Prudential Financial Inc yesterday said that the government could help ease concerns about longevity risk and retirement readiness by implementing policy and regulatory approaches that encourage people to step up their preparations.
The US-based insurance company said that the rapid quickening of aging in Asia, where more than half of the world’s population over the age of 60 resides — has urgent implications for the region’s families, retirees, pensions and policymakers.
In light of falling birth rates and longer lifespans, Asian societies are facing the twin burdens of supporting rapidly growing elderly populations with shrinking or stagnant working-age populations, the company said.
“Life insurers can help people achieve a secure retirement by providing solutions, such as guaranteed income that a person cannot outlive,” said Dylan Tyson, chief strategy officer of Prudential Life Insurance Co of Korea Ltd.
For the private sector, the government could work with companies to create employer-based solutions, Tyson said at the 13th International Longevity Risk and Capital Markets Solutions Conference in Taipei.
Prudential’s pension risk transfer business has closed more than US$45 billion in international reinsurance transactions covering more than 200 corporate pension funds in the UK, as companies transition from defined benefit schemes to defined contribution, he said.
The solutions are effective due to pooling, where longevity risk is spread across a large number of participants.
Life insurers can achieve natural hedging by combining the business of selling death protection, where the risk lies in people dying too soon, with the business of selling annuities, where the risk is from people living too long, Tyson said.
“In a way, people who don’t live as long subsidize those who have longer lifespans,” he said.
With sound policies, life insurers can offer products at lower prices which are accessible by more consumers, while larger scales would lead to improved efficiency in providing lifelong income, he said.
Apart from tax incentives on retirement preparation, automatic enrollment and escalation, target date funds and annuity products could be adapted for Asia as they have been effective in the US and other markets, said David Blake, director of the Pensions Institute at London’s Cass Business School.
The number of working-age people in Taiwan supporting each person over 65 is expected to fall from 5.9 in 2015 to 2.36 in 2050, according to Organisation for Economic Co-operation and Development data.
Still, the figure puts the nation in a less dire situation compared with the average 1.7 people for East Asia, the data showed.
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