Emerging pension markets in Asia, and Central and Eastern Europe are blossoming, growing at a pace that could see defined contribution assets under management increase nearly fivefold by 2015, according to a new report published by Allianz Global Investors AG.
The trend toward capital-funded pension systems is a very strong one, said Brigitte Miksa, head of international pensions at Munich-based AGI, in a telephone interview. "We hope that despite current market conditions, the governments (of these emerging economies) will have the courage to continue to develop their pension systems."
In Asia, DC pension assets are primed to increase to €1.05 trillion ($1.36 trillion) by 2015 from €215 billion at the year-end 2006, the latest date for which data were available, while similar assets in the CEE region could rise to €245 billion from about €51 billion in 2006 over that same time period. The annual growth rate for DC assets is projected to be about 17% for emerging Asian markets and 19% for the CEE region, according to the report.
Alexander Boersch, senior pensions analyst at AGI and author of the report, added that the growth estimates linked to pension assets among emerging market economies are based on contributions as well as asset performance. Even in the current market conditions, there is still a steady flow of contributions (into the pension systems). Were confident in the level and magnitude of the estimations Mr. Boersch said in the report.
Inflows have primarily been into defined contribution platforms introduced by government authorities to cope with significant demographic changes, resulting in an unprecedented speed of aging, according to Pension Trends in Emerging Markets – The Rise of DC Plans and Its Consequences.
For example, China has one of the fastest growing DC industries among emerging market economies. The median age is estimated to climb to 48 years in 2050 from 32.5 years in 2005, according to data from the Washington-based International Monetary Fund.
In response, Chinese government officials introduced a voluntary individual pension savings plan in the late 1990s. Aggregate assets in the individual accounts totaled €53.4 billion at the end of 2006, and are expected to swell annually by between 23.4% and 25.6% until 2015, according to data from AGI.
A separate occupational pension system, dubbed the Enterprise Annuity system, was introduced in 2004. Assets under management under this system totaled €8.9 billion at the end of 2006 and are estimated to rise annually by about 21.2% until 2015.
Theres no general pattern that these (pension) markets follow, Ms. Miksa said. The pension systems of various nations emerge from very different backgrounds, which make it difficult to identify common patterns. Its astonishing how very different these systems are.