Asia’s Retail Retirement Sector Poised for Growth

October 2019, SINGAPORE – Pension funds are reviewing their asset allocations and fee models to improve their returns, while retail investors are gradually warming up to retirement products, according to Cerulli Associates’ newly released report, Asian Retirement Markets 2019: Eyeing the Golden Nest Egg.

As Asia-Pacific markets come under increasing pressure to ensure adequate assets for the aged populations, governments have typically responded with pension policy changes. Some Asian markets are also looking to strengthen their multi-pillar pension systems so that pension funds and basic social security programs will have some buffer from shouldering the burden of providing retirement income.

Pension funds are also evaluating their strategies and fees to boost their investment returns. Alternatives is a common theme, particularly among Korean pension funds. While mandates continue to be issued, pension funds are increasing their exposures to co-investments to gain better control and save on management fees. Environmental, social, and governance investing is another area of growing interest, despite its slow adoption among pension funds.

“Given the pressing need to ensure the adequacy of pension funds, asset managers have the opportunity to enter the market. However, different markets have varying levels of hurdles in accessing this opportunity. Managers will need to be selective in allocating their resources,” said Della Lin, a senior analyst at Cerulli.

On the retail front, the third pillar has been developing at various rates in different markets. As the latest two markets to offer personal retirement schemes, China introduced tax-deferred pension insurance schemes and pension target securities in 2018, while Taiwan launched its regulator-led initiative, “Enjoy Your Retirement”, in July 2019. Within Southeast Asia, the concept of retirement investing is still relatively immature among retail investors due to low financial awareness.

Meanwhile, private insurance annuities remain essential in enhancing individuals’ retirement assets. Target retirement funds are slowly re-emerging in some markets, such as Korea, China, and Taiwan. A Cerulli survey conducted earlier this year suggests that more asset managers are looking to promote target-date funds to distributors over the next two years, as compared to a similar study in 2018. Exchange-traded funds are the other potential retirement tools managers are interested in exploring to serve investors’ needs.

“Although there are many opportunities for asset managers in the retail segment, challenges remain, such as active competition from life insurers, investors’ reliance on low-yield investments, and perception of mutual funds as short-term instruments,” said Ms. Lin. “Besides understanding investors’ preferred product features, it is also important for managers to manage investors’ expectations and explain to them the long-term nature of retirement products.”