Way Forward for Pensions Globally (From A Service Provider Perspective) Rex Auyeung President Asia Principal Financial Group

Transcription

1 Way Forward for Pensions Globally (From A Service Provider Perspective) Rex Auyeung President Asia Principal Financial Group April 3,

2 Developing Trends in Global Pension 1. Various types of reform 2. Growth in privatization 3. Product evolution 4. Plan sponsors prefers defined contribution plan over defined benefit plan 5. Lifestyle changes 6. Asia growth story 2

3 3 1. Various Types of Reform

4 Main Types of Pension Reforms Around The World Raising contribution rates (e.g. Malaysia) Raising minimum retirement ages (e.g. U.S.) Increase minimum number of contribution years to qualify for pension (e.g. France) Cut back on rich-benefit retirement programs (e.g. Greece) New options for default fund (e.g. Target date fund) 4

5 5 2. Growth in Privatization

6 Public Pension Spending Faces Upward Pressure Countries are looking at pension privatization to reduce pressure on public pension expenditures 6

7 What Can You Learn from Developed Countries Experience? Many emerging markets will consider some form of pension privatization to encourage early savings Build towards an adequate and sustainable system Not over-promise pension benefits Fix your system before it is too late! 7

8 Benefits of Private Pension Pension funds provide essential liquidity that helps make domestic financial markets function effectively and efficiently Pension funds are critical drivers of growth and economic activity in domestic market because they are one of the only significant sources of long term, patient capital Positive impact on job market 8

9 9 3. Product Evolution

10 Retirement Product Provider Trends Pre-retirement products Lifecycle Funds (Target Date, Target Risk funds) Deferred annuity Post-retirement products Immediate annuity Reverse mortgage Pension Administration User empowerment on administration and information access through electronic means i.e. internet Paperless 10 More mobile

11 4. Plan Sponsors Prefer DC Plan Over DB Plan 11

12 Transition from DB to DC Environment 12 SOURCE: Towers Watson The survey covers Australia, Canada, Japan, Netherlands, Switzerland, UK and US

13 Why DC Plan is Preferred? Advantages to Workers Portability Personal control Fair benefits as traditional DB plan benefits are skewed to favor the longer term and oldest workers over others Advantages to Plan Sponsors No investment risk No unfunded liability Greater control over costs 13

14 14 5. Lifestyle Changes

15 Lifestyle Changes Working beyond retirement Retirement homes New products/services relate to the elderly population Medical care Adult care center Senior citizens accessories Travel service 15

16 16 6. Asia Growth Story

17 Role of Asian pension funds in the top 20 ranking Rank Rank Fund Market Assets (US$ million) 1 1 Government Pension Investment Japan $1,432, Government Pension Fund Norway $550, ABP Netherlands $318, National Pension Korea $289, Federal Retirement Thrift U.S. $264, California Public Employees U.S. $214, Local Government Officials Japan $189,633 (1) 8 12 Canada Pension Canada $149,142 (2) 9 19 Employees Provident Fund Malaysia $145, Central Provident Fund Singapore $144, California State Teachers U.S. $138, New York State Common U.S. $133, PFZW Netherlands $133, National Social Security China $129, GEPF South Africa $128,232 (1,2) Pension Fund Association Japan $124,987 (1) ATP Denmark $123, Florida State Board U.S. $123, New York City Retirement U.S. $115, Ontario Teachers Canada $108,148 $4,957,197 1 Estimate 2 As of 31 March As of 31 March As of 30 June Source: Tower Watson

18 Asia Pacific: Rapid Retirement Asset Growth Expected Till The size of the bubbles reflects the estimated asset volume in 2020

19 Summary Growing need that government face to reform their pension systems into more financially sustainable structures Private and public pension funds create jobs and drive economic growth As the size of pension funds increase, the benefit of private pension to domestic economy will become more apparent Product innovation on pre-retirement asset accumulation and post-retirement income stream Asian pension funds will grow at a rapid pace and ease pressure on public pension expenditure 19

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