In the Pension Sustainability Index 2014 compiled by Allianz, Thailand ranks the lowest, and the country is expected to have one of the greatest proportion of elderly people within 35 years, together with Taiwan and South Korea.
Thailand also had one of the lowest rankings for retirement income adequacy (the percentage of retirement payments compared with final salary), along with declining fertility and a slow replacement rate.
Brigitte Miksa (pic), head of international pensions at Allianz Asset Management, said the adequacy index pointed to a risk of the living standards of retirees falling below a “living status” level, but from the point of view of sustainability, this is seen as a positive, as it imposes a limited burden on state finances.
However, if the poverty rate among the elderly becomes acute, the state may need to provide welfare assistance, which will increase the burden on public finances, and this will affect the sustainability of the pension system.
Rapid demographic change and challenging economic circumstances are putting pressure on the pay-as-you-go tax system of working-age people who are taking care their ageing family members in, Miksa said.Thailand needs to reform its pension expenditures to cope with the demographic realities, and increasing the retirement age is one solution, she said.
She raised the example of Denmark, which raised the retirement age to 75 years to cope with an average life expectancy of 90 years. Thailand should do the same because Thais retire at 55 on average but their life expectancy is about 75 years, which means the government will have to pay for pensions for 20 years.
Apart from raising the retirement age, the country should introduce incentives to work longer, Miksa said.
To reform public-pension expenditure, the government should reduce the pension commitment to future generations by changing the calculations and entitlements. Pension benefits should be 20-25 per cent of total retirement income of middle-income earners.
Allianz has also suggested that Thailand increase private retirement savings.
In most of the world’s pension systems, there are three pillars, social security pensions, employment-related pensions and retirement savings, and finally, personal private retirement savings. Stable and reliable pension systems need several pillars to balance risks.
Allianz says the sustainability of a pension system may not be enough. Many countries have focused on the adequacy of their pension systems. To do so, the government has to decrease benefit levels in the public system and strengthen funded pension systems and shift to defined-benefit pension plans.
Under this model, an employer or sponsor promises a specified monthly benefit on retirement. By contrast, a defined-contribution retirement plan is one in which a certain amount of money is set aside each year by a company for the benefit of the employee.
Miksa said the recently established National Savings Fund was an important step towards extending basic coverage to the approximately 25 million informal workers in the country.