Asia faces $74t retirement income shortfall

Emerging markets in Asia face a $74 trillion pension savings shortfall.

Asia may face a retirement income shortfall as those over 60 are expected to make up 25% of Asia Pacific's population, a sharp increase from 14% in 2020, a report by McKinsey revealed.

Emerging markets in Asia face a $74t pension savings shortfall, equating to about $50k per worker—11 times the average annual income. In countries like India and Indonesia, pensions cover only 8% of the population.

McKinsey said to address the strain on public systems, several measures could be implemented. Governments might raise retirement ages, promote longer work lives, and encourage savings through tax incentives. In Australia, discussions are underway about introducing aged care insurance, potentially funded by increased taxes or a dedicated Medicare levy. Means-testing could ensure fair cost distribution.

The private sector, especially insurers, can play a crucial role in filling the pension gap. Current retirement products often fall short due to inflexible terms, low returns, and high fees. For instance, lifetime income annuities in Asia typically offer low returns and lack flexibility. Senior care products are also unaffordable for many, with limited market penetration in countries like China.

McKinsey suggested that insurers can innovate by offering flexible products and integrating technology. Examples include target-date funds that adjust asset allocation over time and reverse mortgages that convert home equity into retirement income. Despite their current small market share in Asia, reverse mortgages hold growth potential.

Educating customers is also vital. Financial advisers should be trained to explain retirement products clearly and help clients plan effectively. Technology, like generative AI, can enhance this educational effort.

Finally, creating ecosystems of retirement services through partnerships or acquisitions could improve customer experience. For example, combining retirement savings with access to senior living facilities could offer more comprehensive support.