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Role of private sector in retirement provisions

LiveMint logoLiveMint 07-06-2017 Staff Writer

According to the World Bank, the East Asia and Pacific region is ageing faster than any other region in the world. The rate of ageing is diverse across different countries, with some having a very young population. However, the more developed countries are seeing large numbers of residents now in retirement, and requiring income from family members, employers, personal savings, or the state. Similar trends have been seen elsewhere, namely in the European and North American markets, which has led to development of sophisticated public and private provision to support the need for retirement income.

However, with the exception of a few markets, most Asia Pacific countries have yet to develop such comprehensive systems, says Milliman’s Asia retirement income report. Edited excepts:

This report sets out our perspectives and analysis of the current and future state of the market for retirement income in Asia Pacific. As part of the research in producing the report, we conducted a comprehensive survey of over 100 insurance companies and financial institutions across Asia. A significant proportion of respondents indicated that they feel the government’s goals in the markets they operate in are not clearly articulated. This could be a concern from both a supply (industry) and demand (consumer) viewpoint. In a range of markets, regular changes to the underlying basis of the retirement system have led to varying levels of confusion and a general lack of faith in the stability of the system and its ability to provide adequate retirement income.

The vast majority of respondents feel that their national retirement systems’ provisions are inadequate. Surprisingly, this feedback was consistent across all surveyed markets—even in countries that have traditionally been considered to have advanced retirement systems, such as Singapore and Australia.

As expected, shifting demographics (e.g., an ageing population) was thought by the respondents to be the most important factor causing retirement systems to be unsustainable. Many retirement systems were designed decades ago, when life expectancy at the point of retirement was relatively short. As life expectancy has increased, retirement systems have been slow to keep up with the shifting demographics.

Given the general agreement across respondents that the current national retirement systems are inadequate, the same respondents also recognised that there are significant opportunities for the private sector to step in and fill part of the gap.STATE OF FINANCIAL ADVISORY SERVICES INDUSTRY IN INDIA

The IRDAI regulates the insurance sector, the Securities and Exchange Board of India (SEBI) regulates the mutual funds industry, and the Pension Fund Regulatory and Development Authority (PFRDA) regulates the NPS. Insurance products are sold through a combination of an insurer’s own agency sales force, the bancassurance channel and other third-party distribution channels, and brokers. Other minor channels of distribution include direct marketing and online.

In December 2016, the IRDAI issued new regulations effecting changes to the distributor commission structures for various insurance products and distribution channels. Under the new regulations, the commissions for individual protection business has been increased to boost the sale of such business in order to help close the huge protection gap in India. Indian life insurers have traditionally been much more focused on selling savings and investment-oriented plans rather than protection business.

In 2013, Sebi issued the Investment Advisors Regulations 2013, which requires investment advisors to register with Sebi. Registered investment advisors (RIAs) are required to meet certain minimum criteria, and have to meet various fiduciary responsibilities towards clients and disclose conflicts of interest. However, because of requirements such as high compliance costs and being restricted to only fee-based advice instead of commission-based advice, the number of RIAs has been very small to date.

Excerpts from Milliman’s Asia retirement income report 2017

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