Regulators Take Active Steps to Develop Asia’s Third Pillar

October 18, 2021 — Singapore

Regulators pursue initiatives to guide and support individuals in their search for suitable products and channels

While the onset of COVID-19 and continued education from industry players have encouraged individuals to evaluate their retirement planning approaches, regulators and governments in Asia remain committed to reforms and measures to grow the third pillar.

Personal retirement schemes account for just a small proportion of Asian household financial assets. According to official data, these schemes make up less than 1% of household financial assets, due to various challenges surrounding retail perceptions on retirement planning. These challenges include strong expectations of retirement provisions from national pension funds, convincing individuals to start investing for retirement at a young age, and getting them to regularly set aside portions of their personal income for retirement over the long term.

Nonetheless, continuous education from financial industry players and the government has slowly encouraged individuals to consider their retirement security, with the onset of COVID-19 further prompting them to consider their retirement planning approaches. This is likely due to the pandemic’s repercussions, including salary freezes and reduced employment, as well as the uncertainty and insecurities arising from the pandemic’s impact on macroeconomic environment.

Among notable developments in Asia’s third pillar, China continues to push for the adoption of private retirement products with new initiatives, including setting up a new pension manager backed mainly by banks. In May this year, the China Banking and Insurance Regulatory Commission (CBIRC) included two more regions—Chongqing and Zhejiang provinces—in its one-year pilot plan to develop commercial endowment insurance products for individuals. Taiwan, meanwhile, has upgraded its “Enjoy Your Retirement” with a new program containing a long line-up of mutual funds and insurance protection policies.

In Southeast Asia, Thailand has introduced Super Savings Funds as a tax-saving long-term product and has experienced the launch of target-date funds under the Retirement Mutual Fund scheme. The Philippines is attempting to increase participation in the Personal Equity Retirement Account (PERA) with a digital version, as part of Bangko Sentral ng Pilipinas’ (BSP’s) digitalization efforts. Established via a partnership with online investment platform Seedbox and a few local banks, it is hoped that Digital PERA will help to tackle current challenges, including high administration and onboarding costs, and limited accessibility and options.

As retail perceptions of voluntary investing improve and more retail investors take action to accumulate their retirement savings following COVID-19, the third pillar is likely to mature and evolve. “While regulators and governments continue their retirement campaigns and develop new initiatives to grow this segment, more opportunities will become available for managers to tap into this budding area,” said Della Lin, senior analyst with Cerulli. “Managers will have to be selective as to where they put their resources. Although accessibility to retail investors could be largely led by local managers, global players can enter the retirement sector via partnerships and sub-advisory arrangements.”

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Note to editors

These findings and more are from The Cerulli Edge—Asia-Pacific Edition, 4Q 2021 Issue.

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