Attitudes to retirement in East Asia

Asia

“From Challenge to Opportunity” calls on governments and businesses to close the growing gap in financial security for current and future retirees

For over 90 years, Prudential Corporation Asia has been helping individuals and families across Asia plan for their long-term financial future.

To help advance this mission, Prudential has sponsored a major survey that looks at how retirement attitudes and expectations are changing in the region. “From Challenge to Opportunity”, which covers 10 markets in East Asia, offers powerful insights into the emerging trends shaping the future of retirement in the area, and highlights the steps that governments, businesses, and individuals can take to ensure a brighter and more secure retirement future. To read the full report, individual market analysis and infographics, visit here.

Background

The Global Aging Institute (GAI), in partnership with Prudential Corporation Asia, undertook a major study on retirement attitudes and expectations in East Asia. The survey found that citizens almost everywhere in East Asia are highly concerned about their retirement security. While they are eager to improve their retirement preparedness, and have taken steps to do so, governments and business could do more to help close the existing gap. A range of recommendations are provided below.

The survey was designed by GAI and conducted by Ipsos, a global research firm, before being launched in 2015. More than 10,000 respondents from 10 markets – China, Hong Kong SAR, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam – took part. The respondents were household main earners aged 20 or older, including both current and retired main earners. The key findings were outlined in the media release, provided below.

Changing retirement realities

Striking rejection of the family as the main financial source of support in retirement

The survey reveals that an overwhelming majority of respondents in every market reject the traditional expectation that the family should be primarily responsible for providing for the elderly. However, different markets have different views about who should take the place of the family in guaranteeing retirement security. In South Korea, Singapore, Hong Kong and Taiwan, a majority or plurality of respondents (between 40 and 61 per cent) feel that retirees themselves should be responsible for their own retirement income. In Malaysia, Indonesia, Vietnam, China, the Philippines, and Thailand, a majority or plurality of respondents (between 43 and 66 per cent) feel that government should assume the primary role in retirement security.

Although the family’s role in retirement security has diminished over the years, most respondents want to see it shrink even further. However, a lack of viable alternatives to close the retirement security gap is cause for concern. Dr. Richard Jackson, founder and president of GAI, said: “The findings show that retirees in East Asia find themselves at a difficult juncture. Traditional family support networks have been weakening, yet adequate government and market substitutes have not yet been put in place. The result is growing economic vulnerability. The retirement outlook for today’s workers is brighter in most markets, but still highly uncertain. Across East Asia, workers are very anxious about their retirement prospects, but are also very eager to improve them.”

Growing retirement security

Today’s workers are anxious about their retirement prospects

Today’s working-age adults, who are more affluent, educated and market-oriented than their parents, are likely to arrive in retirement better prepared than today’s retirees. Yet most worry a great deal about their future retirement security, and with good reason. Although coverage under state pension systems is rising in most markets, benefits are likely to replace only a small share of pre-retirement income. Meanwhile, most workers do not have sufficient personal savings to maintain pre-retirement living standards. In all 10 markets, the share of workers who worry about being poor and in need of money when they are retired, ranging from 50 per cent in China to 95 per cent in Vietnam, is as large, or larger, than the share of retirees who worry about the same thing.

Engaging the challenge

Broad support for reforms to boost retirement savings

The good news is that there is a remarkable willingness among East Asians to support retirement reform, even when it will involve personal sacrifice. In every market, an enormous majority of respondents, ranging from 77 per cent in China to 90 per cent in Hong Kong, Indonesia, and the Philippines, agree that the government should require workers to save more for their own retirement. In most markets, a majority of respondents also agree that the government should raise the retirement age, increase taxes to offer a basic pension benefit to those elderly who are in financial need, and require workers to contribute more to pay for government pension programmes.

Role of financial services

Role of financial services is growing in retirement planning

Attitudes towards the financial services industry vary across the 10 markets, but in most of them the survey reveals that the level of trust in the industry is high, with more respondents agreeing than disagreeing that “people can trust financial services companies to help them prepare for retirement.” The likelihood that workers will seek professional financial advice about how to invest their retirement savings is highly correlated with their level of income and educational attainment. Nevertheless, the vast majority of workers who have received professional financial advice, ranging from 60 per cent in South Korea to 96 per cent in Indonesia, said that they found it useful.

In every market, the share of today’s workers who expect to receive income in retirement from insurance and annuity products and/or stocks, bonds or mutual funds is rising. In China, Hong Kong, Malaysia, Singapore, South Korea, Taiwan and Thailand, between 60 and 80 per cent of workers expect to receive income from these financial assets. At the low end of the spectrum are the Philippines, Indonesia, and Vietnam, where less than 25 per cent of today’s workers expect to receive income from insurance or annuity products and/or stocks, bonds, or mutual funds.

EIGHT STRATEGIC STEPS TO CLOSE RETIREMENT GAP

The enormous challenge facing East Asia’s aging populations also presents an enormous opportunity to build more adequate and sustainable retirement systems. There is a critical role for both governments and financial services to play. The survey suggests eight strategic steps for policymakers and financial services to take:

Implications for government policymakers

  1. Improve the adequacy of state pension systems: - extend their reach so they cover a broader cross section of the workforce and increase contribution rates so that they deliver more adequate benefits.
  2. Encourage or require workers to save more for their own retirement: - as they improve the adequacy of state pension systems, policymakers also need to increase supplemental retirement savings.
  3. Establish more robust floors of old-age poverty protection: - governments must put in place adequate non-contributory old-age safety nets, or what are sometimes called “social pensions.”
  4. Raise retirement ages and encourage longer work lives: - governments should gradually phase out the early mandatory retirement ages that are enforced in formal sectors of many East Asian countries.

Implications for financial services providers

  1. Educate the public about the critical role of the financial services industry in retirement savings: - much public education is needed if savings are to play a greater role in retirement security.
  2. Help today’s workers turn their retirement savings aspirations into retirement realities: - the financial services industry can help bridge the disconnect between retirement savings aspirations and retirement savings realities.
  3. Design and market financial products and services for workers who want to assume responsibility for their own retirement security: - as incomes and educational attainment rise, a growing share of the workforce will be increasingly eager for sophisticated financial advice and products.
  4. Satisfy the widespread public demand for financial products that convert household savings and lump-sum pension payments into retirement income streams: - filling the demand for annuities and annuity-like products is another critical step the financial services industry can take to help improve future retirement security.

Donald Kanak, Chairman of Eastspring Investments, said, “Rapid aging in Asia is an irreversible trend and poses many challenges for today’s societies. Closing the growing gap in old-age protection requires public and private sector solutions. The insurance and asset management sectors can play a critical role that relieves pressure on government budgets as societies age. For over 90 years, Prudential has been committed to helping individuals and their families protect their long-term financial future, and realise their retirement goals."

To read the full report, individual market analysis and infographics, click here.