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Asian pensions reform is required

Regulators are restricting firms’ prospects abroad.

This article appears courtesy of Reactions

Retirement services specialists are missing out on big business opportunities in emerging markets because regulators are dragging their heels, says Norman Sorensen, president of financial services provider Principal Financial Group.

He says the lack of defined contribution pension regulations in countries such as India, China and Malaysia, is frustrating for two reasons. Firstly, it forces companies such as Principal Financial to get their foot in the door through mutual funds and institutional asset management business. Secondly, it means consumers in those markets are only saving for retirement through added benefits in their life insurance policies.

“We will get to a crisis if these countries do not allow or require employees to save for their retirement in a formal way,” he says. “India, China and Malaysia have been talking about setting up very similar systems to the 401k system in the US. Soon their public pension deficits will be so large they won’t be able to avoid it. But in the meantime you can imagine what is at stake.”

If China adopted a 401k-type system, says Sorensen, within 10 years it will have built a $300 billion pension program, equivalent to about 25% of its GDP.

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