Demographic shift presents challenges in Asian market

by David Keelaghan16 May 2018

Releasing their earnings for Q1 2018 recently, it was clear how important Asian business had become to Canada’s two largest life insurers, Manulife and Sun Life Financial.

The world’s most populated continent, with a burgeoning middle class segment, has enormous growth potential, but there are certain societal challenges that need to be navigated by Canadian firms operating there.

A new study by the LIMRA Secure Retirement Institute, alongside the Society of Actuaries, shows that a majority of Asian consumers do not think they have saved adequately for retirement. This is especially troubling for countries like Japan, where the working age population is projected to decline by 8.16 million people between 2015 and 2030.

The analysis found that more than three quarters of consumers in Asia expect to have a shortfall in retirement savings by the time they reach age 60. In addition, they underestimate how long they will live in retirement by as much as 24%.

“Overall, the population over age 60 in Asia will triple by the year 2050. This will have a tremendous economic impact not just on the nations in Asia, but also the global economy as a whole,” said R. Dale Hall, managing director of research, SOA. “Understanding how consumers in Asia perceive financial risks in retirement and the steps they are taking to prepare for retirement will be important as the industry develops the appropriate products and services to serve the local markets.”

One positive insurers can take from the research is that 7 in 10 Asian consumers say they are interested in converting a portion of their assets into an annuity. These financial instruments are popular with retirees as they provide a guaranteed income stream, while protecting the initial investment.

“It is not surprising that annuities strongly appealed to consumers in Asia as they are concerned about outliving their assets in retirement,” said Hall. “Investing a portion of one’s assets toward a guaranteed lifetime income, such as an annuity, is one way to mitigate longevity risk.”

The process of actually purchasing an annuity won’t come that easy, however, with the majority of respondents not working with a financial advisor. Perhaps most surprising, Japanese consumers are the least likely to use an advisor, with only 1 in 5 availing of their services. For Asia as a whole, 65% also said they do not have a formal financial plan for managing income, assets and expenses during retirement.

 “Our US retirement research indicates that working with financial professionals and developing a written retirement plan significantly improves retirement outcomes,” said Larry Hartshorn, corporate vice president, LIMRA International Research. “We are encouraged that attitudes around retirement planning are evolving. While most consumers ages 60-70 have done the least retirement planning activities, younger consumers are taking steps to estimate their expenses and income in retirement.”

 

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