Encouraging Voluntary Retirement Savings in Asia
October 4, 2023 — Singapore
Despite the growing number of products available for retirement planning, there is room for further development
As Asia’s population greys, there are opportunities for asset managers to plug potential retirement gaps by developing suitable products and educating retail customers about the need to start retirement planning early, according to The Cerulli Edge—Asian Monthly Product Trends Edition, September 2023 Issue.Investment-linked products (ILPs) are a key opportunity for managers, especially in much of Southeast Asia. This is likely due to life insurers’ wide distribution networks and the fact that ILPs are popular products in markets such as Indonesia, where insurers and banks have actively marketed them.
On the other hand, in Taiwan—one of the biggest ILP markets in Asia—flows to ILPs may be curtailed after regulations banning insurers from offering high-yield bond and emerging market bond ILPs kicked in in July 2023. Flows to such ILPs surged in June, just before the ban, likely as insurers rushed to beat the deadline.
Generally meant for retirement, target-date and target-risk mutual funds share similarities, following a glidepath that changes their asset allocation over time. In China, managers rate target-date funds as the products that they will most likely focus on growing in the next three years, while other mutual funds and exchange-traded funds (ETFs) are less preferred. According to the research, pension target funds were the first type of products included under the new private pension scheme as mutual funds, and asset managers are increasingly refining their offerings of these products.
However, Cerulli believes target-date and target-risk funds could be deemed more complicated than plain vanilla mutual funds and ETFs—products that are more familiar to investors in several markets. In Taiwan, for example, asset managers want to focus on developing mutual funds and ETFs as retail retirement products over the next three years. Because mutual funds and ETFs have low barriers to entry, and the investment method is quite convenient, many people like to use them for retirement planning.
Private retirement solutions offered by financial institutions such as asset managers should also be able to cater to retirees’ needs. A key aspect is performance—the most important factor to gathering retail interest in retirement products, according to Cerulli’s asset manager poll that asked which factors are important in gathering retail interest in retirement products. Yet, the challenge lies in maintaining consistent fund performance and being able to beat inflation, a key concern particularly among retirees.
Cerulli believes that in terms of product features, distribution and decumulation share classes will be increasingly important to investors, especially those closer to retirement. Indeed, rapidly aging markets such as Singapore have stepped up efforts to offer these features in products aimed at retirement savings.
“Retirement solutions will continue to evolve, guided by retirees’ changing needs that translate into market demand, and asset managers will have to rise to the occasion,” said Shaun Ng, analyst with Cerulli. “It is also important to remember that it will take a concerted effort by governments, financial institutions, and individuals themselves to actively prepare for retirement.”
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