Proper planning and an appropriate financing scheme are key for Thailand to achieve a sustainable scheme to support its ageing population and avoid the failures witnessed by several countries such as Japan and some European nations.
“The philosophy is important. The financing scheme is critical. Plan very well and don’t misuse funds. You have to pin down the objectives and stick to the rules,” Professor Naohiro Ogawa of the Nihon University Population Research Institute said yesterday.
“Life expectancy changes fast. Humans are creating this disaster,” he said, explaining that this was the result of maintaining a decades-old retirement age without changing it to match the longer life expectancy.
Like Ogawa, Mathana Phananiramai, a former lecturer at Thammasat University, urged the government to extend the retirement age to cope with higher expenditures on the elderly. When Ogawa said this was the easiest option for Thailand to ensure sustainability of the pension scheme, Mathana said this was the only way to allow Thais to save more to support themselves in retirement.
She suggested the initial extension of the retirement age in some industries.
With people aged 60 and older to account for 25 per cent of the population in 2030 compared with 12 per cent now, Thailand is not prepared for the greying of society when fewer workers will be in the labour market to support the older population.
According to a research project overseen by Mathana, Thailand’s elderly now rely evenly on their own savings, labour income and financial support from their children, while government support is near zero.
On the sidelines of the “Asian Regional NTA Conference on Intergenerational Transfers, Population Ageing and Social Protection in Asia”, Ogawa urged Thailand to think carefully on what would be the right kind of pension scheme for the Kingdom and how to finance it.
In 1961, Japan established a national pension scheme to provide job security. After changes in the economic structure that made seniority-based promotion unworkable, coupled with the misuse of pension funds for investment in golf courses and resorts, many Japanese lost trust in the scheme and some have refused to pay their contributions.
The government now has to help finance the operation and the burden will only rise, as Japanese life expectancy is over 90 years on average. To fix the problems, the retirement age in Japan will be raised to 65 next March, while companies are allowed to pay half-salary to employees aged 60 or more.
“You should just forget lifetime employment and live with an ability-oriented approach. The Japanese now want to work after retirement. Twenty years ago, they left jobs because of health. Now, at 65, they are still healthy,” Ogawa said.
Drawing a lesson from this, when it started a national pension scheme in 1997, South Korea required everyone to work hard in return for financial benefits. Still, despite the lessons, some countries failed. Kazakhstan, for example, initiated its scheme in 2004 on the recommendation of the World Bank, only to report huge losses from the 2008 financial crisis.
“China, India, the Philippines and Thailand – everybody wants to come up with the best social-security system. But we just can’t duplicate the same thing,” said Ogawa, who oversaw a regional research project in cooperation with the Thailand Development Research Institute.
Commissioned by the International Development Research Centre, the project involving academic and research institutions in China, India, the Philippines and Vietnam. They set out to examine ways to cope with lower productivity when the population grows older and other socio-economic inequalities hurt both the young generation and the elderly. In some countries, it turned out that Asian governments invested so much on the youth, mostly on education, that few resources were left for the elderly. And as these two age groups compete for resources, taxpayers or those in the working-age group bear the burden.
The research project basically employs the framework of national transfer accounts (NTAs) developed by Professor Ronald Lee of the University of California at Berkeley and Professor Andrew Mason of the University of Hawaii.
Mason said the framework helped establish statistics on economic contribution from people of different age groups and their consumption as well as government spending to different groups. For Thailand, where government spending on the elderly is almost nil, the statistics show the need for all workers to save up. But when the Thai government wants to start a social safety net, it needs to fulfil promises.
“Globally, we expect modest population decline but we don’t promote fertility to cope with the ageing structure. We’re rather moving to become human-capital-intensive, when the number of workers doesn’t matter any more.
“A lesson drawn is that ageing poses some challenges for us. We need good safety nets. It’s really important to have in place a social safety net to help people deal with the risks,” Mason said.
Taxpayers, who in the United States shoulder 30-35 per cent of elderly expenses, should not be entirely burdened or that would lead to no sustainability, he added.