How the coronavirus pandemic is deepening Asia’s pension crisis

As the Covid-19 pandemic continues to overwhelm economies in Asia, putting an unprecedented number of jobs on the line, another crisis is brewing in the backdrop – one that’s likely to hit millions of people years down the road.

Along with the strain on their health and financial well-being, the pandemic threatens to derail Asians’ retirement security and Asia’s multitrillion-dollar pension systems, which already faced major challenges pre-Covid-19.

As early as 2017, the World Economic Forum warned that a retirement savings gap – or shortfall between what people currently save and what they need for an adequate standard of living when they retire – would balloon from US$70 trillion to US$400 trillion in 2050, in just eight countries. Four of the eight countries with the largest retirement savings gap – China, Japan, India and Australia – are in the Asia-Pacific region.

With investment returns already under pressure from a decade of low interest rates and now, increasing geopolitical uncertainty, the pandemic has come at a particularly challenging time for the Asian pension industry. Market volatility, deferred contributions or drawdowns as governments seek to help workers cope, as well as a lower-for-longer interest rate environment as a result of the pandemic, will only aggravate Asia’s retirement savings gap.

We saw most pension funds across Asia take an immediate hit when the outbreak and subsequent lockdowns sent financial markets sliding into one of the biggest and swiftest bear runs in history. The Organisation for Economic Cooperation and Development estimates that pension fund assets at the end of the first quarter could have dropped to US$29.8 trillion, down 8 per cent compared to the end of 2019. As the pandemic battered stock markets, it was not surprising that pension funds across Asia posted record losses.