Financing Old Age in Southeast Asia: An Overview

Summary

Introduction

An important challenge facing the Southeast Asian countries concerns devising and implementing financial and managerial arrangements that are compatible with both economic growth strategy (the key characteristic of which is heavy reliance on external sources of investment, technology, markets and, increasingly, manpower) and a socially adequate level of old age income protection. In the early 1990s, expenditure on social security and welfare accounted for less than 5 per cent of total expenditure and net lending in the Southeast Asian countries, while an additional 3 to 5 per cent was spent on health. In contrast, high income industrial countries typically spend between two-fifths and one-half of total government expenditure on these two categories.

This challenge is a consequence of rapid economic growth accompanied by urbanization and industrialization, demographic transition and other factors. Demographic and economic indicators for selected countries in Southeast Asia are provided in Table 1.

Southeast Asia's rapid growth and rising living standards have brought about a new assertiveness and confidence. This has contributed to an attitudinal shift from a dynastic to a life-cycle view of income and consumption under which a much greater proportion of accumulated savings is likely to be consumed during one's life-time rather than bequeathed. As a result, life-time consumption-smoothing can be increasingly expected to become the primary motivation for saving.

Reliance on the family to finance old age, though still relatively high, is decreasing. This is in part due to attitudinal and value system changes, in part, the inevitable consequence of industrialization and urbanization that has increased formal sector employment.

The demographic transition in the Southeast Asian countries is expected to accelerate the aging of the population even in traditionally high fertility countries such as Malaysia and the Philippines. In both these countries, the proportion of those above sixty years of age is expected to increase by two and a half times between 1990 and 2030 (Table 1).