New retirement preparedness indicator: Financial and economic factors influencing Malaysia’s retirement readiness



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Manulife Asset Management has issued a report that introduces its Retirement Preparedness Indicator, which highlights the financial and economic conditions influencing the ability of individual economies to provide for their aging populations.

Entitled “Funding the golden years: The financial and economic factors shaping retirement provision for Asia’s rapidly aging populations,” the report finds that Malaysia faces a mix of demographic factors working for and against it in terms of providing financially for its retirees.

Part of Manulife Asset Management’s Aging Asia research series, it builds on the findings of its June 2012 publication, “Saving up: The chang- ing shape of retirement funding in a greying ASEAN”, whichreveals how the Association of Southeast Asian Nations (ASEAN), once considered to be among themost “youthful” in Asia, is actually aging more rapidly than most realise.

The new report divides the subject, countries and territories into three broad categories of retirement preparedness.

Those deemed to be facing the most favourable conditions are Taiwan, Hong Kong and Japan; those judged to have favourable conditions are Singapore, China, Malaysia and Thailand and those considered to be facing challenging conditions are Indonesia, South Korea, Vietnam and the Philippines.

Manulife Asset Management Services Berhad’s Chief Investment Officer Jason Chong said, “Malaysia is in many ways well positioned to provide for its citizens in retirement as it currently benefits from a relatively young demographic profile and a high savings rate of 35%.

“This implies that individuals are able to supplement the government- mandated pension scheme, which holds net pension wealth of just 6.4 times average annual incomes and has a relatively low coverage ratio of 33%.

“Other significant challenges facing the country are its swelling popula- tion of pensioners, which is growing more rapidly than its young populace, its low level of financial wealth and its relatively shallow financial markets, which limit the ability to mobilise private savings.

“This final point is crucial and is being addressed: the government recently introduced the Private Retirement Scheme, which is designed to channel private savings into longer term retirement savings vehicles.”

Oscar Gonzalez, an economist at Manulife Asset Management, remarked: “Malaysia faces a mixed bag of demographic factors that complicate its retirement prepared- ness picture. Its working age population (aged 15-64) will continue to account for about 60% of its populace through 2050, meaning that it will see significant numbers of new savers.

“At the same time, the share of its population older than 64 is projected to grow from 5% last year to 18% by 2050 and the share of its population younger than 15 is expected to fall from 30% to 18% in the same period.

“The net effect of these trends translates into a sharp drop in the nation’s elderly support ratio from about 12 working age citizens per elderly person currently to about 3.5 by 2050. It is ultimately the interplay between these demographic factors and financial and economic trends that will determine whether or not Malaysia will become rich enough to sufficiently fund retirements before it becomes too old.”

Manulife Asset Management’s Head

of Asia and President Michael Dommermuth said, “Asia as a whole is aging much more rapidly than most realise. Individual countries and territories face

varying conditions that affect their abilities to provide for their growing retired populations.

“The report reveals that most public retirement schemes in the region will need to be supplemented and that the ability to do so hinges on the availability of secured savings vehicles that unlock the potential to grow personal savings.

“This is strongly influenced by government policy support for enhancing financial market depth and the level of private sector interest in alternative savings mechanisms such as mutual funds.”

The report shows that Asia is likely to experience an increased shift in responsibility for retirement funding from the state to the individual and Malaysia is no exception to this trend.

As this shift takes place, Dommer- muth sees a growing need for investment products such as asset allocation funds that help build pension pots and, ultimately, income generating products that generate steady cash flow in retirement.

“Manulife Asset Management has considerable experience building multi-asset solutions designed to meet specific client objectives and constraints. Our dedicated asset management unit, the Portfolio Solutions Group, has investment professionals across the United States, Canada and Asia managing more than US$98 billion in asset allocation funds, making us one of the world’s leading asset manage- ment firms.

“Based on market knowledge gleaned from our footprint across 10 countries and territories in Asia, we know how to provide customised investment solutions that meet local market needs for retirement funding.

“This is why Manulife Asset Manage- ment Services is proud to be a provider to Malaysia’s Private Retirement Scheme, which is an example of a forward-thinking government taking proactive steps to improve the retirement preparedness of its population by facilitating the provision of long-term investment products to grow savings.”

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