Ageing without wealth mars golden years
published : 18 Mar 2015 at 06:00
newspaper section: News
Thailand is already an ageing society, with roughly 10 million Thais over the age of 60. This amounts to roughly 15% of the population. By 2030, this number will rise to 25%. Our declining birth rate and rising life expectancy are driving the change. Of course, it's good news that we have reached the stage of development where we live 74 years on average.
The elderly living at Bang Khae Home sport broad smiles during an annual party. Thailand is becoming an ageing society faster than its neighbouring countries. Sukum Preechapanich
But are Thais financially prepared to retire? Unfortunately, the answer is a solid no.
We're getting old a few decades later than Japan and Europe, but way before the rest of our Southeast Asian peers. In fact what's special about Thailand's case is that we will be one of the first ageing societies before the economy has sufficiently developed. It poses some serious challenges.
To put things into perspective, Thailand's population structure today is as old as Japan's was in the 1980s. But Japan's per capita GDP back then was triple what Thailand's is now. We're getting old before we get rich.
The ageing demographics will constrain the Thai economy's potential to grow in the years ahead. It already puts the squeeze on employers - who often can't find enough workers in a labour market with 0.7% unemployment (at or near the world's lowest rate). Cheap and abundant labour used to make Thailand highly competitive on the global stage. Population growth was part of what fuelled our explosive economic growth in the 1980s-1990s.
In 2018, Thailand's working-age population will begin to decline, because the birth rate already dropped decades ago with urban migration and smaller families. The curtailed population growth will trim 0.8% from Thailand's potential GDP growth rate each year.
Slower economic growth will exacerbate Thailand's looming problem of insufficient retirement assets. A customer survey by Siam Commercial Bank showed that Thais often underestimate the amount of savings needed for retirement. Many lack any form of retirement plan.
In the past, old folks often lived as part of a large extended family, which was accompanied implicitly by financial support. But today more and more live alone, with seniors comprising about 10% of all Thai households today, according to the National Statistics Office.
This further emphasises the need for retirement planning. Yet government data also shows that the geriatric portion of the population is far from being financially independent. They rely on assistance from their kin and the government for more than one-third of their income.
That source of funding is increasingly precarious with the ageing population and low birth rates, and many will have to depend more on the government's social safety net instead. Aggravating the situation, tax revenue growth may slow because dependents are increasing faster than earners. Currently, there are seven working-age people for every elderly person. This number will be halved over the next 15 years.
Countries with ageing populations tend to have soaring government debt due to higher spending on healthcare and public pensions. Thailand should expect fiscal burdens to rise and plan ahead. Our existing social pension schemes are predominantly defined-benefit, which means a predetermined amount is paid out to the retiree when he or she becomes eligible. This differs from the defined-contribution approach, which pays out according to how much the person has contributed.
Thus it appears that Thailand's heavy reliance on defined-benefit pension schemes, together with rising healthcare costs, may threaten fiscal insolvency. The government needs to restructure its fiscal planning to become more sustainable. Otherwise the younger, working-age population would have to bear a substantially heavier tax burden. This would strain implicit social contracts between the generations, as well as between the government and the public.
Most Thai savers' investment strategies will not deliver the expected returns. A large chunk of wealth remains in traditional bank deposits. The prospect for returns is low due to poor savings of elderly pensioners, reducing the real interest rate via changes in the loanable funds market. Moreover, as the population ages, aggregate portfolios shift towards safe assets potentially depressing returns on assets like government bond yields. This could lead to deflation, which Japan and Europe are currently experiencing, according to the International Monetary Fund. Financial literacy would help households better manage their wealth and seek higher returns on savings.
Late retirement could also help. The government should remove the institutional and legal barriers preventing older people from working. Many capable seniors would like to prolong their careers, but face obstacles including healthcare costs, labour laws, pension regulations and corporate attitudes towards older workers.
Though today's older generation is much healthier than their counterparts were just a decade ago, living longer and staying strong and healthy well into their golden years, the official retirement age does not mirror this change.
The option of having delayed retirement in the workplace benefits not only older people but also organisations and businesses. In many sectors and positions, job experience is crucial. Companies can unlock valuable human resources by allowing older employees to work from home or for fewer hours. Employees in turn can help make these conditions viable for companies by accepting lower benefits and wages.
The insidious demographic change will have profound and inevitable socio-economic impacts on Thailand. Even economic powerhouses like Japan and Europe are struggling to deal with ageing populations. Now is high time to get serious about reforming Thailand's lax approach to retirement.
Sutapa Amornvivat, Ph.D. is the Chief Economist and First Executive Vice President at Siam Commercial Bank's Economic Intelligence Center. She has international work experience at IMF, ING Group and Booz, Allen, Hamilton. She received a BA from Harvard and a PhD from MIT. email@example.com | EIC Online: www.scbeic.com
CEO of SCB ABACUS
Sutapa Amornvivat, PhD, is CEO of SCB ABACUS, an advanced data analytics company under Siam Commercial Bank, where she previously headed the Economic Intelligence Center and the Risk Analytics Division. She received a BA from Harvard and a PhD from MIT. Email: SCBabacus@scb.co.th