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Retirement assets set for fast growth

Pension markets in the Asia-Pacific region are expected to expand rapidly in the next 10 years, with Taiwan enjoying the highest growth in the region, representing a promising business segment for the nation's finance sector, a survey said yesterday.

The survey, conducted and released in June by Allianz Global Investors and the Organization for Economic Cooperation and Development (OECD), showed that pension assets under management in nine Asia-Pacific countries, including Japan, Australia, Taiwan and South Korea, are expected to grow by a compound annual growth rate (CAGR) of 9 percent to 2.9 trillion euros (US$3.6 trillion) in 2015.

This represents almost a three-fold increase compared to the market value of 1.1 trillion euros last year, according to the poll.

The expansion will mainly be driven by the region's rapid economic growth and extension of retirement provisions amid pension system reforms in Asian countries, Brigitte Miksa, Allianz Global Investors' head of European Pension Business Development, told a media briefing in Taipei yesterday.

Taiwan's pension funds, meanwhile, are expected to increase by a CAGR of over 40 percent -- the highest among countries in the region -- to 5 billion euros next year and further to 77 billion euros in the next 10 years, Miksa said, citing the survey.

From July 1, new rules make it mandatory for employers in Taiwan to set aside 6 percent of an employee's salary as pension reserves. The change brings business opportunities for private fund management service providers.

"It is foreseeable that the government will outsource pension-fund management in the near future," said Rita Hsu (許慶雲), general manager of Allianz Global Investors Securities Investment Consulting Co.

Otherwise, the idle pension funds, worth billions of NT dollars, will cost the government an estimated NT$200 million this year and some NT$500 billion next year to maintain an guaranteed yield of 2 percent for the nation's employees, Hsu said.

Fubon Life Assurance Co (富邦人壽) is an aggressive player in the pension market. The company has become the contract administrator for the semi-official Industrial Technology Research Institute (工研院), managing the organization's pension provision -- an extra 2 percent pension provision above the mandatory 6 percent -- that is worth around NT$30 million annually, the insurance firm's parent company, Fubon Financial Holding Co (富邦金控), said earlier this week.

The amount may not be meaningful to the financial holdings firm's profitability in the short term, but the deal may help the company to gain access to the corporate pension and individual retirement markets by offering its financial products, said Victor Kung (龔天行), spokesman for Fubon Financial, the nation's No. 2 financial group by market value.

Fubon Life is in talks with a few companies regarding pension management, Kung said.

The financial holding firm's move earns it a "buy" rating according to one research house. The landmark deal could accelerate the company's market share expansion, Jesse Wang (王嘉樞), head of research with BNP Paribas Securities Taiwan Co, said in a report that was released on Wednesday.

Cathay Financial Holding Co (國泰金控), the nation's biggest financial holding company, meanwhile, said last week that it is planning to tap into the NT$100 billion pension market to sustain growth in its life insurance business in the future.
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