Coronavirus woes supersede longevity risks in Asia for now

The coronavirus pandemic has made it even tougher this year for Asia-Pacific governments to grapple with unprecedented longevity risks to retirement savings, analysts say.

Governments' focus on "cushioning the economic effects of the coronavirus" has pushed demographic challenges from the headlines even as the window of opportunity to address issues — such as how to finance retirements that will stretch over 20 to 30 years — is closing, said Michaela Grimm, a Munich-based senior economist with Allianz Group. Ms. Grimm helped author the Allianz Pension Report 2020 the company issued in May.

The pandemic "has distracted us," shifting the focus of governments in the region from the threat longevity poses for retirement savings even as a number of countries here get old "at a pace never seen on earth before," agreed Ashley Palmer, Hong Kong-based regional managing partner, Asia retirement and investment, with Aon Hong Kong Ltd.

The U.S., U.K. and Europe took 80 years to transition from "aging societies," with 7% of their populations at 65 years of age or over, to "super-aged societies" with 20% in that age bracket. But that's happening "in about 10 years in some Asian markets," Mr. Palmer noted.

Asset owners called that shift in government focus this year understandable even if steps to provide immediate relief for workers have sometimes undercut programs designed to ensure they won't outlive their savings.

In Australia, for example, the government's move this year to allow Australians to withdraw A$20,000 from their mandatory retirement accounts helped many get through the worst of the coronavirus crisis but at the cost of falling behind "in the accumulation phase" of retirement saving, said Debby Blakey, the CEO of HESTA, a Melbourne-based super fund overseeing A$56 billion ($41.3 billion) in retirement assets for 870,000 participants.

Women account for more than 80% of HESTA's health care-focused membership so the fund already wrestles with the challenges members who spend years out of the workforce caring for family face in building up sufficient retirement assets, Ms. Blakey said.

Women typically retire "with about 40% less in their super than men and then on top of that live two to eight years longer," she noted. For HESTA, "part of this work is really thinking through the issues, not only at retirement and in terms of longevity risk in retirement but how do we support women through the accumulation stages in order to be more resilient in terms of the longevity they're likely to experience," she said.

Looking at which HESTA participants took advantage of that A$20,000 lifeline, it's primarily women under the age of 34 — in the run-up to their mid-30s when they often take time off from paid work, Ms. Blakey said. Many of those women have seen their account balances drop by about 70% so "they're now going into their primary saving years for retirement with a very low balance, and if you think about the impact of compound interest, they're missing out on a lot of that so … I actually think we're very vulnerable in the accumulation stage," she added.

Meanwhile, ripple effects from the Malaysian government's heavy reliance this year on the country's 929.6 billion ringgit (228.3 billion), Kuala Lumpur-based Employees Provident Fund to help participants get through the economy's persistent coronavirus lockdowns could have even broader effects on retirement preparedness.

On Dec. 2, the government expanded a program launched just two weeks earlier — allowing 2 million EPF participants who had lost jobs or sources of income this year to access roughly 14 billion ringgit of savings in their EPF Account 1 retirement pools — to cover 8 million members, or more than half of the system's 14 million-plus members.

A program launched in March had previously opened the way for EPF participants to withdraw 500 ringgit a month from savings in their Account 2 pools, designed to cover a broader range of needs such as housing and education. Account 1 garners 70% of monthly contributions made by employees and their employers, with Account 2 taking in the remaining 30%.

Under the new program, savers with 10,000 ringgit or less in their Account 1 pools can take out all but 100 ringgit.

In a Dec. 3 blog post, Achim Schmillen, a Kuala Lumpur-based senior economist with the World Bank's social protection and jobs global practice, together with two colleagues suggested Malaysia consider gradually increasing its "relatively low minimum retirement age from 60 to 65" and link it thereafter to life expectancy as the proportion of its population aged 65 or older doubles to 14% by 2044.

Still, even if the pandemic looks set to remain a policy priority for the foreseeable future, longevity risk hasn't been entirely forgotten, as evidenced by continued moves by countries in the region to raise their retirement age. But more will need to be done to turn the corner in dealing with the problem, analysts said.

While it's good to see governments in the region, including China and Vietnam, moving to raise their retirement ages, those increases aren't keeping up with longevity, Aon's Mr. Palmer said.

Those incremental steps aren't meaningless but still, it's like "trying to run from a tsunami with baby steps," agreed Josef Pilger, Sydney-based partner and global pension and retirement leader with Ernst & Young.

And if a sense of urgency has been lacking all along, the populist wave sweeping the globe in recent years has made the prospect of decisive action even more remote. "Driving hard pension reforms in the middle of a pandemic — cutting people's benefits or raising their retirement age — may not necessarily be a vote-gathering exercise for any government," Mr. Pilger noted.

All in all, that leaves asset owners doing whatever they can to narrow the gap.

Asset allocation is the main tool HESTA is employing now to help participants deal with the challenge of funding 20 to 30 years in retirement, said Ms. Blakey. Keeping a sufficient allocation to growth assets to sustain members over that decades-long span is "the solution we've come up with," she said.

In addition, on HESTA's wish list, "we would love to see employers extend super contributions" of 9.5% of employees' salaries to parental leave which can extend for up to a year, she said.