Ageing Asia - observer new design

Ageing Asia

The demographic transition to fewer babies and longer lives took a century in Europe and North America. In Asia, this transition will often take place in a single generation. But many of Asia’s retirement-income systems are ill-prepared for the rapid population ageing that will occur over the next two decades. Asia’s pension systems need modernising urgently to ensure that they are financially sustainable and provide adequate retirement incomes.

Pensions at a Glance Asia/Pacific reveals that an ageing Asia needs to face up to its pension problems and needs to do so soon. In economies such as China, Viet Nam and Pakistan, pension levels are high relative to earnings. Meanwhile, early retirement ages, especially for women, provide additional financial pressure. These systems are unlikely to prove sustainable as populations age and retirement-income provision matures.

Yet pensions systems in many Asia-Pacific economies will most likely fail to deliver a secure income in old age. For one thing, coverage of formal pension systems is relatively low and withdrawal of savings before retirement is very common. Frequently, pension savings are taken as lump sums, meaning that the risk of people outliving their resources is significant. Also, payments are not automatically adjusted to reflect changes in the cost of living.

Asia-Pacific countries not in the OECD are generally much younger than OECD countries. Around 16% of the total population is currently aged over 65 in the OECD Asia-Pacific and other major developed economies, compared to only 6% in non-OECD Asia-Pacific. But through mid-century, this figure will increase twice as fast, growing from 6% to 17% on average, boosting pressure on pension systems.

Asia must face these pension problems to deliver secure, sustainable and adequate retirement incomes for today’s workers. Asia’s ageing will reach its most rapid pace between 2010 and 2030. Given the long lag in pension-policy planning, there is now a narrow window for many Asian economies to avoid future pension problems and repeating many of the mistakes made in Europe and North America. But policy makers should act soon, or it could be too late.

Visit www.oecd.org/pensions

ISBN 978-92-64-10699-4