Unchanged reform needed after Covid-19 pandemic — Report
KUALA LUMPUR: Not addressing pension reform could spell the premature end of the Asian century, Allianz opines in its Asia Pension Report 2021.
Allianz recently unveiled its first “Regional Pension Report”, taking the pulse of Asia’s pension systems, guided by its proprietary pension indicator, the Allianz Pension Indicator (API), which it introduced last year by its “Global Pension Report”.
The indicator is based on three pillars: demographic and fiscal prerequisites, sustainability, and adequacy, taking all in all 30 parameters into account. Asia is in a good starting position to thrive during the 2020’s as it weathered the pandemic crisis in relatively good shape.
While economic activity in the region declined by less than two per cent in 2020, gross domestic product (GDP) contracted by more than four per cent at the global level and by almost eight per cent in Latin America.
The main reasons for Asia’s resilience: robust growth of 2.3 per cent in China, the only big economy of the world to grow at all during the pandemic.
“Overall, Asia’s performance over the last twelve months is simply amazing,” Allianz chief economist Ludovic Subran said.
“It gained a headstart over other regions. But by ignoring the looming demographic crisis which will not spare Asia either it could easily forfeit its advantage.
“Next generations of Asians would have to pay a heavy price for such negligence. Not addressing pension reform, key for social justice and resilience, could even spell the premature end of the Asian century.”
The Covid-19 pandemic has caused millions of deaths around the world and thus reduced the average period life expectancy in 2020. But the underlying demographic trends are going to remain intact: Due to decreasing fertility rates and increasing life expectancy Asia’s population will continue to age.
The Covid-19 pandemic slows the aging trend only temporarily. Within the next thirty years Asia’s population aged 65 years and older is expected to more than double from around 412 million today to 955 million in 2050; the share of this age group in total population is set to reach 18 per cent by then.
“Covid-19 will have no lasting effect on aging,” commented Michaela Grimm, senior economist of Allianz and author of the report.
“But that does not mean it has no effect at all for pensions. Quite the contrary. Covid-19 has exacerbated existing inequalities.
“Scars will remain not only from the deep recession, rising unemployment and interrupted education but also from some of the well-meant counter-measures such as the temporary reduction or suspension of pension contributions or the temporary allowance to withdraw pension fund savings. These short-term fixes are likely to increase oldage poverty in the years to come. If anything, Covid-19 has made thorough pension reforms even more urgent.”
There are still marked differences in the development stages of the region’s pension systems. Pension coverage ratios, for example, span from three per cent in Cambodia to 100 per cent in Japan.
Equally huge disparities can be observed in private wealth. In Taiwan and Hong Kong, net financial assets by households accounted for more than 400 per cent of total GDP in 2019, while in Sri Lanka, Cambodia, Vietnam, Indonesia and the Philippines the corresponding figure was less than 50 per cent.