Many Asian countries will need to reform their pension systems to deliver sustainable and adequate retirement incomes.
Paris: In an effort to deliver sustainable and adequate retirement incomes for today’s workers, many Asian countries will need to reform their pension systems, a new Organisation for Economic Co-operation and Development (OECD) report said.
According to the report ‘Asia/Pacific’, it is vital to act now to avoid future problems and repeating many of the mistakes made in Europe and North America in order to prepare for the rapid population ageing forecast over the next two decades.
The joint OECD/World Bank report analyses the retirement income systems of 18 Asian countries, including India, Australia, China, Indonesia, Pakistan, the Philippines and Vietnam.
In Asian nations, coverage of formal pension systems is relatively low and withdrawal of savings before retirement is very common, the report pointed out.
The report said that pension savings are often taken as lump sums and often do not provide adequate income over a person’s lifetime, while pensions payments are not automatically adjusted to reflect changes in the cost of living.
It further said that these factors called for the reforms in the pension system in Asian nations.
An average of 70 per cent of the working population was eligible for a pension in OECD countries, whereas in South Asia just 7.5 per cent of the working population was eligible and in East Asia 18 per cent, the report revealed.
Furthermore, few countries in Asia and Pacific have social pensions to provide safety-net retirement incomes for people who are not members of formal schemes. Only in India are social pensions significant, with around 10 to 15% of older people covered, the report added.
The report recommended Asian countries with defined-benefit schemes based on workers’ final salaries should shift to calculating pension entitlements using lifetime average earnings, as most OECD countries do. This will make them more financially sustainable and fairer.
It further suggested that these nations would allow people to take out their savings only on retirement via regular payments, known as annuities, would reduce the risk of people’s savings running out in retirement.
OECD also recommended that these countries should link pension payments to reflect changes in the cost of living—only China and the Philippines currently do so.
—iGovernment Bureau
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