Session 3b Pension system review in Asia Pacific Billy Wong, FSA
MELBOURNE MERCER GLOBAL PENSION INDEX Private DC RETIREMENT INCOME SYSTEMS Diverse systems are hard to classify. Insurance Pensions Assets Public Insurance Regulators DB Lump sums Members Employers How could we even begin to compare them? MERCER 2016 1 1
MELBOURNE MERCER GLOBAL PENSION INDEX Insurance Private Pensions DC Assets RETIREMENT INCOME SYSTEMS Too important to be ignored. There is room for improvement in all countries retirementincome provision Public Regulators Lump sums Employers - OECD Insurance DB Members MERCER 2016 2 WHAT IS THE IDEAL RETIREMENT SYSTEM? WORLD BANK MULTI-PILLAR APPROACH 0 1 2 3 4 Basic public pension Public mandatory contributory system linked to earnings Private, mandatory, fully-funded system Voluntary fully-funded system Support for the elderly outside pensions MERCER 2016 3 2
WE BEGIN BY ASKING THE FUNDAMENTAL QUESTIONS ADEQUACY What do you get? SUSTAINABILITY Can it keep delivering? INTEGRITY Can it be trusted? MERCER 2016 4 CALCULATING THE MELBOURNE MERCER GLOBAL PENSION INDEX MERCER 2016 5 3
AUSTRALIA A mean-tested age pension + mandatory employer-funded private run DC + additional voluntary contributions Income stream drawdown Increase participation rate at older ages Mechanism to increase pension age Increasing minimum access age to receive benefits Adequacy 81.2 Sustainability 72.1 Integrity 87.6 MERCER 2016 6 CHINA Urban and rural system; PAYO basic pension + funded individual accounts + supplementary plans Increase coverage Income stream drawdown increase state pension age over time More investment options Improve communication Adequacy 62.7 Sustainability 29.8 Integrity 50.0 MERCER 2016 7 4
INDIA Earnings-related pension + DC provident fund + voluntary employer managed funds Support for poorest Increase coverage Introduce minimum access age Improve regulation on private pensions Improve communication Increase contribution Adequacy 30.0 Sustainability 39.9 Integrity 57.6 MERCER 2016 8 INDONESIA Earnings-related civil pension + mandatory DC Support for poorest Increase level of pension provision Improve regulations on private pension Improve communication Increase pension age as life expectancy increases Adequacy 41.3 Sustainability 40.1 Integrity 70.8 MERCER 2016 9 5
JAPAN Flat rate basic pension + earningsrelated pension + voluntary supplementary pension Raise household saving Increase coverage Income stream drawdown Increase pension age as life expectancy increases Reduce government debt as % of GDP Adequacy 48.8 Sustainability 26.5 Integrity 61.2 MERCER 2016 10 KOREA Basic pension + public earnings-related pension Adequacy 43.9 Support for poorest Income stream drawdown Increase level of funded contributions Improving governance Reduce government debt as % of GDP Sustainability 41.6 Integrity 46.8 MERCER 2016 11 6
SINGAPORE CPF Adequacy 55.7 Reduce barriers to establish taxapproved private plan Opening CPF to non-residents Increase participation at older ages Sustainability 65.9 Integrity 77.2 MERCER 2016 12 TRANSPARENCY AND TRUST IN PENSIONS Improved understanding of the pension system is critical Members need relevant and timely information The disclosure arrangements are not as strong as may be expected Transparency of costs and performance is important to develop greater confidence MERCER 2016 13 7
SOME CONCLUSIONS The pension industry must develop efficient methods to be transparent in meaningful and relevant ways to all stakeholders Such features will encourage greater trust and confidence We recommend that the pension industry must Provide accurate, relevant and timely information to all members in a cost-efficient manner Ensure there is an independent review process available to members Provide some protection to members in the case of a failure due to fraud MERCER 2016 14 MERCER 2016 15 8