The demographics driving the funds management industry, of ageing populations almost everywhere, are more complicated than you think. Greg Bright spoke to the Asia Pacific leader for Towers Watson, Bob Charles, who is a demographics expert, about the real demographic problems facing the world.
Bob Charles (pictured) thinks that the degree to which countries such as Japan and Korea are facing big demographic problems is somewhat overstated. In the scary world of demographic studies, he is a soothing person to speak to.
For the financial services industry, one should be careful not to draw too many practical conclusions from the simple ageing populations’ story, he says.
“The segmentation between rich and poor is more important than ageing in its implications for the wealth management industry. You need to know who are the (old) people and how much money they have.”
Korea is an interesting example. Its demographics are considered one of the “worst” in the world. There are not enough babies being born and cultural realities mean that migration is unlikely to make a significant difference.
The fundamental cause is that Korea became relatively wealth much more quickly than the rest of the world – even China.
The number of women entering the workforce soared following the success of a massive education program for everyone, including women. Korea spends about 8 per cent of its GDP on education.
Rising expectations fed the participation rate trend with two-income families required to support the improved lifestyles.
“But at least Korea and Japan have woken up to the fact that there’s a problem,” Charles says. “I think the issue is a bit overstated. The degree that the economy can self-adjust by people working longer is very significant. Asia-Pacific countries have shown they are very good at coping with change.”
With China, Charles says, the concern is more about the haves and the have-nots and the possibility of a property bubble.
“Giving people alternatives (as) to where they can put their money (rather than only property) is better than direct controls on the property market,” he says. “It surprises me a little that financial reforms have not been a bit faster. There’s a huge pent-up demand in China for all sorts of investment products.”
Towers Watson has had a big presence in Hong Kong for about 35 years, through its Watson Wyatt connection. (Watson Wyatt and Towers Perrin merged their global operations early this year.)
Of its four main business lines – retirement benefits, asset consulting, risk and HR consulting – the risk and HR arms are quite developed in China and other emerging markets. In India, the firm does a lot of work with the domestic insurance companies too, Charles says.
The asset consulting business, however, should grow quickly as Asian Pacific nations develop their pension and sovereign fund systems.
Under the Watson Wyatt banner, Charles produced a landmark study in 2006 called ‘Ageing Workforce Asia-Pacific’.
The paper points out that the most developed nations in Asia, which are arguably the best able to cope, will see the most dramatic demographic shift.
In Singapore, for instance, the proportion of the population over 50 will increase from 23 per cent to 50 per cent in the next 25 years.
The study was the largest in the region which surveyed employers’ views on the demographic problem and the outlook for healthcare and retirement benefits.
The study concluded: “The driver for increasing employer retirement and healthcare provision will be the changing priorities of their employees. Most people in Asia Pacific have insufficient retirement savings and everyone wants the best healthcare money can buy for their families.
“As we get older, our focus on these financial realities gets sharper. Watson Wyatt’s research in the US shows that providing benefits that address employees’ fears of under-providing for themselves and their families has a measurable impact on reducing attrition. So, in an ageing workforce, that’s going to be an increasingly important business advantage to have.”