Bangkok--13 Jun--Manulife Asset Management
Research suggests that Thailand will experience a rapid acceleration in the percentage of pensioners over the next 40 years
A new report, published today by Manulife Asset Management, casts doubt on the assumption that aging populations is exclusively a challenge of already recognised ‘grey’ Asian nations such as Japan and Korea. It suggests that aging demographics are also affecting ‘youthful’ ASEAN nations such as Thailand, meaning that the need for changes in retirement funding in these countries is now more pressing than ever.
The report, written by the Economist Intelligence Unit (EIU and entitled “Saving up: The changing shape of retirement funding in a greying ASEAN”, provides an analysis of data that suggests that most ASEAN countries can expect to see at a tripling in the percentage of their pensioner population in less than 40 years. The grey phenomenon is likely to be acute in Thailand, where by 2050, a quarter (25%) of all Thais will be over 65 — almost triple the percentage in 2010 (9%).
To set this in context, in Thailand, the old age dependancy ratio will more than triple to a situation where every 100 workers will be supporting 41 pensioners in 2050, compared to 13 pensioners in 2010, potentially putting a considerable strain on retirement funding.
The report examines the challenges the trend creates for pension provision in these nations. For example, in Thailand, less than one in five (less than 20%) citizens are currently members of formally constituted pension schemes, hinting at a future where significant numbers of local people may enter old age with little dedicated financial support in place. The report 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 and Manulife Asset Management expects the pace of these reforms to accelerate as ASEAN nations seek to cater financially for this growing army of prospective pensioners.
In Thailand’s favour is its high bank deposit rates, which the report forecasts to continue to rise in the short term, notching up a compound annual growth rate of 8% in the 5 years to 2016. The research examines the opportunity to mobilise 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 for ASEAN countries, such as Thailand, to do this, because savings rates are expected to then tail off as legions of pensioners raid their savings to fund their retirement.
Tor Indhavivdhana, Chief Executive Officer of Manulife Asset Management (Thailand) explains:
“Many Thai people are risk-averse and prefer capital protected investments. This is reflected in Thailand’s high bank deposit rates and also in the fact that fixed income funds now account for more than 60% of the total AUM of the mutual fund market. However, as the country ages and people seek higher returns from their long term investments we believe that Thai depositors may start to shift their savings and investment from bank deposits to other investment alternatives, starting with lower risk products i.e. Money Market Funds and then looking to diversify a certain proportion into equity funds or Foreign Investment Funds (FIFs) in a bid to generate higher returns.
With our global expertise, we aim to differentiate ourselves from other local bank backed AMCOs by focusing on FIFs as an alternative for any investors looking to gain exposure to markets outside of Thailand.”
More generally in ASEAN, the report finds that, in addition to growth in savings and bank deposit rates, comparatively sound economies and greater market liberalisation 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 Thailand and in ASEAN generally is important as the report suggests there is scope for authorities and institutions to turn to investment managers to provide the region’s army of aging citizens with a variety of complementary options to plan financially for retirement.
Michael Dommermuth, President of Asia at Manulife Asset Management says: “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 a 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.”
Manulife Asset Management already has considerable experience of building multi-asset class solutions designed to meet specific client objectives and constraints, for example for Hong Kong’s Mandatory Provident Fund and other pension schemes in the region, and already manages more than USD5 billion in Asian asset allocation AUM. Its dedicated asset allocation unit, the Portfolio Solutions Group, now has investment professionals across the US, Canada and Asia managing over USD90 billion, globally, in asset allocation funds, making Manulife Asset Management one of the world’s leading asset allocation firms.