family support for elderly …

  • Traditionally, Asian families provide support for the elderly relatives

  • Increased mobility from rural to urban areas is weakening traditional support

  • Changing family structure: declining birth rates, increasing number of single head households


needs to be supplemented by formal mechanisms

  • Pure market solutions (individual savings) work to some extent, but often fail

    • Shortsighted behavior, leading to insufficient saving when young

    • Lack of reliable savings instruments

  • Governments interventions are required

    • Mandatory pensions plans, means-tested assistance

    • Regulation and supervision, information, …


3. Globalization …

  • Increased integration of markets and growing mobility across the world

  • Labor market policies need to balance between addressing inequality and efficiency


requires adjusted pension design

  • Public programs, including pension schemes, will have to be adjusted

  • Pension designed to accommodate mobility of the labor force, not only between public and private sector, but also across states


II. Pension systems in Asia


Major areas of concern

  • DB schemes: fiscal sustainability – link between contributions and benefits

  • Funded schemes: investment policy and performance

  • Overall:

    • governance and management of the pension systems

    • limited coverage


Changing environment for Asian pension systems

  • New requirements

    • Increased demand for old-age protection

    • Increased formalization

    • Increased flexibility

  • Existing situation

    • Limited coverage

    • Need for improved governance

    • Need for improved pension design


III. Way forward

  • Objective: pension systems that deliver adequate and affordable benefits in sustainable way

  • Reform towards multi-pillar pension systems

  • A long-term endeavor!

    * World Bank. 2005. Old-Age Income Support in the Twenty-first Century: An International Perspective on Pension Systems and Reform (Holzmann, R. and others)


Basic goals of pensions

  • Reducing or preventing poverty among the elderly

  • Providing adequate retirement income, maintaining same standard of living, smoothing of lifetime consumption

  • Encourage economic growth through increased saving

  • These goals can be addressed by a multi-pillar pension system


Multi-pillar pension system


Interaction between pillars Example: Finland


Role of Multilateral Development Banks

  • Raise awareness among policy makers

  • Assist in pension reform when support is required

  • Available tools

    • TA to prepare reform

    • Loan programs to assist in implementation


ADB pension projects, 1990–2004


Pension reform needs

  • Following Asian financial crisis focus on strengthening financial market institutions

  • Emerging reform needs

    • sustainability of the maturing pension systems

    • adequacy and affordability of the pension systems for the ageing population

  • Pension reform in Asia and Pacific is still at the initial stage


For More Information

(Michiel Van der Auwera, e-mail: mvanderauwera@adb.org)

Web site: www.adb.org


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