For Immediate Release
29 November 2012
New Retirement Preparedness Indicator highlights financial and economic factors influencing retirement readiness in Vietnam
Research reveals that while Vietnam faces significant challenges to preparing for retirement, broad economic and demographic trends work in its favour
Hanoi - Manulife Asset Management today issued a report that introduces its Retirement Preparedness Indicator, which highlights the financial and economic conditions influencing the ability of individual economies to provision for their aging populations. The report finds that although Vietnam’s government pension coverage is currently limited, relatively positive economic and demographic trends should help individuals supplement state benefits.
The report, entitled Funding the golden years: The financial and economic factors shaping retirement provision for Asia’s rapidly aging populations, is part of Manulife Asset Management’s Aging Asia research series and builds on the findings of its June 2012 publication: Saving up: The changing shape of retirement funding in a greying ASEAN. The previous publication revealed how ASEAN countries once considered to be among the most ‘youthful’ in Asia are actually aging more rapidly than most realise.
The new report divides the subject countries and territories into three broad categories of retirement preparedness. Those deemed to be facing the ‘most favourable conditions’ are Taiwan, Hong Kong and Japan; those judged to have ‘favourable conditions’ are Singapore, China, Malaysia and Thailand and those considered to be facing ‘challenging conditions’ are Indonesia, South Korea, Vietnam and the Philippines.
Trinh Nguyen, chief investment officer for Manulife Asset Management Vietnam, explained why the country is included in the group facing ‘challenging conditions’: “The main challenges we see to providing retirement financing in Vietnam are its level of financial wealth, which is relatively low compared to the other countries analysed, and its modest government-mandated pension plan coverage ratio. However, Vietnam also has factors working in its favour in terms of retirement preparedness. For those covered by the government-mandated plan, net pension wealth is impressive at 14.6 times average annual incomes. For those not covered by the scheme, continued economic growth combined with the country’s relatively high savings rate should facilitate personal retirement preparation if appropriate savings vehicles and incentives are available.”
Oscar Gonzalez, economist at Manulife Asset Management, expanded on Nguyen’s comment, pointing out that: “The report reveals that demographics actually work in Vietnam’s favour. It should see significant growth in its number of potential savers as it is forecast to add more than one million new citizens to its population per annum through 2050. These new savers should be increasingly empowered to shoulder some of the responsibility for retirement preparedness as individual incomes are expected to rise alongside forecasted GDP per capita growth of 5.4% per annum through 2050. It is ultimately the interplay between these demographic, financial and economic factors that will determine whether or not Vietnam will become rich enough to sufficiently fund retirements before it becomes too old.”
Michael Dommermuth, president of Manulife Asset Management Asia, commented on the report’s conclusions: “Asia as a whole is aging much more rapidly than most realise and individual countries and territories face varying conditions that affect their abilities to provide for their growing retired populations. The report reveals that most public retirement schemes in the region will need to be supplemented and that the ability to do so hinges on the availability of secure savings vehicles that unlock the potential to grow personal savings. This is strongly influenced by government policy support for enhancing financial market depth and the level of private sector interest in alternative savings mechanisms such as mutual funds and investment-linked insurance products.”
The report points out that Asia is likely to experience an increased shift in responsibility for retirement funding from the state to the individual, and that Vietnam is no exception to this trend. As this shift takes place, Dommermuth anticipates a growing need for investment products such as asset allocation funds that help build pension pots and, ultimately, income generating products that generate steady cash flow in retirement.
Dommermuth concluded: “Manulife Asset Management has considerable experience building multi-asset solutions designed to meet specific client objectives and constraints. Our dedicated asset management unit, the Portfolio Solutions Group, has investment professionals across the U.S., Canada and Asia managing more than US$98 billion in asset allocation funds, making us one of the world’s leading asset management firms. Based on market knowledge gleaned from our footprint across 10 countries and territories in Asia, we know how to provide customised investment solutions that meet local market needs for retirement funding. This is why Manulife Asset Management Vietnam is committed to providing savings vehicles designed to empower individuals to prepare for retirement."