Published: 5/09/2011 at 12:00 AM from http://www.bangkokpost.com/business/financialadvice/255007/mending-the-safety-net
Nawaporn Ruangskul shot a quick glance at the paper detailing my questions before putting it to one side, her body language plain. She drew out her own sheaf of papers filled with hand-drawn graphs, flow charts and handwritten notes.
Our discussion clearly wasn’t going to centre on capital market development, challenges for regional integration or the future direction of regulatory reforms. No, the new chairwoman of the Securities and Exchange Commission has a much different thought in mind.
She’s thinking about age.
“Thailand is an ageing society. In 2007, we had six workers in the labour force for every retiree. But by 2017, the number will fall to just four workers per retiree, and to three by 2027,” Ms Nawaporn said.
She quickly sketches a diagram of an elderly person held up by three younger workers. “It’s not enough. We need more. We need new safety nets, personal safety nets, community safety nets and social safety nets.”
At 67, Ms Nawaporn officially “retired” years ago, after a lifetime devoted to the Bank of Thailand, the Thai capital market and serving as the first secretary-general of the Government Pension Fund. She was named chairwoman of the SEC last month, succeeding Vijit Supinit.
Policymakers over the past two decades have made considerable progress to bolster the country’s social safety nets and prepare for an ageing society.
Assets held through local provident funds now total 500 billion baht, funded through tax-deductable contributions by employees and employers. The Social Security Office manages another 550 billion baht on behalf of workers nationwide, while voluntary insurance and retirement mutual funds control hundreds of billions of baht in additional assets.
But Ms Nawaporn notes that many of these systems cater to white-collar workers who constitute a minority of the labour force. Millions of others, whether they be farmers, taxi drivers or direct-sales staff working on commissions, are unprotected by any formal pension programme.
“The people in the formal workforce already have a certain amount of protection. But we need to expand to others,” she said.
“How can we improve flexibility? How can we gain greater freedom of choice [in investment]? The pre-retirement savings system has plenty of room for change.”
But it’s not pre-retirement that Ms Nawaporn is most concerned about. It’s what happens after 60.
“You retire, you receive a balloon retirement payment, and then what? It’s the post-retirement system that has even greater room for change,” she said.
While of working age, people have three “pillars” that they hope are enough to sustain them through the golden years. The first is family, and the traditional duties children have to care for their parents.
Real assets, namely one’s home, form the second pillar. And last are financial assets, such as private savings, state pension schemes, insurance and other mechanisms.
Yet rising health-care expenses, longer lifespans and shrinking nuclear families will have profound implications for Thai society in the decades ahead.
Ms Nawaporn says we need to think holistically about the problem, and what new safety nets are needed to address different needs in retirement _ personal finances, mental and emotional well-being, health and legal protection. “For instance, what is needed is a way to transform your retirement nest egg into a new income stream, into cash flow to meet your daily needs,” she said.
In the US, reverse mortgages are increasingly popular as a means to convert home equity into cash. Alternatively, the housing market needs to adjust to help support seniors wanting to move away from large homes into smaller, cheaper, more convenient housing. “Basically, we need financial products that cater to this market. And we need to see more growth in different products and services, whether it be in terms of health care or special facilities,” Ms Nawaporn said.
“We also need some kind of legal and regulatory framework, to help protect both service providers and the elderly themselves.”
Creating new “golden” communities catering directly to the elderly could be a major growth segment for the private sector.
“Once we have a clear framework, then each industry will be better poised to say what role they can play,” Ms Nawaporn said, adding that the idea wasn’t to increase the burden on taxpayers, but rather to create new opportunities for the private sector or non-profit organisations to meet what is clearly a growing market.
The plan seems far from the remit of the Securities and Exchange Commission, but Ms Nawaporn has little time for such niceties.
“It doesn’t matter who thinks of it first. It’s something that we all need to help with. The SEC, the insurance industry, the Bank of Thailand _ we all can cooperate to help build a new system, to prepare for an ageing society,” she said.
About the author
Writer: Chiratas Nivatpumin
Position: Managing Editor