Aging & Financial Security

Voluntary Pensions Help Enable Financial Security

New report released by the Global Aging Institute and Principal discusses pension policies for aging populations in emerging markets

Many elders still rely on the extended family for support, but the family is coming under stress as economies modernize and birthrates decline

September 13, 2017 — DES MOINES, Iowa — In most countries around the globe, people are living longer.

The aging of the population poses special challenges for today’s emerging markets, where mandatory pension systems often cover just a fraction of the workforce and replacement rates are usually inadequate.

Many elders still rely on the extended family for support, but the family is coming under stress as economies modernize and birthrates decline. In a new report from the Global Aging Institute (GAI), sponsored by Principal Financial Group, voluntary pension programs are highlighted as a critical ingredient in ensuring global retirement security in emerging markets.

“As today’s emerging markets age, meeting the needs of people in retirement is becoming increasingly complicated and difficult,” said Richard Jackson, president of GAI and author of the report, Voluntary Pensions in Emerging Markets: New Strategies for Meeting the Retirement Security Challenge. “Governments need to understand that strengthening voluntary pension systems is a critical part of the solution, particularly in those emerging markets where the demographic shift is more dramatic.”

Globally, there is a shared need to increase the amount people are contributing to their retirement accounts. Principal works closely with governments to strengthen their pension systems by sharing best practices in retirement plan design and providing data-driven insights from the more than 21 million customers they work with worldwide.

Improving Retirement Outcomes

“By working with partners like the Global Aging Institute, we can help countries to learn from one another and gain access to the data and information that will help them create the right pension policies for their populations,” said Renee Schaaf, vice president of Principal International. There is no single solution to the challenges that aging will place on governments, but by working together, regulators, employers and pension providers can develop solutions that will improve retirement outcomes for citizens around the world.”

Thomas Cheong, vice president of North Asia for Principal International, spoke about the report while participating in the Global Aging Roundtable at the Milken Institute’s Asia Summit in Singapore and highlighted its implications for the region. He stressed the report’s findings that currently in Asia projections for replacement rates are not adequate. Workers in Indonesia, for example, will only have a 14% income replacement rate, far short of the 70% target rate recommended by pension experts in countries like the United States. Other countries were also found to have inadequate replacement rates, including Hong Kong at 33%, Malaysia at 34%, India at 45%, Thailand at 47% and China at 54%.

“Longer life expectancy requires people to save more than they are currently doing today,” said Cheong. “As we evaluate the future needs of Asia’s population for the next 20 years and beyond, individual countries must examine their own unique situation and determine what solutions best meet the needs of their citizens as their demographics continue to change. As they do so, we recommend that they pay close attention to the critical importance of strengthening voluntary pension systems.”

Governments need to understand that strengthening voluntary pension systems is a critical part of the solution, particularly in those emerging markets where the demographic shift is more dramatic

Excerpts from Voluntary Pensions in Emerging Markets:

As the world’s population ages, promoting long-term savings to ensure retirement security is becoming increasingly urgent.

This is especially true in today’s emerging markets. Informal-sector workers, who have typically not participated in state pension programs, have always had to worry about poverty in old age. But now formal-sector workers are also struggling to achieve retirement security. In emerging markets with pay-as-you-go pension systems, governments are being forced to make reductions in future retirement benefits due to declining birthrates and rising life expectancy. Although emerging markets with funded state pension systems are better insulated from the impact of their aging populations, contribution rates are too low to generate adequate replacement rates.

Meanwhile, rapid development and rapid demographic change are putting increasing pressure on alternative sources of retirement income, especially the extended family. Without reform, a large share of the workforce in most emerging markets will reach old age over the next few decades without adequate pensions, personal savings, or children to support them.

Building robust voluntary pension systems
Voluntary Pensions in Emerging Markets: New Strategies for Meeting the Retirement Security Challenge, a research report by the nonprofit Global Aging Institute, argues that the success of emerging markets at ensuring retirement security will increasingly depend on their success at building robust voluntary pension systems. To identify best practices, the report reviews the experience of the developed countries, where voluntary pensions are much better established than they are in the developing world. It then describes how the lessons learned from developed-country experience can best be applied in the very different economic, social, and institutional environment in emerging markets, focusing in particular on eight Asian and Latin American countries: Brazil, Chile, China, Hong Kong, India, Malaysia, Mexico, and Thailand.

According to the Global Aging Institute report, reform will have to proceed on several fronts at once:

  • Governments will need to broaden and deepen existing voluntary pension systems for formal-sector workers that now serve just a privileged minority of the labor force.
  • Along the way, governments should prioritize the development of occupational pension systems.
  • At the same time, governments will need to build entirely new voluntary pension systems tailored to the needs of informal-sector workers, who currently enjoy little or no retirement security at all.

The choice facing policymakers
Although reform will entail a significant fiscal cost, that cost will be far less than the cost of inaction. Policymakers in emerging markets face a choice. They can invest in building robust voluntary pension systems that will shore up the incomes of tomorrow’s retirees, take pressure off government budgets, and reduce income inequality. Or they can stand by as the gathering retirement crisis unfolds.

For too long, emerging markets have focused on trying to expand the coverage of mandatory pension systems, usually unsuccessfully, while promoting voluntary pensions has been almost an afterthought. It is time to recognize that, in societies where the reach of mandatory pension systems is so limited and populations are aging so rapidly, voluntary pensions are an essential component of retirement security.To access the full report, visit


Read the entire report here.


About Principal®
Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals — offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at
About the Global Aging Institute (GAI)
The Global Aging Institute (GAI) is a nonprofit research and educational organization dedicated to improving our understanding of global aging, to informing policymakers and the public about the challenges it poses, and to encouraging timely and constructive policy responses. To learn more about GAI, please visit its website at
Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc, a member of the Principal Financial Group.