South Korea, Taiwan, Hong Kong and Singapore are projected to have the largest share of elderly population by 2050, with more than 4 in 10 persons aged 60 and above. The need for adequate and diversified sources of retirement income creates opportunities for financial service providers.
Climate change, ageing population, urban explosion and the rise of technology are some of the most debated issues around the globe. Not surprising since the consequences of being ill prepared for these changes will likely be painful. At present, these structural trends include some of the world’s biggest challenges and opportunities.
Climate change, for example, has paved the way for new investments in renewables in spite of the cost barriers while the rise of technology portends new jobs provided the requisite worker re-skilling is in place. Likewise, the challenges posed by an ageing population are wide-ranging. In particular, anticipating the future income needs of an ageing population is difficult. Accordingly, it has exposed the need for individuals to possess adequate and diversified sources of retirement income - therein lies the opportunity for financial service providers.
Retirement income perspectives
One major source of retirement income in the past has been the national pension schemes. But increasing life expectancies and lower birth rates are placing a great strain on many such systems across the globe. By 2050 those aged 60 years and above will make up 21% of the world’s population up from 2015’s 12%. These numbers are far worse on a deeper dive with Europe’s at 35% while Asia and US reach 24% and 28% respectively (see Fig.1). Individual country statistics are alarming in some cases.
Demographics aside, modernisation has led to changing expectations for each generation. Today’s working adults are far more affluent and educated and expect to maintain their standard of living in retirement compared to the current group of retirees. They are also more likely to be responsible for their own retirement income rather than turn to government or extended family support. The question is whether they are putting aside enough to support their future lifestyle.
Pension systems alone will not be sufficient; there is a growing gap between what is required during retirement and what is available, even among countries with developed pension systems. In fact, by 2050 the world’s pension gap is projected at USD400 trillion2. Future retirees will have to look to alternative sources of retirement income.
Fig.1: Shape of demography to come in 20501