January 9, 2018 11:00 am JST

ASEAN economies ill-prepared for old age

Demographic clock ticking for aging Southeast Asia, FTCR survey shows

Pranom Chartyothin, a 72-year-old bus conductor, sells and collects tickets in downtown Bangkok. © Reuters

The demographic dividend that helped drive ASEAN's strong economic growth from at least the 1990s is coming to an end.

Some countries are further down this path than others. While Indonesia and the Philippines can continue to rely on their relatively young workforces, Thailand and Vietnam are already getting older, and Malaysia is beginning its transition to an aging society.

Many of the region's workers are financially ill-prepared for retirement, however, while rising rates of dependency will have a profound impact on national economies.

Workers unprepared for retirement

A regional survey by FT Confidential Research of 5,000 urban residents aged 18 and over found workers have done little to prepare for retirement. A large proportion of respondents across the five largest developing ASEAN economies said they were not confident or were unsure that they could live comfortably in their retirement years (see chart).

Most working urban respondents aged 18-50 said they would have to continue working beyond retirement age (see chart). Despite living in the most prosperous economy among the ASEAN-5, Malaysians were the most likely to believe this, with 65.1 per cent saying they would need to keep working.

Such fears are already a reality for many retirees. We found that a large portion of retired respondents are still doing some work to support themselves (see chart). Even in Malaysia, where the proportion of working retirees was the smallest, elderly men and women working as custodians is a common sight in Kuala Lumpur.

No pension and not enough savings

Our survey found that in some countries as many as half of respondents claimed they did not have access to a pension or provident fund (see chart). They also reported limited savings. Among Malaysians with no access to pensions or provident funds, 31.7 percent had savings of just Rm100 ($24) or less. Among Thais without retirement support, 34.8 percent had savings of Bt1,000 ($31) or less.

Even those with access to a pension or other funds are not necessarily ready for retirement. Malaysia's Employees Provident Fund, which manages compulsory retirement savings plans for nearly 7m private-sector workers, says that a majority of Malaysians do not save enough for retirement. It believes a 55-year-old in 2017 should have at least Rm228,000 saved for retirement but estimated last year that 68 percent of 54-year-old contributors had less than Rm50,000 in their accounts.

Some populations older than others

Based on UN data, we estimate the median age in Southeast Asia in 2017 to be 29 years old. But this is because around half of Indonesia's population of 261m is under 29, while the median age of Filipinos is just 24 and a half (see chart).

The dependency ratios - the proportion of non-workers to working population - in these two countries are also falling as more young people join the labor force (see chart). A low ratio implies a large workforce supporting smaller numbers of dependents, who are either too young or too old to work. Such age structures can support periods of accelerated economic expansion.

Elsewhere in ASEAN the demographic dividends are running out as populations age. Dependency ratios are rising in Vietnam and Thailand. The latter's challenge is particularly acute as it has the oldest median age - 38 years old - in Southeast Asia after Singapore. Thailand's growth potential may be severely limited by demographics, making ageing a more pressing problem. Unlike Singapore, Thailand is at risk of getting old before it gets rich. The UN considers a society to be ageing when 7 per cent to 14 per cent of its population is aged 60 or older.

The ratio may be decreasing in Malaysia but the rate of decline has slowed and it will not be long before it begins rising. Without its large army of foreign workers, who make up at least 18 percent of the labor force, the Malaysian dependency ratio would have risen by now.

The challenge for these countries is that a shrinking labor force relative to total dependents limits an economy's growth potential. If workers do not have the financial means to retire comfortably in an age of rising life expectancy, they risk becoming a burden on a shrinking workforce.

According to the World Bank, life expectancy at birth in Malaysia has increased from 60 years in 1960 to 78 years in 2015. For Thailand the figure has risen from 57 to 79 years over the same period, while in Vietnam it has increased from 63 to 81 years.

ASEAN policymakers are taking measures to address the likelihood of a shrinking workforce. Malaysia increased its retirement age from 55 to 60 in 2012 and there is talk of raising it to 65. The country is also attempting to address its falling fertility rate by introducing a baby bonus scheme this year, a policy Singapore adopted 16 years ago. In September, Thailand made 60 its statutory retirement age for the first time, providing workers with statutory retirement pay. In Vietnam, the government is proposing to raise the retirement age from 60 to 62 for men and from 55 to 60 for women.

We think ASEAN will require more aggressive policies to sustain its strong economic growth into the future, however. These may include wider use of foreign workers or greater automation.

This article was first published by FT Confidential Research.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

Resubscribe now to continue reading.
BEST OFFER:
Only US$ 9.99 per month for a full-year subscription

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.