ADB: Asian median age older; pension systems must be revamped

Asia may be a model of economic success because of its youthful population, but this population is getting older—and according to Manila-based Asian Development Bank (ADB), pension systems in the continent need to keep up with the aging, and fast. Pension systems in Asia, particularly in developing nations, are “unprepared and underfunded to meet the needs of the region’s rapidly aging population,” according to an ADB statement released on Tuesday. It was quoting from the book “Pension Systems in East and Southeast Asia: Promoting Fairness and Sustainability,” also published by the ADB. “A key part of Asia’s economic success story in recent decades has been its youthful population. The increase in the working population has significantly contributed to the expansion of the labor force, widespread growth and greater savings,” the statement said. However, decreasing fertility and increasing life expectancy rates have rapidly raised Asia’s median age. According to the book, pension systems need to be fair in coverage, net benefits and retirement age and must also be financially sustainable to assure pensioners that the benefits will really be delivered to them when they retire. “Across Asia, great divides exist in pensions available in rural and urban areas, between retirees from the public and private sectors, and those leaving the informal and formal job sectors,” said Donghyun Park, the book’s editor and a principal economist at ADB. “Without far-reaching reforms, the financial burden of these schemes on future workers may become more than they can bear,” Park also said. The book advocates that Asian policymakers provide better pension systems to support old-age income, citing the experiences of various countries as guides for better policy-making. These countries are: The People’s Republic of China (PRC), Indonesia, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam. “Despite their diverse income and development levels, the common concerns in the pension systems of these eight countries are inequity and potential unsustainability,” ADB Chief Economist Changyong Rhee said in the book's foreword. The book cites China’s pension systems as systems that need to be revamped to create a “balanced, sustainable” pension framework, in light of the number of the elderly in the country already outstripping the combined total of senior citizens in all European countries. Improving the Philippines' system The book notes that the Philippines' pension system is a primarily defined-benefit scheme, and proposes it should be a defined-contribution scheme instead. According to international financial services company Sun Life Financial, a defined-benefit scheme is pre-determined and is based on a formula involving one’s years of earnings and service. A defined-contribution scheme, on the other hand, is not pre-determined and is instead based on the assets of one’s individual retirement plan account. Sun Life Financial notes that this scheme is “popular” because it offers flexibility and choice. Agencies involved in the Philippines’ pension system are the Social Security System (SSS), mandatory for employees in the private sector; the Government Service Insurance System (GSIS), mandatory for government employees; and the Armed Forces of the Philippines Retirement Service Benefit System (AFP-RSBS). Independent consultant and Actuarial Society of the Philippines fellow Ernesto Reyes, who wrote the book's chapter on the Philippines, notes that there are "significant disparities" between the SSS and GSIS in several aspects that "test the fairness and sustainability of the entire system for present and future retirees," and makes some suggestions on how the current system can be improved. “To preserve the pension system, the government should consider raising the retirement age [from 65 to 70], increasing contributions, combining the two programs [GSIS and SSS], gradually shifting to a defined-contribution system, and expanding the economy,” he said. GMA News Online is trying to get the reactions of GSIS and SSS officials as of this article’s posting. — BM, GMA News