1. Pension Systems in Asia-Pacific: Main Issues and Diagnosis
Presentation by
Michiel Van der Auwera
16 October 2007
AFDC

2. Overview Socio-economic challenges
Review of existing pension situation in Asia
Way forward
identifying need for reform
contribution of multilateral development banks

3. I . Socio-economic challenges
Ageing population
Declining family support for elderly people
Globalization

4. Ageing population
Asian population grew from 1.4 billion people in 1950 to 3.7 billion in 2000
Demographic transition from high fertility and mortality rates to low fertility and mortality rates

5. Demographic dividend 4 3
Demographic dividend 2 1

6. Rapid ageing …

7. results in increased public spending on pensions
If the past relationship between demography and public spending on old-age pensions continue:
Expenditure of national income devoted to pensions in Asia, excluding China, will rise from 2% in 1990 to 10% in 2050
Expenditure of national income devoted to pensions in China will rise from 3% in 1990 to over 13% in 2050

8. 2. Declining family support for elderly …
Traditionally, Asian families provide support for the elderly relatives
Increased mobility from rural to urban areas is weakening traditional support
Changing family structure: declining birth rates, increasing number of single head households

9. needs to be supplemented by formal mechanisms
Pure market solutions (individual savings) work to some extent, but often fail
Shortsighted behavior, leading to insufficient saving when young
Lack of reliable savings instruments
Governments interventions are required
Mandatory pensions plans, means-tested assistance
Regulation and supervision, information, …

10. 3. Globalization …
Increased integration of markets and growing mobility across the world
Labor market policies need to balance between addressing inequality and efficiency

11. requires adjusted pension design
Public programs, including pension schemes, will have to be adjusted
Pension designed to accommodate mobility of the labor force, not only between public and private sector, but also across states

12. II. Pension systems in Asia
Mandatory pension systems for the private sector in Asia & Pacific
Provident funds
Defined contribution schemes
Defined benefit schemes in market economies
Pension schemes in transition economies
Indonesia
India (partial)
Malaysia
Nepal
Pacific Islands
Singapore
Sri Lanka
Japan
South Korea
Pakistan
Philippines
Azerbaijan (DB)
PRC (DB + DC-funded)
Kazakhstan (DC-funded)
Kyrgyz (Notional DC)
Lao PDR (DB)
Mongolia (NDC)
Uzbekistan (DB)
Vietnam (DB)

13. Major areas of concern
DB schemes: fiscal sustainability – link between contributions and benefits
Funded schemes: investment policy and performance
Overall:
governance and management of the pension systems
limited coverage

14. Changing environment for Asian pension systems
New requirements
Increased demand for old-age protection
Increased formalization
Increased flexibility
Existing situation
Limited coverage
Need for improved governance
Need for improved pension design

15. III. Way forward
Objective: pension systems that deliver adequate and affordable benefits in sustainable way
Reform towards multi-pillar pension systems
A long-term endeavor!
* World Bank Old-Age Income Support in the Twenty-first Century: An International Perspective on Pension Systems and Reform (Holzmann, R. and others)

16. Basic goals of pensions
Reducing or preventing poverty among the elderly
Providing adequate retirement income, maintaining same standard of living, smoothing of lifetime consumption
Encourage economic growth through increased saving
These goals can be addressed by a multi-pillar pension system

17. Multi-pillar pension system
Other sources of support
informal support, health care, housing,…
“third pillar”
voluntary individual savings accounts
“second pillar”
mandatory individual savings accounts
“first pillar”
mandatory contributory schemes
“zero pillar”
non-contributory schemes

18. Interaction between pillars Example: Finland

19. Role of Multilateral Development Banks
Raise awareness among policy makers
Assist in pension reform when support is required
Available tools
TA to prepare reform
Loan programs to assist in implementation

20. ADB pension projects, 1990–2004 Region DMC 1990–1996 1997–1999
2000–2004
Regional
1 RETA
East and Central Asia
Kazakhstan
1 loan, 1 PPTA, 4 ADTAs
Kyrgyz Republic
1 PPTA
PRC
1 ADTA
Mekong
Lao PDR
Thailand
Pacific
Cook Islands
Tonga
South Asia
Bangladesh
Bhutan
India
Pakistan
Southeast Asia
Indonesia

21. Pension reform needs
Following Asian financial crisis focus on strengthening financial market institutions
Emerging reform needs
sustainability of the maturing pension systems
adequacy and affordability of the pension systems for the ageing population
Pension reform in Asia and Pacific is still at the initial stage

22. (Michiel Van der Auwera, e-mail: mvanderauwera@adb.org)
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(Michiel Van der Auwera,
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