Emerging markets face a USD 5.4 trillion-per-year shortfall in savings for sustainable retirements, says Swiss Re Institute
- Emerging markets face a
- This gap between emerging markets' pension assets and pension income need is about
-
"Funding for pensions in
Individuals in emerging markets will increasingly need to make their own funding arrangements for retirement. Pension reforms are shifting onto individuals both the responsibility for saving for a pension and the management of lifetime risks such as mortality, morbidity, longevity and investment performance. These risks inhibit a person's ability to provide for their retirement, since a period out of work due to sickness, family care or even death will impact a household's savings. This challenge is acute in emerging markets, where personal resources tend to be lower and social safety nets weaker. Individuals will need more tailored insurance protection, in the form of life, medical, disability and critical illness covers, to manage these risks.
Integrating protection insurance into mandatory pension systems is one proven solution. In
The emerging markets pensions savings gap has many causes. Population ageing is putting increasing pressure on national pension systems as a shrinking labour force supports a growing older population. Public pension spending is rising sharply as a percentage of GDP, challenging government finances, while declining interest rates are adding to the long-term challenge of pension funding. The COVID-19 crisis has exacerbated these trends in the short term.
Concern about mortality risk is rising significantly in
Pension coverage – the proportion of the working population covered by pension provision – is low in
Stronger partnership is needed to ensure pensions sustainability
Emerging market governments should support a sustainable pension system, with strong foundations in a sound regulatory framework, commitment to education, incentives to participate, such as tax exemptions, and solid partnership between all parties. Partnership can also provide routes for insurers to invest in long-term, public-private projects that are a good match for their liabilities, such as infrastructure finance.
"The shortfall in saving for adequate and sustainable retirements cannot be bridged solely by government resources. Strong partnership between the state, the private sector and individuals will be key,"
Notes to editors
How to order this sigma study
sigma 2/2021, "Emerging markets: the drive for sustainable retirements in an ageing world", is available in electronic format to download here: https://www.swissre.com/institute/research/sigma-research/sigma-2021-02.html
1 As of 2019 value, based on the average worker. The calculation factors in the economic impact of the pandemic through use of forecasts. |
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2 The pension savings gap is the unfunded gap between pension funds available and the retirement need of emerging markets' working populations. It is calculated as all pension contributions (mandatory and voluntary) and expected returns on pension funds and accumulated savings during working years, subtracted from the sum of money required to fund 65% of pre-retirement income during retirement years. |
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3 sigma Resilience Index 2021: a strong growth recovery, but less resilient world economy, |
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SOURCE Swiss Re
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