How to successfully navigate Asia-Pacific’s retirement markets

Those looking to participate in pension reform markets need to understand the challenges – not just the opportunities – as millions more customers join the region’s retirement markets.

Asia-Pacific will soon be home to the world’s top global retirement and asset management market, attracting pension and retirement funds, domestic and international life insurers, wealth and asset managers, and retail banks. Demographic transformation and social system reforms mean the region is expected to account for more than half of the retirement assets accumulated over the next decade.

Already, countries such as Australia and Singapore have demonstrated the region’s potential to accumulate significant retirement assets while building some of the world’s most successful markets. Over the last 25 years, thanks to a policy framework focused on building better retirement incomes, a mere 12 million contributing Australians have built an asset pool of US$2t.

Now, other countries are fundamentally shifting how they manage pensions and savings. More economics are opening up to asset managers and life insurers who can help boost retirement funds and savings – creating opportunities impossible to find anywhere else in the world. Sweeteners include the region’s high net worth customers, whose wealth is expected to add US$40t to AUM, and net operating margins above 40%.

Five considerations in regional retirement markets

Local and foreign organizations need to watch out for the five “C’s”:

1. Context – socioeconomic factors may look favorable, but they can be misleading. Out of a total population of 1.4 billion, only the 2% who pay tax in China will purchase tax-deferred retirement products. But, tomorrow, small changes to regulatory levers, such as mandating or voluntary solutions, could radically increase participation. What regulatory changes will trigger your play?
2. Culture – existing culture-driven product preferences in Japan or China offer tremendous retirement asset growth opportunities, with the potential to convert current bank deposits and guarantee products into trillions of dollars of investment-based wealth and retirement assets. But changing customers’ behavior will take significant effort and time. New concepts, such as financial advice, employer-servicing or financial well-being models, will find it hard to achieve cut through. How will culture impede or support your go-to-market approach?
3. Contestability – many markets appear to have low barriers to entry, but often assets and customers are beyond the reach of external providers because they are managed in-house or tied to home brands. This can halve the actual addressable market size. What implicit barriers are you up against?
4. Collaboration – asset managers and insurers have important capabilities and experience – in behavioral finance, financial advice and investment strategies – to empower people to make informed retirement decisions. Particularly in emerging markets, retirement expertise, tools and leading practices, including being a good corporate citizen, will be important to expand the addressable market more quickly. How can you collaborate to build trust rather than simply sell products?
5. Customers – currently, the region’s retirement customers have limited financial literacy and lack trust in government-imposed forced savings solutions. They need both nudging and protection to improve retirement outcomes and financial well-being.