Asians need to secure pension systems: OECD

Wednesday, 1 February 2012 00:01 - - {{hitsCtrl.values.hits}}

In Asia, the number of people in western-style pension plans in many countries is very low, but in some countries, the pension schemes that exist are so generous they may not unaffordable in the long run, observes the Organisation for Economic Co-operation and Development, which calls for the urgent modernisation of Asia’s pension systems.

The OECD’s report, titled Pensions at a Glance: Asia/Pacific 2011, analyses 16 economies in the region - including China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, India, Pakistan and Sri Lanka – and compares them to the mature economies of North America and Europe. In China, for example, 189 million people have some kind of formal pension, representing just 17% of the Chinese population. In comparison, the OECD average for developed economies is 63%. In Japan, 75% of the population have a pension.

However, the lucky few who are members of pension plans in ‘Ageing Asia’ can apparently expect a better income in retirement than that available to most people in the West. In China, the average male member of a pension scheme can look forward to receiving 86.8% of his average earnings throughout his career, in retirement income.

For women, it’s 69.2%. In the Philippines, the figures are 96.6% for both genders. In the western nations and Japan, this average stands at about 67%.

OECD analysts add that ‘Ageing Asia’ economies may find their high targets for retirement income are unaffordable, and create pension deficits, either in private or public savings systems. They forecast the pensions that China is aiming to pay will ultimately cost almost 50% of workers’ salaries, for example, while Vietnam’s will cost over 40%. In the US and Japan, meanwhile, the average pension costs just 15% of salaries.

Apart from low coverage, Asia’s pension systems are deemed as unlikely to deliver secure retirement incomes because the withdrawal of savings before retirement is very common, pension savings are often taken as lump sums with the risk that people outlive their resources; and pension payments are not automatically adjusted to reflect changes in the cost of living.