Speaker Name & Country :

Topic:

Philip Jackson, India

The Retirement Opportunity in Asia needs, solutions,

and capabilities

Contents
What are the problems?
What can we learn about potential solutions?

Disclaimer
The views expressed here are the personal views of the presenter and not that of Milliman.
This presentation is intended solely for educational purposes and presents information of a
general nature. It is not intended to guide or determine any specific individual situation and
persons should consult qualified professionals before taking specific actions. Neither the
presenter, nor the presenters employer, shall have any responsibility or liability to any person
or entity with respect to damages alleged to have been caused directly or indirectly by the
content of this presentation.

Strain on existing systems

100%
90%
80%
70%
60%
50%

Rural Population

47.5

40%

Urban Population

30%
20%
10%
0%
1950

1960

1970

1980

1990

Source- UN World Urbanization Prospects, 2014 Revision

2000

2010

2020

2030

2040

2050
4

Strain on existing systems

Source:- Population Pyramid, European Environment Agency

Informal systems breaking down

70%
60%

63%
53%

50%

45%

40%
30%

40%

36%

31%

0%

39%
32%

31%
22%

20%
10%

40%

37%

7%

5%
South Korea

Taiwan

Retirees Themselves

14%

12%

Hong Kong
Government

Singapore

9%

Malaysia

4%
China

Grown children or Other Family Members

Source:-Balancing Tradition and Modernity: The Future of Retirement in East Asia

Strain on existing systems

6.00%
4.00%
2.00%
Korea
0.00%

1999

2004

2009

2014

2019

2024

2029

2034

2039

2044

2049

Philippines
Thailand

-2.00%
-4.00%
-6.00%
Source-PROST Calculations, The World Bank. http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/PensionsDP/0014.pdf

Current state of pension systems

For how much of the population is the current system adequate?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Australia

HK

India

Adequate for none

Source: Milliman retirement survey 2016

Indonesia
up to 30%

Malaysia
up to 60%

Singapore

Taiwan

Total

Up to 90%
8

Changes required
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Australia

Hong Kong

India

Indonesia

Malaysia

Singapore

Taiwan

Thailand

Total

Respondents thought only minor changes required for the next 20-30 years
Respondents thought overhaul or significant change required
Source: Milliman retirement survey 2016

Low interest rate environments

10Y government bond yields
8%
6%
4%
2%
0%

Hong Kong

Source:-www.tradingeconomics.com

India

Indonesia Malaysia Singapore Taiwan

Thailand
10

Challenges in the current system

Tax treatment too generous

154

Retirement age is too low

245

Shifting demographics

393

Insufficient contributions

358

Promised benefits are too generous

195

Insufficient rules to force full funding

197

Source: Milliman retirement survey 2016

11

Solutions?
12

Opportunities?
Total, 62%
Taiwan, 82%
Singapore, 60%
Yes, a large opportunity to cover the
majority of the population

Malaysia, 78%
Indonesia, 36%
India, 67%
Hong Kong, 56%
Australia, 56%

Source: Milliman retirement survey 2016

13

Where will we spend on retirement

Holidays/Experiences

260

Health/Medical (e.g. insurance, aged care)

483

Discretionary expenses

262

Bequests/legacies (e.g. charitable donations,

inheritance)

169

Basic living expenses (e.g. food,

accomodation)

382
0

Source: Milliman retirement survey 2016

100

200

300

400

500

600
14

Current offerings for retirement

None

8%

Universal life and its variants

27%

Variable annuities and its variants

Property/Equity release and its variants

12%
2%

Annuities and its variants

36%

Par/with-profit accumulation products

35%

Investment-linked products (e.g. unit-linked)

51%

Capital Protection Products(e.g. guaranteed income funds)

27%

Vanilla Investment Products (e.g mutual funds)

Source:- Milliman Retirement Survey 2016

26%
0%

10%

20%

30%

40%

50%

15

60%

Fixed income annuities

100%
80%
60%
40%
20%
0%

Source:- Milliman Retirement Survey 2016

Yes, and growing

Yes, but declining
They are a niche offering
for retirement
No, they do not or barely
exist in our market

16

Fixed interest challenges

Risk management issues

28%

Public financial illiteracy

25%

Technology
Inadequate internal capabilities
Inadequate domestic capital markets
Distribution issues/ unwilling

13%
10%
21%
26%

Pricing issues
Onerous solvency regulations
Regulatory/tax issues
Source:- Milliman Retirement Survey 2016

34%
29%
34%
17

Fixed income annuities

What needs to be done to increase uptake?
Incentives or compulsory purchase requirement

58%

Reduce capital requirements for guaranteed products

41%

Greater availability of fixed income assets to help

insurers offer better rates and ALM

50%

Increase education of longetivity risk to the public

53%

Increase access to financial advice

25%

Increase payout rates of longetivity products

34%
0%

Source:- Milliman Retirement Survey 2016

10%

20%

30%

40%

50%

60%

70%

18

Fixed income annuities

In the US only around 1 per
cent of 401(k) plan retirees
offered a life annuity actually
purchase one
In Australia in 2012 less than
200 life annuity policies were
sold at retirement in a market
with several million retirees.

Source: Cannon, Tonks and Yuille The Effect of the Reforms to Compulsion on Annuity Demand and Bateman
et-al Disengagement

19

Australian Superannuation
Australias retirement incomes system is a combination of
Superannuation (the defined contribution system established in1992) and
the governments means tested defined benefit age pension
Over USD 1.5 trillion in assets are in superannuation primarily as a result
of compulsory minimum employer contributions which are currently of
9.5% of wages
As a result, the Australian funds management industry is the 7th largest in
the world1 and estimated to be the highest in the world per capita2
1 Australia-Benchmark-Report
2 https://www.jpmorgan.com/cm/BlobServer/Thought_Magazine_Fall_2008_Superannuation_Funds.pdf
20

Australia Success factors

Mandatory personal pensions in the form of superannuation, with
amongst the highest compulsory employer contribution rates in the
world
Favourable tax treatment for account based pensions relative to other
products in Australia such as annuities;
The large funds management industry in Australia, which allows for
comparatively lower fund management costs compared to OECD
countries.

21

Japanese variable annuities

Rather than fixed income
annuities, the income is
linked to the performance of
the investments backing the
retirement fund
Deregulation allowed banks
to get in on the act finding
the high illustrated returns
and upfront commissions
attractive

Annual Japanese VA sales (USD Billion)

200
180
160
140
120
100
80
60
40
20
0

Source: Hoken Mainich Shinbun

2003

2004

2005

2006

2007

2008

2009

2010

22

Japan post financial crisis

Companies that had not transferred risk or implemented adequate
hedge programs were hit hard. Indeed, as a result of the crisis, pioneers
Hartford and ING would discontinue new sales; Hartford ultimately
withdrew
Immediately following the crisis, the savings market shifted away from
variable products towards foreign currency denominated fixed annuities,
especially products invested in Australian and US dollars
As a result, the key players in this space have returned to VA products
offering moderate guarantees and longer deferral periods.

23

Advice who uses it?

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Auralia

Source-Milliman Retirement Survey 2016

Hong Kong

<20%

India

20-40%

Indonesia

40-60%

Malaysia

60-80%

Singapore

80%+

Taiwan
24

Advice who needs it?

Thailand, 80%
Taiwan, 55%
Singapore, 70%
Financial advice should be used by the majority of the
population to plan their retirement

Malaysia, 100%
Indonesia, 64%
India, 83%
Hongkong, 61%
Australia, 47%

Source: Milliman retirement survey 2016

25