Aging demographics are also affecting ‘youthful’ Asean nations, casting doubt on the assumption that aging populations are exclusively a challenge of already recognized ‘grey’ Asian nations such as Japan and Korea, according to a new report by Manulife Asset Management.

The report suggests that Asean countries can expect to see a tripling in the percentage of their pensioner population in less than 40 years. The grey phenomenon is particularly acute in Singapore where, by 2050, almost a third (32 percent) of all Singaporeans will be over 65 – more than triple the percentage in 2010 (nine percent) and by far the highest percentage among the Asean nations.

The report, written by the Economist Intelligence Unit (EIU) and entitled “Saving up: The changing shape of retirement funding in a greying Asean”, examines the challenges the trend creates for pension provision in these nations. For example, in Thailand, Indonesia, Vietnam and the Philippines, fewer than one in five citizens are currently members of formally constituted pension schemes, hinting at a future where significant numbers of people may enter old age with little dedicated financial support in place.

The study concludes that the stage is set for alternative savings mechanisms, such as mutual funds and insurance products, to grow significantly in the coming years as ever greater numbers of pre-retirees seek to complement their existing formal pensions with additional savings and investments vehicles. There is evidence that this trend is already starting to take place alongside reforms to formal pension schemes in Asean. Manulife Asset Management expects the pace of these reforms to accelerate as Asean nations seek to meet the financial needs of this growing army of prospective pensioners.

In Asean’s favour are its high savings and bank deposit rates, both of which are forecast to continue to rise in the short term. The research examines the opportunity to mobilize these into longer term investment vehicles such as life insurance and mutual funds in a bid to help individuals fund their old age. There is an important window of opportunity to do this, because savings rates are expected to then tail off as legions of pensioners raid their savings to fund their retirement.

As authorities across Asia seek to address the retirement funding needs of this growing mass of retirees, Asean is already seeing considerable developments in its pension systems. Manulife Asset Management expects this trend to continue.

Michael Dommermuth, president of Asia at Manulife Asset Management explains: “These findings underline the importance of reform measures being adopted by authorities in Asean, as they grapple with challenges such as low coverage rates, lack of indexation of benefits for inflation and comparatively low retirement ages.”

In addition to growth in savings and bank deposit rates, the report finds that comparatively sound economies and greater market liberalization are likely to support the continued growth of savings and investment vehicles such as life insurance and mutual funds. The development of these industries in Asean is important as the report suggests there is scope for authorities and institutions to turn to financial institutions to provide the region’s army of aging citizens with a variety of complementary options to plan financially for retirement.

Dommermuth adds: “We believe that pension reforms will continue apace in ASEAN, underpinned by the urgency created by this rapid demographic shift. We expect to see many countries adopting a ‘multi-pillar’ approach, where individuals save for retirement through a combination of formal pension programs and private investment solutions. As this takes place, we anticipate a growing need for investment products such as asset allocation funds that help build pension pots and, ultimately, income generating products that help generate steady cashflow in retirement.” –The Asset,