Manulife Asset Management announces the release of a report that analyses the retirement income security of elderly households in five Asian economies. The report finds that households in these countries and territories have relatively high levels of accumulated wealth, and suggests that more efficiently mobilising these assets could significantly supplement other sources of retirement income.
The report, entitled Asset rich, income poor? Key components of retirement income security for aging Asia, is the third in Manulife Asset Management’s Aging Asia series. The five Asian economies examined — Hong Kong, Japan, Korea, Singapore and Taiwan ?— are in the advanced stages of their demographic dividends and have all accumulated considerable levels of household wealth.
The research reveals that this situation arises from challenges associated with each of five key components of retirement income security: salary and wages; government social spending; pension benefits; familial support; and income arising from household wealth. Some highlights of retirement income security in the countries and territories that we examined include:
Hong Kong has a relatively well-developed pension scheme to bolster its retirement income security, with a coverage ratio of 56%. However, Hong Kong citizens tend to withdraw from the labour force at a fairly young age and derive low levels of income from their accumulated wealth due to a combination of investing heavily in risk-adverting bank deposits and historically low interest rates.
Japan’s retirement income security is bolstered by its high elderly labour force participation, with about 22% of its elderly population continuing to work. However, retirement income is curtailed by the fact that familial support of elderly households has declined to about 1% of their total consumption needs.
Singapore is among the most rapidly aging populations in Asia and has the lowest level of government social spending among the economies we analysed. On the other hand, the country’s retirement income security is bolstered by a well-developed pension scheme, which holds nominal pension reserves of 68% of GDP.
South Korea’s retirement income benefits from the highest level of elderly labour force participation among the economies we examined. However, relatively low government social spending, at about 3% of GDP, is a challenge for the elderly in South Korea, as it shifts responsibility for retirement income security more to individual households.
Taiwan has the highest household financial wealth to income level among the five countries and territories. Perhaps the largest challenge facing Taiwan’s elderly households is its declining incidence of multi-generational co-residence, which had fallen from 70% in the late 1980s to 60% in 2005.
These findings have significant implications for retirement income security across Asia, including in Thailand. As Tor Indhavivadhana, CEO of Manulife Asset Management Thailand, explained: “We believe that many elderly households in Thailand, like those in the five economies examined in the report, are retiring asset rich but income poor. Households in this situation often have little choice but to sell off accumulated assets such as property, land and commodities or dip into life insurance reserves or bank deposits to fund current consumption during their golden years. The implications are even more serious for less-affluent households, which have fewer assets to draw upon and thus may face significant longevity risk, the risk of a retiree outliving his or her sources of income.”
Tor continued “Regardless of their level of affluence, households can efficiently mobilise the assets at their disposal by diverting cash savings into equity, fixed income or asset allocation products, many of which are income generating. We have seen evidence of this happening over the past 10 years via rapid growth in the mutual fund industry in Thailand. Total mutual fund assets under management have increased more than 500% since end-2002, climbing from THB0.435 trillion to THB2.614 trillion at end-2012. This implies that individuals are seeking alternative investments that have the potential to generate higher returns than bank deposit rates, which are at historic lows and in some cases negative when accounting for inflation.”
Michael Dommermuth, President, International Asset Management, Manulife Asset Management concluded: “Our research reveals that household across Asia will need to shoulder an increased share of the responsibility for saving for retirement in the coming decades. We are encouraged by the ongoing shift towards investing household assets in income-generating products, such as equity funds with dividend distribution mechanisms that Manulife Asset Management offers in Thailand. However, it is important that this trend continue and gain momentum, as Asian economies, including Thailand, are aging rapidly and do not have the luxury of time to adjust to this reality.”
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Manulife Asset Management (Thailand) Company Limited
Website: www.manulife-asset.co.th Telephone: 02-354-1001 or 02-246-7650 press 2; Facsimile: 02-642-6341
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