A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://asiapacific.unfpa.org/en/topics/ageing-2
https://www.lewissilkin.com/our-thinking/future-of-work-hub/insights/2025/06/03/changing-demographics-and-ageing-workforces-in-the-asia-pacific-region-1
B] The Issue
By 2050, more than 25% of Asia-Pacific’s population will be over 60, creating unprecedented challenges for pension systems already struggling with sustainability, according to a leading academic in actuarial science. Professor Johnny Li, Tan Bingzhao Professor of Actuarial Science at The Chinese University of Hong Kong (CUHK) Business School, outlined the gravity of the situation.
“Across the Asia-Pacific region, life expectancy has increased by an average of three years over the past decade, while fertility rates have fallen below replacement levels in many advanced economies,” Li explained. “This creates a perfect storm for pension sustainability.”
This demographic shift threatens economic growth through a shrinking labour force while simultaneously increasing demands on healthcare and social security systems. The resulting higher dependency ratio – fewer workers supporting more retirees – places tremendous strain on traditional pension models.
“Pay-as-you-go systems, which fund current retirees through contributions from today’s workforce, become increasingly vulnerable as the ratio of retirees to workers rises,” Li said. “Meanwhile, defined-benefit pension schemes, which promise a specified monthly benefit after retirement based on factors like salary history and years of service, face mounting liabilities as beneficiaries live longer than anticipated.”
C] Innovative Solutions
Li emphasised that managing “longevity risk” – the trend of increasing life expectancy – requires innovative approaches, particularly during periods of economic volatility.
“Falling interest rates increase the present value of future pension liabilities, compounding the challenges pension providers face,” he noted. “One promising solution involves transferring longevity risk to capital markets through financial instruments linked to life expectancy.”
Among these instruments, Li highlighted longevity bonds, whose payouts are tied to the survival rates of specific populations. By investing in such products, pension funds can better balance their long-term liabilities.
D] Individual Responsibility
For individuals concerned about their financial future, Li recommended strengthening financial literacy, encompassing early planning and the strategic use of available resources.
“Many employees are unaware of the exact benefits available through their employment-related pension plans,” he said. “Educating yourself about options and maximising contributions while leveraging tax incentives are crucial steps toward building robust retirement savings.”
Li also stressed the importance of adapting to changing risk profiles as individuals age, noting that their risk tolerance tend to decline as they become less financially agile over time.
E] Public-Private Collaboration
As public pension systems face growing strain, Li called for stronger collaboration between governments and the private sector. “The World Bank’s three-pillar framework for retirement income security remains relevant today,” he said. “Public pensions provide a safety net, mandatory private savings supplement these benefits, and voluntary savings enable individuals to accumulate additional resources.”
Governments can support this framework by incentivising risk management practices and promoting innovative retirement products through regulatory and tax policies.
“An aging population should not be viewed solely as a burden,” Li concluded. “It presents opportunities to reshape our economies and societies. As actuaries often say, ‘Risk is opportunity.’ The challenge now is to mobilise pension capital for growth while ensuring sustainable financial security for all.”
F] Finally
If you may ask where the good news is, that might be that most developed countries are facing similar longevity issues and that countries hopefully can learn from each others approach toward these issues. In that regard, let’s not forget to include the active (tech) approach of Japan and the results thereof!