By Richard Jackson and Tobias Peter

As the world’s societies age, policymakers are trying to peer into the future and anticipate the retirement needs of tomorrow’s growing elderly populations. Nowhere is this more difficult to do than in emerging East Asia, where rapid development has opened up a widening gap between the experience and expectations of older and younger generations, formal retirement institutions are still maturing, and massive age waves loom over the horizon.

To better understand the future of retirement in emerging East Asia, the CSIS Global Aging Initiative conducted a survey of workers and retirees in China, Hong Kong SAR, Malaysia, Singapore, South Korea, and Taiwan. Among the survey’s major findings:

•  The traditional “Confucian ethic” expectation that families themselves should provide for their own elderly members is under unprecedented pressure. Only small minorities believe that grown children should be primarily responsible for retirement income.

•  In rapidly modernizing societies, one might expect to find a strong desire for the state to step in and substitute for the family. But except in China, this is not the case. Instead, people in most countries prefer personal savings-based responsibility for retirement income to government responsibility.

Source: CSIS Report Balancing Tradition and Modernity: The Future of Retirement in East Asia.

•  Today’s elderly have retired at an awkward juncture in the development of their countries. Traditional family support systems are already weakening, but adequate government and market substitutes have yet to be put in place. As a result, large shares of the elderly face economic and social marginalization.

•  The retirement outlook for today’s working-age adults is generally much brighter, though many continue to be under-served by formal retirement systems, are failing to accumulate sufficient long-term savings of their own, and may be unable to fall back on the family support systems on which today’s elders depend.

The broad public support for savings-based retirement provision should be welcome news to East Asian governments as they consider how best to ensure the adequacy and sustainability of their retirement systems. The pay-as-you-go model of retirement financing, in which current workers support current retirees, has a clear economic advantage in eras of rapid population and wage growth.

But as East Asia ages and its workforces grow more slowly or contract in the decades ahead, and as wage growth converges with developed-world rates, the advantage will increasingly shift to the funded model of retirement financing.

China, where the overwhelming public preference is for government responsibility for retirement income, faces an especially daunting challenge. On the one hand, meeting public expectations for generous government support would require a steeply rising tax burden. On the other hand, failing to meet these expectations could result in a humanitarian aging crisis. Either way, the twin pillars of the current regime’s legitimacy—rapid economic growth and social stability—may be undermined.

In response to this threat, the Chinese government is moving rapidly to strengthen the old-age social safety net. It is also debating whether to relax or even abolish the one child policy, which is not only hollowing out the base of China’s population pyramid, but has also led to an enormous gender imbalance that further threatens social stability.

For the past few decades, East Asia’s unusually favorable demographics have helped to propel its spectacular economic rise. Beginning around 2015, however, the demographic climate will change abruptly. As massive age waves engulf the region, dependency burdens will rise and economic growth will slow. How the countries of East Asia manage their aging challenge will have profound implications for their future prosperity. Nowhere are the stakes greater than in China, whose “premature aging” could slow—or even halt—its peaceful rise.

This post is based on Balancing Tradition and Modernity: The Future of Retirement in East Asia. The CSIS report, along with supplemental data, is available at gapindex.csis.org/asia.

Dr. Richard Jackson is director and senior fellow of the Global Aging Initiative at CSIS. Mr. Tobias Peter is program coordinator and research assistant with the Global Aging Initiative.