New Retirement Preparedness Indicator highlights financial and economic factors influencing retirement readiness in Asia

Research reveals varying degrees of retirement preparedness across Asia and points to the need for rapidly aging populations to mobilise private savings to shoulder some responsibility for retirement provision

TORONTO, Nov. 14, 2012 /CNW/ - Manulife Asset Management has issued a report that introduces its Retirement Preparedness Indicator, which highlights the financial and economic conditions influencing the ability of individual economies to provision for their aging populations. The report covers 11 Asian countries and territories and finds that many face significant challenges to retirement financing at both the state and the individual levels.

The report, entitled Funding the golden years: The financial and economic factors shaping retirement provision for Asia's rapidly aging populations, is part of Manulife Asset Management's Aging Asia research series and builds on the findings of its June 2012 publication: Saving up: The changing shape of retirement funding in a greying ASEAN. The previous publication revealed how ASEAN countries once considered to be among the most 'youthful' in Asia are actually aging more rapidly than most realise. For a copy of the report, please contact [email protected].

The new report divides the subject countries and territories into three broad categories of retirement preparedness. Those deemed to be facing the 'most favourable conditions' are Taiwan, Hong Kong and Japan, which are typified by high levels of financial wealth, high state pension coverage and well-developed financial markets. However, they also face some of the most dire demographic profiles and slowing economic growth prospects. Those judged to have 'favourable conditions' are Singapore, China, Malaysia and Thailand. With the exception of Singapore, these countries tend to have lower levels of financial wealth and state pension coverage but have high savings rates, robust economic growth potential and relatively positive demographic profiles. Those deemed to be facing 'challenging conditions' are Indonesia, South Korea, Vietnam and the Philippines. Except for South Korea, these countries generally have very low levels of government pension coverage, the lowest levels of financial wealth and shallow financial markets. On the other hand, they are likely to see income and savings rates rise and enjoy relatively favourable demographic profiles. What differentiates South Korea from this group is that it faces the twin challenges of a rapidly growing elderly population and rapidly declining elder support ratio. However, its relatively high financial wealth and high savings rate work in its favour.

The report reveals that it is ultimately the interplay between demographic, financial and economic factors that will determine whether or not Asian countries and territories will become rich enough to sufficiently fund retirements before they become too old.

Oscar Gonzalez, economist at Manulife Asset Management, pointed out that: "While countries facing 'favourable conditions' and 'challenging conditions' tend to have lower levels of accumulated wealth, factors such as relatively positive economic outlooks and high savings rates work in their favour. For example, China is expected to see per capita real GDP growth of 6% per annum between 2011 and 2050. Despite its demographic challenges, this robust growth, combined with a historical savings rate of 47%, implies that individuals in China are still well positioned to contribute to financing their own retirements if appropriate savings vehicles and incentives are available."

Gonzalez added "In many of the countries facing 'challenging conditions', the positive impact of robust GDP growth and high savings trends will be amplified by relatively attractive demographic profiles. Working age populations in Indonesia, the Philippines and Vietnam are expected to continue to account for about 60% of the total populations through 2050. This means that retirement preparedness in these economies will likely be enhanced by the addition of significant numbers of new savers over the coming decades."

Michael Dommermuth, president of Manulife Asset Management Asia, commented on the report's conclusions: "Asia as a whole is aging much more rapidly than most realise and individual countries and territories face varying conditions that affect their abilities to provide for their growing retired populations. With mandatory pension plan coverage below 50% in the majority of the economies we studied, this report reveals that most public retirement schemes in the region will need to be supplemented. The ability to do so hinges on the availability of secure savings vehicles that unlock the potential to grow personal savings. In a region with historically high savings rates, this is strongly influenced by government policy support for enhancing financial market depth and the level of private sector interest in alternative savings mechanisms such as mutual funds and investment-linked insurance products."

The report points out that Asia is likely to experience an increased shift in responsibility for retirement funding from the state to the individual. As this shift takes place, Dommermuth anticipates a growing need for investment products such as asset allocation funds that help build pension pots and, ultimately, income generating products that generate steady cash flow in retirement.

Manulife Asset Management has considerable experience building multi-asset solutions designed to meet specific client objectives and constraints. Its dedicated asset management unit, the Portfolio Solutions Group, has investment professionals across the U.S., Canada and Asia managing more than US$90 billion in asset allocation funds, making Manulife Asset Management one of the world's leading asset management firms.

Dommermuth concluded: "Based on market knowledge gleaned from our footprint across 10 countries and territories in Asia, we know how to provide customised investment solutions that meet local market needs. This is why, when it comes to retirement solutions, Manulife has launched mutual funds and participates in the pension business in Hong Kong, issued fixed annuity insurance products in Japan and launched investment-linked plans that provide a regular income stream in Singapore, for example. We are also proud to have been selected as a provider for Malaysia's Private Retirement Scheme, which is one example of pension provision reform that has already been put in place."

Notes to editors:

1) How is the Manulife Asset Management Retirement Preparedness Indicator calculated?

The Manulife Asset Management Retirement Preparedness Indicator is composed of financial and macroeconomic components that together describe the environment facing pensioners within 11 countries and territories in Asia.

The financial component (70% of the overall indicator) looks at vital factors such as a country or territory's financial wealth, coverage ratio, average income, sovereign bond default rate and net pension wealth. It seeks to quantify the conditions that affect both a state's ability to provide for its prospective pensioners and an individual's ability to bear some of the responsibility for their own pension provision.

The macroeconomic component (30% of the overall indicator) quantifies the 'bigger picture' factors which will weigh on both states and individuals in the years to come, but which are largely beyond the influence of private citizens. These include support ratios (i.e., the proportion of working age people relative to retirees), gross national savings and forecasted GDP per capita growth rates.

2) Net pension wealth is defined as the size of the lump sum that would be needed to buy the flow of pension payments, net of personal taxes and social security contributions, promised by the pension system in an economy. (Source: OECD Asia/Pacific 2011)

3) What percentage of the populations of the 11 countries and territories analysed are covered by government-mandated pension plans?

	Coverage ratio
Japan	75%
Taiwan	70%
Hong Kong	56%
Singapore	45%
Korea	40%
Malaysia	33%
Thailand	21%
China	17%
Philippines	14%
Indonesia	11%
Vietnam	11%

Note: Coverage ratio = percentage of population covered by mandatory plan

4) What are the historical gross national savings rates of the 11 countries and territories analysed?

	Gross national savings*
China	47%
Singapore	42%
Malaysia	35%
Vietnam	32%
Korea	32%
Hong Kong	31%
Taiwan	29%
Thailand	29%
Indonesia	28%
Japan	25%
Philippines	22%

Note: * Average 2000-2011 gross national savings as a % of GDP
Source: National Statistics Offices & Global Insight

About Manulife Asset Management

Manulife Asset Management is the global asset management arm of Manulife Financial. Manulife Asset Management provides comprehensive asset management solutions for institutional investors and investment funds in key markets around the world. Manulife Asset Management also provides investment management services to affiliates' retail clients through product offerings of Manulife and John Hancock. This investment expertise extends across a broad range of asset classes including equity, fixed income and alternative investments such as real estate, timber, farmland, as well as asset allocation strategies.

Manulife Asset Management has investment presence in the United States, Canada, the United Kingdom, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Thailand, Vietnam, Malaysia and the Philippines. In addition, it has a joint venture asset management business in China, Manulife TEDA. It also has operations in Australia, New Zealand, Brazil and Uruguay. John Hancock Asset Management, Hancock Natural Resource Group and Declaration Management and Research are units of Manulife Asset Management.

Manulife Asset Management was named Best Asian Bond House for 2011 by Asia Asset Management. As at 30 September 2012, assets under management were US$228 billion. Additional information about Manulife Asset Management can be found at ManulifeAM.com.

About Manulife Financial

Manulife Financial is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. In 2012, we celebrate 125 years of providing clients strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We also provide asset management services to institutional customers. Funds under management by Manulife Financial and its subsidiaries were C$515 billion (US$523 billion) as at 30 September 2012. The Company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States.

Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at manulife.com.

SOURCE: Manulife Asset Management

Brian Carmichael, Manulife Asset Management, [phone], [email protected], or Ginie Lam, Manulife Asset Management (Asia) Ltd., [phone], [email protected]

http://www.manulife.com