Wealth managers and investment providers must do more to help Asia's older population prepare for retirement as needs are not being met properly, research has suggested.
Asia’s demographic make-up is changing towards a proportionately older population.
According to research from international financial consultancy Cerulli, this trend means asset managers must do more to plug potential retirement gaps by developing suitable investment products, and educating retail customers about the need to start their retirement planning early.
“Retirement solutions will continue to evolve, guided by retirees’ changing needs that translate into market demand, and asset managers will have to rise to the occasion”, Shaun Ng, analyst with Cerulli, has warned.
Ng added: “It is also important to remember that it will take a concerted effort by governments, financial institutions, and individuals themselves to actively prepare for retirement.”
In Taiwan, for example, asset managers want to focus on developing mutual funds and ETFs as retail retirement products over the next three years.Cerulli reportDespite the growing number of products available for retirement planning, a recent report from Cerulli suggested life insurers were in a prime position to develop and promote savings options such as investment-linked products, especially across south-east Asia.
The Cerulli Edge's product trends report said ILPs were especially popular in markets such as Indonesia, where insurers and banks have actively marketed them.
However, the report said: "In Taiwan—one of the biggest ILP markets in Asia—flows to ILPs may be curtailed after regulations banning insurers from offering high-yield bond and emerging market bond ILPs kicked in in July 2023. Flows to such ILPs surged in June, just before the ban, likely as insurers rushed to beat the deadline."
Generally meant for retirement, target-date and target-risk mutual funds share similarities, following a glide path that changes their asset allocation over time.
In China, managers rate target-date funds as the products that they will most likely focus on growing in the next three years, while other mutual funds and exchange-traded funds are less preferred, according to the report.
According to the research, pension target funds were the first type of products included under the new private pension scheme as mutual funds, and asset managers are increasingly refining their offerings of these products.
However, Cerulli's report also suggested target-date and target-risk funds could be deemed more complicated than plain vanilla mutual funds and ETFs, products that are more familiar to investors in several markets.
The report explained: "In Taiwan, for example, asset managers want to focus on developing mutual funds and ETFs as retail retirement products over the next three years.
"Because mutual funds and ETFs have low barriers to entry, and the investment method is quite convenient, many people like to use them for retirement planning."
Private retirement solutions offered by financial institutions such as asset managers should also be able to cater to retirees’ needs.
A key aspect is performance—the most important factor to gathering retail interest in retirement products, despite the standard warning that past performance is not a guide to future returns.
This was according to Cerulli’s asset manager poll in September, which asked which factors are important in gathering retail interest in retirement products.
But according to Ng, the main challenge, over and above the complexity of products, lies in maintaining consistent fund performance and being able to beat inflation, a key concern particularly among retirees.
In terms of product features, distribution and decumulation share classes will be increasingly important to investors, especially those closer to retirement.
Indeed, rapidly aging markets such as Singapore have stepped up efforts to offer these features in products aimed at retirement savings.
Global sentiment
This chimes with research this year from Natixis, whose global survey of individual investors revealed a "critical lack of knowledge" on how interest rates and inflation might affect investment performance.
Moreover, despite the fact markets have gone from high returns with low risk, to lower returns with greater risk since 2020, "investors have yet to make a meaningful adjustment to their return assumptions and reassess where their real risks lie".
Most major indexes posted losses in 2022 (in USD), including 7 per cent for the FTSE, 18.1 per cent for the S&P, and 12.6 per cent for the Hang Seng, according to Bloomberg data.
This meant investors have moderated return expectations.
[Investors] have good instincts about where to get solid advice.Natixis reportYet Natixis' 18-page report, co-authored by CoreData and the Natixis team, including Stephanie Giardina, programme manager, revealed while investors felt that inflation was generally a shorter-term financial challenge, many felt it could have a significant impact on long-term financial success.
The study revealed 66 per cent of global investors surveyed say inflation has significantly hurt their ability to save for retirement, and 55 per cent said they were saving less, due to the higher cost of everyday expenses (see image, above).
Those countries where investors are less fearful of inflation include Japan, where inflation, at 25 per cent, ranked behind recession (42 per cent) and war (39 per cent) in terms of fears; and Hong Kong, where investors were worried more about market volatility (41 per cent) than inflation, at 38 per cent.
In fact, only in Japan did failing to meet goals come out as the top investment risk, at 21 per cent.
There was good news for advisers in the report. Despite the inconsistent views on the basics, 51 said they needed professional advice for their investments.
The reality has gone from “set it and forget it” to “go get professional advice", according to the authors.
They said: "[Investors] have good instincts about where to get solid advice, and it’s likely they will need more of that as the next wave of economic and market pressures changes what they see today."
Simoney Kyriakou is editor of FTAdviser.com
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