Investment solutions can be designed to solve Asia's pension woes
06 September 2013
News, Asia, Singapore
By Asia Asset Management
The costly future resulting from population ageing can still be affordable if scientific investment solutions are created to put the region's vast savings to work, said Dr. Frédéric Blanc-Brude, research director at EDHEC Risk Institute-Asia, speaking at the ninth conference on Asian pension and retirement planning in Singapore on September 4, which gathered thought leaders from global insurance firms and asset managers around Singapore's Central Provident Fund (CPF) and the OECD.
There are reasons to be optimistic despite the difficult issues surrounding pension plans in Asia, said Dr. Blanc-Brude, who is in charge of research on pension systems at EDHEC Risk Institute-Asia, because the large individual and collective savings (pension reserves) of Asia represent a unique opportunity to face the predictable costs of rapid population ageing.
Asset income has a pivotal role to play at the individual and aggregate level to avoid unsustainable levels of debt. In turn, asset income can only spring from higher savings or higher returns on savings. But safeguarding financial sustainability and ensuring post-retirement income adequacy require more than increasing asset income: investor horizon is the essence of the pension puzzle. Asian countries have now reached the stage where they should develop the lifecycle investment solutions that are needed to meet the costs of population ageing.
Indeed, while domestic pension systems vary considerably in the region, all Asians actually face the same fundamental problem: being able to fund real consumption levels at each stage in their and their family's lifecycle. EDHEC-Risk Institute has shown that this long-term investment puzzle can be solved by allocating funds to separate performance-seeking and liability-hedging portfolios, allowing both to capture long-term risk premia through improved diversification approaches and to protect against risks in the liabilities such as inflation risk, while managing downside risks.
As was highlighted in a publication from the EDHEC Risk Institute/AXA-Investment Managers Research Chair on the state of pension systems in East Asia, Investment Solutions for East Asia's Pension Savings, the time is now for regulators and market participants to design and implement investment solutions that allow individuals and nations to invest their assets in such a way that they can afford their future.
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