Manulife Asset Management recently issued a report that examines the retirement income and real estate holdings of elderly households in major Asian economies.
These regions included Hong Kong, Japan, Singapore, South Korea and Taiwan.
The report finds people in these countries have relatively high levels of accumulated wealth. However, it also suggests they have to better protect these assets so they can cover their retirement expenses.
The study reveals:
- Though Hong Kong has a relatively well-developed pension scheme and a coverage ratio of 56%, its citizens often withdraw from the labour force at a fairly young age. Their wealth is stretched, and they invest heavily in low-risk vehicles with interest rates.
- In Japan, elderly workers participate in the labour force for extended periods, with about 22% of its older population continuing to work. But their retirement incomes are low since family support only covers about 1% of their total consumption needs.
- Singapore has the most rapidly aging population in Asia, as well as the lowest level of government social spending. On the other hand, the country has a well-developed pension scheme, which holds nominal pension reserves of 68% of GDP.
- South Korea’s has relatively low government social spending so older citizens must live primarily on their own funds.
- The largest challenge facing Taiwan’s elderly households is its declining amount of multi-generational, co-residences.
Along with re-allocating people’s portfolios to include some higher-risk products that offer better returns, their advisors need to urge them to hold less property. Currently, almost 50% of household wealth in these countries is tied up in their homes, with people depending on rental property income.
“While the market tends to focus on the accumulation phase of retirement funds, it’s just as important to be mindful of the decumulation phase,” says Michael Dommermuth, president of International Asset Management for Manulife Asset Management Asia.
He adds, “Our analysis reveals all five economies have relatively bright prospects for improving retirement income security within the structures of existing policies and programs. For example, generally high levels of household wealth can be more efficiently mobilized by diverting cash holdings into equity [and] fixed income.”
The silver lining is Manulife has “already begun to see this change across many of the Asian countries and territories. [There’s been] a significant rise in the sales of financial instruments that are designed to produce sustained income streams.
“It’s important this shift continue and gain momentum, as Asian economies are aging rapidly and do not have the luxury of time to adjust to this reality.”