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| ADB Headquarters in Manila [PHOTO: ©Eugene Alvin Villar, 2007] |
Manila: Pension systems in many parts of developing Asia are
unprepared and underfunded to meet the needs of the region’s rapidly aging
population, especially as globalization breaks down traditional family support,
says a new book launched by the Asian Development Bank (ADB).
“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 ADB Principal Economist Donghyun Park and editor of Pension Systems in East and Southeast Asia: Promoting
Fairness and Sustainability. “Without far-reaching reforms, the financial burden of
these schemes on future workers may become more than they can bear.”
Pension systems need
to be fair in coverage, net benefits and retirement age, according to the book.
These systems also need to be financially sustainable to assure people that the
benefits promised at the end of their working lives are in fact delivered.
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. This
demographic dividend is tailing off, however, and falling fertility and rising
longevity mean Asia’s median age is rapidly becoming older.
The book urges Asian
policymakers to provide adequate old-age income support, offering key lessons
from the People’s Republic of China (PRC), Indonesia, Korea, Malaysia,
Philippines, Singapore, Thailand and Viet Nam.
In the PRC, for
example, where the number of elderly already outstrips the combined total of
senior citizens in all European countries, multiple pension systems cover urban
enterprises, rural dwellers and civil servants, and will need to be
rationalized to create a balanced, sustainable pension framework.
In more youthful
Indonesia, the existing system covers just 14% of all private formal sector
workers, and pension programs will have to expand by more than 700% to cover
both formal and informal sectors. Singapore, by comparison, has a single-tier
pension system with nearly universal coverage; however, the average funds per
member will be insufficient as the population ages in the next 20 years.
The book also
highlights the roles that changing social norms and globalization are playing
in the need for pension reforms. In many countries, family-based old-age
support mechanisms, such as with children supporting their elderly parents, are
breaking down, particularly as globalized labor markets trigger a surge in
migrant workers. Strong social protection systems, including pensions, can
mitigate the insecurity that globalization brings.