Mending the safety net

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Stepping beyond her brief, SEC chairwoman Nawaporn Ruangskul pushes for better ways to secure the financial futures of millions in an ageing Thailand.

Published: 5/09/2011 at 12:00 AM from

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.

Nawaporn Ruangskul

Nawaporn Ruangskul

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

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2 thoughts on “Mending the safety net

  1. Additional ideas on your interview with BKKPost krub

    I have read your interview with BKKPost this Monday (Sep 5, 2011), and want to share more ideas on how to convert houses (big to small or expensive to less expensive houses) krub.

    A) Convert houses into uses

    When people get old, so far they normally should move their financial portfolio to lower risk categories and it seems that market mechanism is quite ready to do it (i.e. from high portion of stocks to bonds or deposits). However, to convert their living places into new (smaller and less expensive ones) ones might need some new market mechanism.

    I use to talk to my senior friends who are in real estate business and ask what would be the case when all land in major cities are fully occupied. So far nobody thinks about it.

    Think about used car model, if car manufacturers want to sell new cars, they need to make second hand market more liquid. So people can sell old cars and then buy new ones. It is the way to expand the market.

    Same like houses, old aged people want to sell either
    (a) big house or
    (b) good location house or
    (c) combination of both

    what can they do?

    If real estate “DEVELOPERS” turn themselves into “TRADERS” functions then they would buy those houses and sell new ones (smaller and less expensive ones) to old aged people. Then they can develop old houses into new products later on.

    It is more like a trade (product switch) and real estate developers would have incentive to do so. Buying and selling houses at the same time is quite difficult, otherwise such old aged people need to have some working cap to “buy” first and “sell” later (which most people do not have such luxury).

    In summary a market maker or makers to help facilitate this process would help retiree to achieve their goals.

    Once such transformation is efficient (and liquid) then old people would find new way to transform their portfolio.

    B) Tax issue

    Also there is also a tax issue in house transfer as well. So proper thought on this also needs to be sorted out. It has to the point that once transfer, the cost (tax) should not be higher than perceived benefit.

    C) How to regulate

    Again, how to regulate is an issue to protect last resort (their assets) of these old people krub.

    Anything else please let me know na krub.

    Kob khun mak krub.

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