Philippines pension system is 37th worldwide
Allianz says the Philippines has demographics on its side
MANILA – The Philippines’ pension system ranks 37th globally while 7th in Asia due to its young population.
In its Allianz Global Pension Report 2020, Allianz said they took the pulse of pension systems around the world with its proprietary pension indicator known as the Allianz Pension Indicator (API) with an analysis with the demographic and fiscal prerequisites as it examines the pension systems based on sustainability and adequacy.
The report was written by Michaela Grimm, Allianz SE economist. She said many emerging countries in Africa score “rather well” as the population is still young and public deficits and debts are rather low. However, many European countries including Italy or Portugal are among the worst performers as old population meet high debts.
“And that is the situation before the coronavirus and its tsunami of new debt. One of the legacies of the current crisis will certainly be that we have to double our efforts to reform our pension systems. What remained of financial leeway has gone for good,” she added.
Allianz Pension Indicator (API) hinges on the financial leeway and demographic change as starting point (20%), retirement age and minimum contribution period and minimum contribution period, financing and dampening factors summed up as sustainability (40%) and first pillar coverage and benefits, and other pension income considered as Adequacy (40%).
“Demographics and pensions have been eclipsed by other policies in recent years, first and foremost climate change and today the fight against COVID-19,” said Ludovic Subran, chief economist of Allianz. He added ignoring demographics will put one at risk because changes in demographics will soon bring uncertainty.
He said defusing the looming pension crisis and preserving generational justness and equality are key for building inclusive and resilient societies.
In its statement, Allianz said the dramatic shift in demographics is best characterized by the increase in the global old-age dependency ratio, meaning people aged 65 and older in percentage of people aged between 15 and 64 until 2050 which is expected to grow by a whopping 77% to 25%, faster than in the last 70 years since 1950. It was found that in many emerging economies the ratio is going to more than double within the next three decades, in less than half of the time this development took in Europe and Northern America.
“The most prominent example is China where the ratio is going to increase from 17% to 44%,” the report said. For industrialized countries, however, the absolute level of this ratio is the main reason for concern, reaching, for example, 51% in Western Europe,” according to the statement.
According to the report, Sweden, Belgium and Denmark came out having the relatively best pension systems worldwide.
The Philippines, ranked 37th, as it has one of the youngest populations in the region and aging will be less rapidly. The Philippines’ pension system scores slightly above the global average in terms of sustainability (3.5), reflecting the low contribution rate. Deductions for the early retirement and a demographic factor in the pension formula could the system stabilize further.
The report said the real challenge, is the adequacy of the system. However, coverage remains low.
“Although the Philippines still have demographics on its side, they should strive for pension reforms following the saying ‘better to repair the roof when the sun is still shining,’” the report concluded.
Allianz has been in Asia since 1910 when it first provided fire and marine insurance om the coastal cities of China. It is active in 14 markets in the region offering its core business of property and casualty insurance, life, protection and health solutions, as well as asset management.
The Allianz Group is one of the world’s leading insurers and asset managers with over 100 million retail and corporate customers in more than 70 countries. (Melo M. Acuña)