Europe, Asia the Scene of Significant Pension Changes

November 24, 2008 ( - Central and Eastern Europe (CEE) and Asia have undertaken far more extensive and fundamental pension reforms than those tried in Western industrialized countries.

That was a key conclusion from a new report from Allianz Global Investors AG that examined pension reform efforts in 18 countries across Asia and CEE.

Others findings of the study include:

  • Both regions have followed the World Bank model of a strongly funded pension pillar that takes the form of defined contribution (DC) plans and is mandatory in most countries.
  • Financial institutions and plan sponsors need to improve financial education, design adequate plans, provide transparent and suitable products, and introduce appropriate regulations to emerging market governments to ensure the sustainable success of these DC plans and adequate living standards after retirement.
  • The three key drivers of these pension reforms are: Asian aspiration to establish formal pension systems to replace traditional family-based support systems; lack of sustainability of previous CEE pension systems with the end of socialist rule; and the significant demographic changes resulting in an unprecedented speed of ageing. These new DC systems are likely to rapidly build up a massive amount of pension assets – €244.9 billion in CEE and €1,049.3 billion in Asia by 2015.

“The emerging economies analyzed in the report have initiated far reaching pension reforms that show a great deal of similarity,” said Alexander Boersch, Senior Pensions Analyst at AllianzGI, in a news release. “Obviously, significant economic, political and cultural differences exist between the emerging economies in the two regions, nevertheless they have followed a similar path of reforms – and one that differs considerably from that taken in the Western industrialized world.”

According to the announcement, “with the current turmoil in financial markets it becomes obvious that the exposure of funded pension systems to market volatility imposes severe challenges on these systems.”

To deal with the issue, the report said financial education needs to be improved, the design of pension plans needs to be as effective as possible, asset managers need to provide transparent products and give sound advice, while regulation should not overly restrict investment opportunities or encourage suboptimal investment strategies on the part of pension funds.

The 18 countries examined in the report are: China, Hong Kong, India, Singapore, South Korea, Taiwan, Thailand, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

More information is available here .