These systems smooth consumption over an individual’s lifetime, provide insurance (particularly against longevity and inflation risks), facilitate income redistribution, and alleviate poverty relief. But in constructing these systems countries must trade these objectives off against broad-based growth, labour market efficiency, and environmental sustainability. In addition, devoting resources solely to the elderly means incurring opportunity costs. These opportunity costs include investment in health, education, and infrastructure.
Given this, why should Asian countries give greater weight to social protection?
First, Asian populations are ageing rapidly because of declining fertility rates and increasing longevity. Asia’s share of world population aged 60 or over will increase from 54 per cent in 2010 to 60 per cent in 2030. Asia will more than double its population above the age of 80 over this period. In China and India by the year 2050 the largest single age cohort will be women over 70 years of age, implying feminization of the elderly. This means that there is a demographic imperative to give greater weight to social protection.
Second, in global terms, there is little accumulated experience in designing and administering pension and health care systems for such large elderly populations. The only way for Asian countries to gain the relevant experience is to invest in social protection themselves.
Third, the new generation of Asian ‘baby boomers’ have higher expectations about their quality of life. Failure to meet these expectations could have adverse implications for social cohesion and inter and intra generational harmony. Finally, well designed social protection systems could help Asian countries reach the level of productivity necessary to achieve sustainable growth.
The 2008 global crisis has made the task of strengthening social protection systems more complex. This is primarily due to the adverse impact of the crisis on medium term growth and on fiscal sustainability. But the global crisis also created a considerably less benign environment for generating returns from pension assets.
In my view, the following reforms would improve social protection in Asian countries.
First, Asian countries should reform their civil service and military pensions, bringing benefits more in line with the rest of the economy. Second, Asian nations must improve the efficiency of their pension systems. Third, it will be necessary to improve health care delivery design and financing. Finally, it is important to institute mechanisms, for example a Pension Regulator, or National Social Protection Council, that provide a systemic perspective. This will ensure that complementarities among various pension and healthcare components can be found. For multi-tiered pension systems involving differing risk management instruments and a mix of financing and plan sponsors, such a perspective is especially essential.
Two additional steps are especially important. Asian countries must construct relevant databases to promote evidence based policy. Asian countries must emphasise the need for an outcome-oriented, rather than a welfare-oriented, mindset among stakeholders. This will allow the incorporation of empirical research into the design and implementation of policies and schemes.
The extent to which Asia succeeds in meeting the challenges of an ageing population will significantly determine the way the world manages this new phase in global demographic history. Asia is on the brink of great demographic change. It must act quickly.
Mukul Asher is a Professor of Public Policy in the Lee Kuan Yew School of Public Policy at the National University of Singapore.
“Asian countries must construct relevant databases to promote evidence based policy. … This will allow the incorporation of empirical research into the design and implementation of policies and schemes.”
I could not agree more with this proposal. In my view these measures are not only relevant to provision for the elderly but also to national policy in general. One thing that the Chinese model does well is the incorporation of genuine evidence-based research into its policy. This is less feasible in democratic systems, where popular sentiment takes precedent over empirical evidence, even when the latter is very compelling.
I have some questions for Professor Mukul Asher as follows.
Firstly, what does the following statement mean without supplying the information on total population growth in the two regions, Asia and the rest of the world?
“Asia’s share of world population aged 60 or over will increase from 54 per cent in 2010 to 60 per cent in 2030. Asia will more than double its population above the age of 80 over this period.”
If population growth is more rapid, doesn’t it mean naturally Asia’s share of all age groups could be higher?
Secondly, what does the next statement mean? “In China and India by the year 2050 the largest single age cohort will be women over 70 years of age, implying feminization of the elderly.” What are those other cohorts to compare to and where are the boundaries for each of them?
Thirdly, is the next statement correct? “Second, in global terms, there is little accumulated experience in designing and administering pension and health care systems for such large elderly populations. The only way for Asian countries to gain the relevant experience is to invest in social protection themselves.” Don’t we have the experience of population aging in many industrialised countries with pension and health care systems as the experience that could be applied to Asia in the future?
Another question:
Why should the next statement be necessarily the case, if social and cultural backgrounds as well as public policies are very different between Asia and the rest? “First, Asian countries should reform their civil service and military pensions, bringing benefits more in line with the rest of the economy.”
Why don’t you ask the other way around?
This is in response to questions raised by Mr. Fung to my column.The column length constraint meant that not all detailed data or arguments could be provided. Ithank Mr. Fung for raising these questions and providing opportunity to clarify.
(1)Asia’s share in total population relative to the world
will actually decline from 60.3 percent in 2010 to 59.2 percent in 2030.But the Asia’s share in world population over 60 will increase. this implies more rapid ageing in Asia as compared to the rest of the world.
(2) The age cohorts in each country are estimated by grouping the data by age group. For example, 0-4, 5-9, 60-64 years,and by sex, men and women. What the statement says is that single largest number of persons in India and in china by the year 2050 will be women over 70 years of age. As this applies to age group between 60 and 69 as well, it follows that women will outnumber men among the elderly, i.e. feminization of old age will take place. Women as a group live longer than men, with obvious implications for the need for retirement income provision.
(3) There is indeed experience in industrial countries from which both positive and negative lessons can be learnt. But consider the numbers. By 2050, China will have nearly 440 million persons above 60 years of age, and India 330 million. Industrial countries do not have such large populations. Merely organizing record keeping, cooleections, payment of benefits, etc for such large numbers will be a task that has not been undertaken so far.
(4) This is the question Mr. Fung asks in seperate email. The suggestion for reforming civil service and military pensions in asia arises due to several reasons. First, they account for disproprtionatel(in relation to their share in the labour force) of those who are currently covered under formal pension schemes. Second, the cost of their pensions is disproprtionately large as compared to their share in the labour force. In some Asian countries, pensions will account for nearly two-fifths of GDP if rest of the population is provided same pension benefits as civil servants and the military. This is not sustainable by any country at any income level,let alone countries in Asia, many of which will become old before they become high-income countries.
Many thanks Professor Asher.
Your reply is very much appreciated.