Your Questions Answered: Is Asia and the Pacific Financially Prepared for an Aging Population?

Asia and the Pacific is aging rapidly and families and governments are working to keep older persons healthy and happy. Photo: Tristan Le
Asia and the Pacific is aging rapidly and families and governments are working to keep older persons healthy and happy. Photo: Tristan Le

By Donghyun Park, Aiko Kikkawa, Gemma Estrada

ADB economists Donghyun Park, Aiko Kikkawa and Gemma Estrada answer questions on aging and economics in Asia and the Pacific.

Asia and the Pacific is aging rapidly, significantly faster than many developed countries. Governments in the region are developing strategies to deal with the changing demographics and their impact on economies and societies.  

Some countries in Asia and the Pacific have, in principle, sufficient resources to support the well-being of their older populations. In fact, the demographic transition tends to be most advanced in the region’s richest countries such as Republic of Korea and Singapore. However, some middle-income Asia and Pacific countries are now also experiencing rapid population aging. The most notable example is the People’s Republic of China, but Sri Lanka, Thailand, Viet Nam, and others are approaching the advanced stage of population aging.

Overall, Asia and the Pacific is aging at a lower income level compared to the earlier experiences of advanced economies. This means that the region has fewer resources to cope with the various social and economic challenges posed by demographic change. For instance,  as Asia and the Pacific grows older, the region’s governments will likely need to spend more on health care, pension, and social protection. This strengthens the case for being prepared for population aging and implementing fiscal, pension and other reforms that will enable the region to promote old-age well-being without jeopardizing fiscal sustainability and economic growth.

 Women have much less economic security than men in Asia and the Pacific. For instance, in 2021, the average labor force participation rate for people aged 55–64 was 73.4% for men and 41.9% for women. Formal workers typically retire as soon as they become eligible for a pension despite a substantial increase in healthy longevity. Older women start to retire even earlier, mainly to make themselves available for informal housework and providing informal care. Their shorter formal work life means women are only eligible for smaller pension benefits. Also, in some Asia and the Pacific countries, contributory pension coverage is lower for women.

Importantly, the disadvantaged status of older Asia and the Pacific women vis-à-vis men is not limited to economic security. For instance, women suffer more from non-communicable diseases and depression. On average in the region, 59% of older women in the nine economies have been diagnosed with at least one non-communicable disease, and 27% with more than one. Diabetes and hypertension are more prevalent in older women than men. Therefore, Asia and the Pacific governments must double their efforts to improve the well-being of older women across all its dimensions including health, productive work, economic security, and social engagement.

Employment-based or other pension coverage among older persons is very low in the region at 19% on average. In many regional economies, coverage is substantially lower for women and rural residents, and working-age enrolment languishes below 10% for some.  Individuals in the highest wealth quintile are up to 10 times more likely to receive contributory pensions than those in the lowest quintile.  The gender gap in contributory pensions is wide in many economies due to women’s lower rate of participation in the labor force, their consequently lower contributions, and low survivor benefits of pensions.

Governments in the region must make greater effort to raise coverage of contributory pension. Priorities are to introduce matched contributory pension schemes for voluntary contributions from informal workers, expand coverage in the formal sector, and make benefits for lower-income contributors more adequate through redistribution within programs. Reforms should pay close attention to gender aspects of programs and strengthen them with better and more inclusive targeting. Furthermore, pension systems can be made more accessible by adopting innovative designs and technologies introducing digital payment and automatic enrolment, and by leveraging new technology and behavioral insights.

Family financial contributions and in-kind support remain the most important source of income for many older persons Asia and the Pacific. Despite the gradual shift towards more independent living arrangements,  older people still rely heavily on family transfers, which provide on average at least a third of their income in most countries, and often more than two-thirds.

The percentage of older persons receiving transfers from family is 83% in the People’s Republic of China, 64% in the Republic of Korea, 53% in Malaysia, and 48% in Indonesia. Wages and entrepreneurial income also provide substantial old-age support across the region. In addition to ensuring economic security, families provide almost all aged care in the region - up to 94%. The heavy burden of care falls on women, including older women. Up to 43% of older persons who require help due to physical limitations do not receive care.

While family support still plays a vital role in the economic security and care needs, it is widely expected to decline in importance. This is due to changes in living arrangements and cultural norms caused by urbanization and industrialization. In addition, the sharp reduction in fertility across Asia and the Pacific means that family sizes is shrinking, which further erodes the role of family support. To compensate, governments must significantly expand public support for older citizens in health and long-term care, pensions and social protection. They should also strengthen community organizations and other non-family channels for social engagement.

Governments in Asia and the Pacific need to foster greater financial literacy, inclusion, and preparedness for retirement. Financial literacy campaigns raise awareness and understanding of such simple financial concepts as compound interest. To help Asia and the Pacific make better financial decisions and become long-term savers, policy makers can leverage new behavioral insights that favor, for example, a more focused set of high-quality financial products over a bewildering array of options. Financial literacy brings benefits if achieved at an early age or introduced at the point of decision.     
The role of the financial sector is to develop suitable retirement savings and private pension products. Asia and the Pacific financial regulators can foster a market for savings products by providing clear guidance while also protecting older people from fraud.

 Governments can do more to empower people of all ages in Asia and the Pacific to plan and prepare for old age. They can disseminate information and raise awareness that helps workers of all ages set realistic expectations about future retirement needs, taking into account that future policies may change the retirement age and pension terms. They can also support initiatives that help firms and workers themselves develop career plans and retirement paths in anticipation of longer working lives.

Economic security at old age is not only backed by financial resources. It is also closely linked to other aspects of old-age wellbeing such as staying healthy and stay productive, while also nurturing social capital for support in time of need. A lifelong, life-cycle, population-wide approach is needed in the region to meet the aging challenge and encourage governments to take action to improve all four dimensions of well-being in old age. 

This blog is based on research undertaken for the Asian Development Policy Report 2024: Aging Well in Asia, which was released at ADB’s 57th Annual Meeting in Tbilisi, Georgia.

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