Voluntary Pensions in Emerging Markets New Strategies for Meeting - PowerPoint PPT Presentation

Voluntary Pensions in Emerging Markets New Strategies for Meeting the Retirement Security Challenge Richard Jackson President Global Aging Institute AMAFORE 2 a Convención Nacional de Afores FIAP 15 o Seminario Internacional October 30-31, 2017 Mexico City

The Coming Crisis in Retirement Security 2

The emerging world is about to age dramatically. Adultos mayores (de 65 años de edad o más), como porcentaje de la población en 2015 y 2050 19% 5% India Francia 13% 26% 2015 5% 16% Indonesia Canadá 14% 26% 2050 6% 10% Malasia China 17% 28% 6% 10% México Tailandia 19% 30% 13% Rusia 21% Alemania 21% 32% Estados 15% 15% Hong Kong 22% Unidos 35% 8% Brasil 22% Italia 23% 35% Corea del 18% Reino Unido 13% 25% 35% Sur 11% Chile 26% 26% Japón 36% 0% 10% 20% 30% 40% 0% 10% 20% 30% 40% Fuente: World Population Prospects: The 2015 Revision (Nueva York: División de Población de Naciones Unidas, 2015) 3

The Inadequacy of State Retirement Provision: LOW COVERAGE RATES  Many workers in emerging markets fail to Tasa efectiva de cobertura previsional estatal y tamaño del sector informal contribute to the state pension system, and en el año más reciente sobre el que existe información disponible even when they do contribute, they do so 90% irregularly, which means that the benefits = Sistema de Capitalización 80% they receive will still be inadequate. Hong Kong 70% Chile Tasa Efectiva de Cobertura Corea del Sur = Sistema de Reparto  In today’s relatively youthful emerging Brasil 60% Malasia markets, the limited reach of contributory 50% pension systems is a serious economic and 40% México social concern. In tomorrow’s emerging China 30% markets, with their soaring old-age Tailandia 20% dependency burdens, it could become an India Indonesia 10% economic and social catastrophe. 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Tamaño del Sector Informal Nota: La tasa de cobertura efectiva es la proporción de la fuerza laboral que contribuye al sistema o sistemas previsionales mandatorios en un año dado. El sector informal es definido como empleo informal en el sector no-agrario más el empleo agrario como proporción del empleo total. Los estimados del tamaño del sector informal fueron derivados de sumar el empleo agrario con estimados publicados del empleo informal no-agrario. En el caso de Hong Kong, el empleo informal no-agrario fue estimado también por el GAI. Fuente: Richard Jackson, Las pensiones voluntarias en las economías emergentes: Nuevas estrategias para enfrentar el desafío de la seguridad previsional (Alexandria, VA: Global Aging Institute, 2017) 4

The Inadequacy of State Retirement Provision: LOW REPLACEMENT RATES  From Brazil to China, emerging markets Tasas de reemplazo futuras para trabajadores de carreras with PAYGO pension systems are making completas de los sistemas previsionales estatales deep reductions in the generosity of state retirement provision as their populations age. Indonesia 14%  México 29% In principal, emerging markets with funded state pension systems should be better Hong Kong 33% positioned to confront their age waves. In Malasia 34% practice, however, these systems are Chile 39% unlikely to deliver on their promise. Corea del Sur 40%  India 45% In countries like Chile, Hong Kong, and Mexico with privately managed personal accounts Tailandia 47% systems, contribution rates are too low to China 54% finance adequate replacement rates. Brasil 56% 0% 10% 20% 30% 40% 50% 60%  In countries like India and Malaysia with centrally managed provident funds, low Nota: Las proyecciones son para los trabajadores con ingresos medios que ingresan a la fuerza labotal hoy a los veinte años de edad y se jubilan a la edad normal de jubilación de su sistema previsional estatal. En los países donde las tasas de returns on worker contributions, together reemplazo difieren según el sexo, las proyecciones son promedios hombre-mujer. Para Brasil, las proyecciones se refieren al RGPS; para Chile, al Sistema AFP; para China, al Sistema Previsional Básico para Empleados Urbanos; para with early retirement ages, mean that Hong Kong, al MPF; para India, al EPF y EPS; para Indonesia, a la Seguridad de la Vejez; para Malasia, al EPF; para Mexico, al SAR; para Corea del Sur, al Sistema Nacional de Pensiones; y para Tailandia, al Sistema de Pensiones para la Vejez. replacement rates will also be inadequate. Fuente: Richard Jackson, Las pensiones voluntarias en las economías emergentes 5

The traditional role of the family in retirement security is receding in emerging markets.  For most retirees, alternative income Porcentaje de encuestados que dicen que "Los hijos adultos u otros sources will not be sufficient to make up miembros de la familia" deberían ser los principales responsables for inadequate state pensions. de proveer ingresos y cuidado personal a las personas retiradas  As today’s emerging markets develop and 70% 63% modernize, the expectation that the 60% 60% extended family will assume responsibility Ingreso Cuidado Personal for caring for retirees is fading. 48% 50% 40%  Traditional family support networks, 34% 32% 30% 29% moreover, will soon come under intense 30% 26% 21% new demographic pressure as populations 20% 20% age and family size declines. 13% 11% 11% 10% 10% 10% 8% 8% 10% 6% 6%  In Brazil and South Korea, the average 0% number of children that the typical elder Tailandia Hong Malasia Corea del Taiwán Indonesia Singapur China Filipinas Vietnam Kong Sur can turn to for support will decline by 1.7 between 2010 and 2040. In China it will Fuente: Richard Jackson y Tobias Peter, From Challenge to Opportunity: Wave 2 of the East Asia Retirement Survey (Alexandria, VA: GAI, 2015) decline by 2.3 and in Mexico by 2.4. 6

Neither continued work nor personal savings is likely to bridge the gap in retirement income. Porcentaje de la población con por lo menos educación secundaria  Continuing to work at least part time is an inferior, por grupo de edad obvious way to compensate for inadequate state pensions. Yet across the emerging world, 94% 65+ 20-39 100% 91% 85% 84% an enormous gap has opened up between the 80% 71% 67% 65% skills that older workers have and the skills 52% 60% 42% needed to fill the jobs being created in the 40% 28% growth sectors of the economy. 22% 19% 19% 17% 16% 20% 8% 0%  As for personal savings, even in high-saving India Tailandia Brasil México Chile China Malasia Hong Kong East Asia relatively few older workers have Fuente: Wittgenstein Centre Data Explorer, Version 1.2 (Wittgenstein Centre for Demography and Global Human Capital, 2015) accumulated sufficient financial assets to Ratio promedio de activos financieros netos a los ingresos de los finance more than a fraction of a retirement encuestados a la edad de 50 años that might last 25 years or more. Indonesia 0.2 Filipinas 0.2 Tailandia 0.3 Vietnam 1.1 China 1.4 Malasia 1.9 Singapur 2.7 Taiwán 2.7 Hong Kong 2.8 Corea del Sur 3.5 0 0.5 1 1.5 2 2.5 3 3.5 4 Nota: Los activos incluyen toda clase de activos financieros de los hogares; los ratios son promedios de encuestados entre 45 y 54 años de edad. Fuente: Jackson y Peter, From Challenge to Opportunity: Wave 2 of the East Asia Retirement Survey 7

Meanwhile, rising life expectancy puts retirees at a growing risk of outliving what savings they do have. Cambio en la esperanza de vida al nacer proyectada para el año  Since 1950, life expectancy in Latin America 2050: Revisión de la ONU 2015 vs. Revisión de la ONU 2000 has risen by 23 years, while in emerging East Asia it has risen by 32 years. Looking Indonesia -3.5 to the future, the UN now projects that it Malasia 0.4 will rise by another six years in Latin America and another seven in East Asia. India 0.4 Tailandia 1.2  It is worth recalling, moreover, that the history China 3.5 of life expectancy projections has been largely Hong Kong 4.0 a history of embarrassing underestimates. México 4.3 Brasil 5.3 Corea del Sur 5.7 Chile 7.7 -6 -4 -2 0 2 4 6 8 10 Fuente: World Population Prospects: The 2015 Revision y World Population Prospects: The 2000 Revision (Nueva York: División de Población de Naciones Unidas, 2000) 8

The Case for Voluntary Pensions  All of this suggests that the success of emerging markets at ensuring retirement security will increasingly depend on their success at building robust voluntary pension systems. GAI REPORT  Until recently, most policymakers assumed that expanding voluntary pension systems should be ❖ Chapter 1 a low priority in societies where mandatory The Coming Crisis in Retirement systems cover just a fraction of the workforce. Security But it is precisely the limited reach of mandatory systems that makes expanding voluntary ones so ❖ Chapter 2 important. Best Practices for Voluntary Pension  Nor is it true that expanding voluntary pensions Systems need merely benefit the affluent. To the contrary, they have a crucial role to play in shoring up the ❖ Chapter 3 deteriorating retirement income prospects of Lessons for Emerging Markets the middle class. They can even help to improve the retirement security of informal-sector workers, who currently have none at all. 9

Today’s Voluntary Pension Landscape 10