Governments in Asia are stepping up their pension reforms to boost retirement savings adequacy, potentially generating business opportunities for asset managers operating in the region.
Retirement income security is a top concern for Asian governments, noted a press release from Cerulli Associates. In response to aging and other pension challenges in the region, governments are amending policies.
Singapore is raising its retirement and re-employment age ceilings, while the Korean government is considering changing the legal definition of old age to 70. Taiwan has cut pension benefits to public sector workers. And some Asian markets, such as Hong Kong and China, are looking at building multi-pillar pension systems.
“In China, tax reform in July 2018 has, to some extent, improved the fragmented social security collection system by transferring responsibility for collecting social insurance contributions to tax authorities and making it tougher to evade contributions,” said the release, noting local academics have expressed concerns that the country’s uncertain economic outlook will delay the government’s push for full implementation of pension reforms to avoid putting stress on local businesses.
In South Korea, the National Pension Service’s expected funding shortfall has led to several initiatives to reform the fund. “For example, participation in co-investments and alternative investments of less than US$50 million will not require further approval from its fund management committee,” noted the release. “Besides a fivefold increase of the limit on a single alternative investment to KRW500 billion (US$415.2 million), private debt, single hedge funds and multi-asset instruments have also been given the green light to be added to the portfolio.”
In Thailand, a bill to set up the National Pension Fund received cabinet approval in November 2018 and is pending approval from the national legislative assembly. Once implemented, employers that are provident fund members can opt to join the NPF or continue using provident funds, while those that aren’t provident fund members need to contribute to the NPF.
“The need to ensure the adequacy of Asian pension funds has never been more urgent, as many economies in the region face a growing possibility of a pension crisis,” said Della Lin, a senior analyst at Cerulli Associates. “This is resulting in increased pressure on state pension funds to achieve higher returns.
“As pension funds come under strain, they are becoming more particular, not only about external managers’ performance but also fees. Diversity in the client pool, as well as in strategies is essential to thrive in the region’s pension markets.”