Pensions: Asia’s emerging age dilemmas

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Falling birth rates and an ageing population should force Asia’s financial institutions to face up to the possibility of a pensions crunch.

It can be tempting during times of crisis such as those we have endured recently to focus on the short term, rushing through M&A deals and IPOs at the first signs of market stability and ensuring that the growing appetite for debt issuance is fed.

But the threat of an ageing population is one that bankers should keep their eye on in the short term to ward off problems down the road.

The mix of businesses that has proven effective in Asia so far – with the accent on old-fashioned investment banking – might not be the right one for much longer. The wealth management arms of large global banks should become more central as rafts of new potential clients look for ways to invest and grow their savings. With Asia now home to more high-net-worth individuals than north America, the stakes for banks are high. Building relationships with these investors will be key and snapping them up now, before they make decisions about their retirement and legacies, will pay dividends.

The private bank bid for bonds, fuelled by these high-net-worth individuals – both nouveau riche youngsters and retirement-approaching baby boomers – is already becoming one of the leading drivers of the bond market, and other asset classes are likely to follow suit.

Asia’s young population has long been the envy of the west, but several of Asia’s most developed economies, including Singapore, Hong Kong, Taiwan and South Korea, were among the countries with the lowest fertility rates in the world this year as a result of rising education levels, more women working long hours and people getting married later, among other factors, according to the CIA World Factbook. This presents many threats, but foremost among them are slowing economic growth and the need to provide income support for more elderly populations.

Asian country authorities are not sitting on their hands waiting for their people to get older. Singapore, for example, has accredited more than 10 dating agencies as it encourages marriage through the use of speed dating and even salsa workshops. Local newspapers in Taiwan have been reporting on similar schemes, where private-sector and public-sector workers have been take on sightseeing and speed-dating events by none other than the central banks. If they don’t look at their business models carefully now and adjust them for the future, the only alternative for banks across Asia might be to become dating agencies.