In response to falling fertility rates, increasing longevity, and urbanization due to increasing industrialization in emerging markets, the governments are seeking to formalize and extend pensions coverage through reformed state schemes and new private plans, Allianz said in a press release. Since 2000, new mandatory DC plans have been introduced for various target groups in Hong Kong, India, and Taiwan, and Thailand plans to introduce a new DC plan in 2008. China, Japan and South Korea have introduced voluntary DC pension plans, and in Australia and Singapore there is a long tradition of a mandatory DC, the release said.
Key findings of Allianz’ study of pensions markets in nine developed and emerging economies include:
- Pension assets in the region are expected to increase by a 9.2% compound annual growth rate (CAGR), raising assets under management to EUR 3,116 billion by 2015, from EUR 1,407.5 billion in 2006. Strongest growth will occur in the emerging markets, at a 17.2% average CAGR.
- By 2015 Australia will see the biggest absolute increase in pension assets from EUR 606.7 billion to EUR 1,466.4 billion according to the study. The highest relative growth will occur in Taiwan, at 28.9% CAGR, China at 23.1%, and South Korea, at 22.9%.
- The dramatic trend towards funded DC plans presents major opportunities to domestic and global financial institutions active across the region. Outsourcing of asset management on the part of public pension funds is on the increase. Taken together these trends indicate that the expertise of professional asset managers will be decisive in delivering financial security to many of Asia’s future pensioners.
- With the rapid growth of DC plans across the region, individual investors are directly exposed to the financial markets, in many cases for the first time. This places a responsibility on governments and financial institutions to improve governance and financial literacy, so that individuals can make informed decisions within a secure framework. Default and lifecycle funds will play a crucial role in DC plans for individuals who are not able to make active investment decisions.
Joachim Faber, Member of the Board of Management of Allianz SE and CEO of Allianz Global Investors, points out in the release: “There are tremendous opportunities in this region for financial institutions that can deliver a wide range of services, including asset management, life and health insurance, and banking.”
Faber also indicated there will be a greater need for institutions that can deliver education to workers about the need to save and how to invest, and that “appropriate default and lifecycle funds will be essential for individuals who feel unable to make investment decisions.”