While the evolution of the human lifespan is a remarkable achievement, challenges have emerged with this demographic phenomenon, including concerns related to health, quality of life, and financial stability after retirement.
China’s pension system has grown and developed significantly in recent years to address the demographic transformation. The establishment of the three-pillar pension system has laid the foundation for a comprehensive and sustainable framework for people to reimagine and plan for a multistage life. Challenges and opportunities certainly coexist in this dynamic landscape.
Oliver Wyman and the World Economic Forum joined forces in September 2022 to examine the topic by convening stakeholders with varied expertise from industry backgrounds. The aim was to explore from all angles what a healthy and rich life of 100 years looks like. This report unveils the challenges and opportunities for the future.
This report builds on our past China Asset Management work in exploring the drivers of change in Asset Management in China as well as the role of the Greater Bay Area.
The pressing issues of China’s three-pillar pension system
The development of the pension market faces several important challenges. The first pillar, which aims to provide basic coverage, needs to strike a balance between quantity and quality to ensure adequate retirement benefits for the population. The second pillar, consisting of both enterprise and occupational annuities, must overcome barriers such as limited incentives and slow growth to be able to expand further.
The third pillar, as the newest addition, has great potential but still encounters challenges in asset allocation, tax incentives, and capital market volatility. Retirement planning awareness and willingness need to be improved among the population. Specific issues in rural areas call for targeted solutions to address disparities in elderly care and financial services.
Collaboration among stakeholders in the ecosystem presents opportunities
To overcome the challenges and seize the opportunities presented by China’s aging population, a collaborative effort between stakeholders in the ecosystem is vital. From rounds of panel discussions, workshops, and interviews, the strong consensus is for the need to create an ecosystem and cross-industry collaboration to build a more aging-population-friendly society. This report identifies three important opportunities:
Foster synergy between the finance and elderly care sectors
By aligning investment strategies and resources, financial institutions can play a pivotal role in supporting the development of the elderly care industry. For instance, establishing specialized funds dedicated to investing in elderly care facilities and services can attract more capital to this sector. This can lead to improved infrastructure and enhanced service quality, meeting the diverse and evolving needs of the elderly population while also providing sustainable long-term investment returns.
Integrate technology into pension advisory and elderly care services
Exploring new applications of artificial intelligence (AI) can significantly improve the cost of personalized retirement plans. Additionally, implementing AI and other technologies in elderly care services can enhance efficiency and ensure high-quality care, which minimizes the need for extensive manpower. This becomes particularly essential in addressing the increased retirement costs resulting from the aging population and rising labor prices.
Explore global collaboration to advance development of the longevity ecosystem
Collaboration with global partners in pension fund investment and elderly care service provision can bring in diverse expertise and best practices. Additionally, it can attract foreign investments and promote the internationalization of China’s elderly care industry. Such collaboration can also facilitate knowledge exchange and foster a more inclusive and competitive landscape, ultimately benefiting retirees.
In conclusion, by fostering collaboration among stakeholders and embracing innovative approaches, China can effectively address the challenges posed by its aging population and build a robust and sustainable pension and elderly care ecosystem. Proactive efforts in developing technology-driven solutions and exploring international partnerships will pave the way for a more secure and fulfilling retirement for all its citizens. By embracing this vision of a harmonious and supportive elderly care system, China can create a brighter future for its aging population.
