After two tenures, AsianInvestor's 2021 Standout CIO Jang Dong-hun looks back on the past six years at Korea's Poba with satisfaction.
Despite an ongoing program of national and provincial reform, the nation remains vulnerable to the backwardness in many parts of ChinaÆs society and a pension system still stuck in the past, she believes.
ôThe pension system started in the 1950s,ö she says. ôAnd while there are a lot of people in retirement, there are also many people in their 40s and 50s who are not going to be able to find work again because their skills are obsolete.ö
The majority of employees in China are covered by old-age insurance systems operated by individual provinces. Nine of these have now been brought under a single governance umbrella and undergone other changes but, according to Sin, government has not gone far enough.
Of course there has been tremendous progress in some areas. The most notable positive has been to reward increased contributions with increased benefits.
ôTraditionally there has been an incentive to under-report the level of contributory wages,ö Sin says. ôThe requirement to contribute to the old-age insurance system was seen as a tax. But now provisions have been amended to create a reward system so that the more you pay into the system the more you get. This has reduced the under-reporting of companiesÆ wage bases and reduced contribution evasion.ö
But on the down side, the system remains biased to underestimate its future liabilities, despite these having been recently recalculated by administrators.
The system now uses proxy life expectancy rather than its previous rule that individual account holders receive 1/120th the money paid in during their working lifetime every month û a regime that will chronically underestimate needs for a retirement that could last more than 30 years.
She says: ôProxy life expectancy ignores issues like survival probabilities. Once you reach retirement age it is likely that you will live a lot longer than the life expectancy at birth minus the actual age at retirement.ö
This creates a chronic lack of funding and as a result the system is backed by central government subsidies as well as income from contributions, with the former subject to investment restrictions that force it into dangerous investments.
Sin explains: ôThe subsidies provided by the provincial government can only be invested in government securities and term deposits from financial institutions. Interest rates are not that competitive so to generate returns some are increasing risk by turning toward second-tier banks for high fixed interest.ö
ChinaÆs National Social Security Fund, the countryÆs system of last resort, is arguably its most progressive institution, having recently mandated global asset managers to seek higher-return investments. But despite its accomplishments, even the SSF faces many unknowns.
ôIt has made strides in diversifying asset classes and in outsourcing,ö says Sin. ôYet key questions remain unanswered such as what is the exact governance structure, as it is not totally transparent. Accounting standards are not developed to an international level and it still needs to sort out risk management and asset allocation.ö
Brunei Investment Agency names head of real estate; Former Temasek CEO Ho Ching joins EQT Future's mission board; APG managing director for global real assets relocates to Hong Kong; Manulife Hong Kong appoints chief financial officer and chief product officer; Wayne Swan commences as Cbus chair; AXA IM appoints head of client group alts Asia; and more.
Census experts say China's population will start to decline at least five years earlier than expected - investors are being warned to keep a weather eye on inflation and structural shifts.
Family offices in Hong Kong want to do more impact investing, but the paucity of ESG talent and the lack of uniform reporting standards are real issues for them.
An impending series of interest rate increases and the deterioration in relations between Russia and the West over Ukraine have worried investors in recent weeks, hence the volatility in US equities in particular.