“This puts an enormous burden on the traditional family support which, until recently, represented the most important old-age provision in Asia.”
Because of this traditional family support, first and second pillar pension provision in many countries in the region is still very underveloped, but governments are now pressing for reforms that could boost the growth of the sector.
According to Dorothee Franzen, head of pensions research at AGI, said that while Western European pension reforms focus on curbing the generosity of state pension systems, governments in Asia are faced with the challenged of increasing pension coverage in general, including both first and second pillar pensions.
Currently, Japan and Australia represent 90 per cent of the assets invested in the region, followed by the mandatory provident fund in Hong Kong, private pension plans in Korea, and the central provident fund in Singapore.
The level of development across the region differs hugely from country to country. Australia, with its highly efficient pension system, comes first, for being able to provide the entire population with a sufficient pension on retirement. At the bottom of the table is India, where only 9 per cent of the workforce is covered by any form of retirement provision.
With around €600bn under management, Japan is the largest market in the region, but it is also the first pension market to be faced with actual new outflows of money that means competition among managers trying to close the widening gap between outflows and new business will be fierce.
The outsourcing trend among government pension funds in the region, will also attract more and more interest from external asset managers. The report shows that currently government funds are only outsourcing 37 per cent of their total assets to third parties. Here again, the Japanese Government Pension Investment fund leads the way, with nearly 50 per cent of its assets being managed by external firms.
All other government funds have started to outsource, with the exception of India, although the levels of delegation are still very low.
According to AGI, assets of funded schemes should be managed by the private sector, as enhancing investment returns is the expertise of private asset management companies.“The opportunities for us as asset managers, and the implications of employing appropriate investment solutions represent a huge challenge,” added Mr Goldbrunner.
AGI has also released a study on pension trends in Western Europe were the sector is expected to grow form the current €7,400bn to €16,400bn by 2015.
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