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Ageing Asia and the challenge for pension systems

Wednesday 12 May 2010 - by Daniel Sage

An ageing population is an issue for many regions in the world but East Asia has particularly big hurdles to overcome in this area. Daniel Sage talks through the regulatory challenges for governments attempting to deal with huge socio-economic changes

A globally ageing population adds intense strains to healthcare, old-age security, the labour market and care networks, forcing people to adjust their expectations for later life.

This story has often been exaggerated, but not in east Asia where, if little is done, the projected demographic explosion may provoke a fundamental crisis.

This is for two reasons. Firstly, the sheer speed of what the Asian Development Bank calls the “seismic transition” will add enormous pressure to existing systems. Industrialised countries experienced several generations of slow, gradual ageing. By contrast, the Asian transition to an elderly society – triggered by vastly declining birth rates and much longer life expectancies - will occur within a few decades. This gives governments across the region a short timeline for action.

Second, the regulatory challenge will be heightened by profound socio-economic change as the region moves from a predominantly rural to an urban society. The forces of globalisation and market liberalisation have seen millions of workers move from the countryside to the city. This change has and will continue to undermine Asia’s traditional form of old-age support: the family. Governments, therefore, will be expected to fill the gap as fewer retirees look to the family for old-age security.

At the heart of this challenge is the regulatory architecture of regional pension systems which, if built well, have the potential to deal effectively with population change. However, this will be a difficult task: existing provision is systemically inadequate.


Asian pension systems are far from uniform. Some are managed privately and are defined-contribution, others are government-led and defined-benefit. Some systems pay benefits as a lump sum, as opposed to an income stream, upon retirement. This can be as low as 55 for an Indonesian male or as high as 65 if you live in the Philippines.

It is widely acknowledged that pension systems should aim to meet some common objectives and, despite key system differences, many countries across the region collectively fail to meet such accepted goals.


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