World Bank East Asia and Pacific regional flagship report

Kuala Lumpur, September 2016

Live Long and Prosper:Ageing in East Asia and Pacific

Presentation outline

• Key messages of the report

• Some basic demographic and labor force facts on EAP and Malaysia

• The living situation of older people in EAP

• Policy observations and implications

2

Key messages of the report

• EAP already has more old people than any other region globally & is aging at an unprecedented pace – but the picture across countries is diverse

• The challenges posed by rapid aging are real, but public policy & behavioral responses by households and employers can promote healthy & productive aging – and EAP is (mostly) better placed than most regions to manage

• The most pressing risks from rapid aging are fiscal & require urgent reforms in some EAP countries of pensions, healthcare, and long-term care systems

• The policy responses needed to manage rapid aging are not just about old people – it requires policy reforms across the life cycle

• For countries with time to prepare for aging like Malaysia, it is important to take policy action now & also learn from policy experience of older EAP countries by factoring in changing demographics in current policy formulation

EAP has more older people than any other region…will

increase to around 500 mln by 2040 (UN 2015)

4

The transition from aging to aged societies is

faster in EAP than seen previously in history…

(years to move from 7 to 14 percent population 65+, 5 year rounded)

5

Resulting in rapid decline in working age population in

some EAP & end of demographic tailwind in others…

(Projected % change in population, 15–64 Years, 2010-2040. UN)

6

Malaysia has two dynamics at play – rising working age

population in absolute terms but also rising aged share

(Malaysia, UN 2015 revision)

7

0

5,000

10,000

15,000

20,000

25,000

30,000

19

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

20

35

20

40

20

45

20

50

20

55

20

60

20

65

20

70

20

75

20

80

20

85

20

90

20

95

21

00

Population by age (thousands), annual: 1950 to 2100

0 to 14 15 to 64 65+

Developing EAP is getting old before getting rich…(GDP per capita & elderly dependency ratios, 1960-2010, WDI)

China

China, Hong Kong SAR

Singapore

CambodiaIndonesia

Lao PDR

Malaysia

Mongolia

PhilippinesThailand

Timor-Leste

Viet Nam

JapanRepublic of Korea

France

United Kingdom

United States of America

South Africa

Poland

Russian Federation

Brazil

Mexico

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40

GD

P pe

r cap

ita ($

2005

PPP

)

Elderly Dependency Ratio8

What are some features of the

living situation of older people in

EAP?

9

In most EAP MICs, poverty increases steadily

from middle age

Poverty rates by age, WB 2016

10

Indonesia, Susenas 2015 Korea, KLOSA 2010 Thailand, 2013 SES

3.2

7.0

10.2

14.5

National

average

0

2

4

6

8

10

12

14

16

15-30 31-49 50-64 65+

Perc

en

t o

f p

op

ula

tio

n

In contrast, poverty rates of elderly-headed

households below average in Malaysia (HIS 2012)

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In terms of health status, there is good and not-so-

good news…NCD is the key story

The good news

• EAP people are living longer, especially in low-income countries

• They also have more years of healthy life expectancy

• In much of EAP, communicable diseases are no longer the primary case of death and morbidity

The not-so-good news

• Non-communicable diseases are exploding: more middle aged people have them & older people have multiple NCD – often undiagnosed or untreated

• Years of living with disability are rising as healthy life expectancy increase lags total life expectancy increase

• In much of EAP, unhealthy behaviors are high, including smoking, salt intake and alcohol consumption + urban lifestyles

• Aging is leading to new health challenges such as dementia (x5 in Malaysia till 2050)

Malaysia is part of the regional NCD epidemic -

63% of adults 18+ have at least one risk factor

NCD dominates mortality burden (mortality by cause, 2012, IPH)

Prevalence of NCD high & often at young ages

(NHMS 2015 % with condition by age)

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For much of EAP region, many work till

advanced ages, especially in rural areas (WB 2016)

Indonesia China Philippines Thailand

Rural men Rural women Urban men Urban women

14

Those who work in old age continue to work

hard across Asia

Hours worked among rural men working Hours worked among urban men working

15

Elderly people in EAP rely mainly on their own work for financial support…

(primary source of support 60+. Rural top; urban bottom. Giles et al, 2015)

16

Work also an important source of income for

older Malaysians, though less so for women

(Men LHS & women RHS, HIS 2009)

17

26%18%

8% 7%3%

44%

48%

48%44%

39%

25%31%

41%47%

55%

4% 3% 3% 2% 2%

0

5,000

10,000

15,000

20,000

25,000

30,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

60-64 65-69 70-74 75-79 80 & overM

YR

pe

ran

nu

m

Pro

po

rtio

n o

f In

co

me

by

So

urv

ce

wages self employment transfers other gross income (RHS scale)

13%10%

5% 2% 2%

33%35%

33%

31%29%

52% 52%59%

64% 67%

2% 3% 3% 3% 2%

0

5,000

10,000

15,000

20,000

25,000

30,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

60-64 65-69 70-74 75-79 80 & over

MY

R p

era

nn

um

Pro

po

rtio

n o

f In

co

me

by

So

urc

e

wages self employment transfers other gross income (RHS scale)

Contrary to the current reality, expectations of the State are high for old age financial support

(expected primary source of support in old age – proportion of total respondents – Jackson & Peter, 2015)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

South Korea Taiwan, China Singapore Malaysia China Indonesia Philippines Thailand Vietnam

Retirees Themselves Government Grown Children or Other Family Members

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Some policy observations &

implications

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1. Growth and aging

In East Asia, demographic dividend contributed significantly to growth in 1960s-1990s: 30-40% of growth by various estimates

(e.g., Bloom+)

But – does this mean a “demographic tax” with aging? Report argues that risks to growth are real but manageable and EAP better positioned than most due to work, savings and human

capital factors

• Standard growth accounting models show mixed picture - for Malaysia no negative growth impact till the 2030s, while negative demographic impact from 2020s for China, Thailand, Singapore, Korea, Vietnam (ADB)

• Overlapping generations models have more mixed results, e.g. human capital deepening from lower fertility; high capital to labor ratios & positive productivity effects

• Contrasting impacts on household savings of behavioural effects (as people save more for longer old age) and compositional (from more older people to total population). Predictions mixed but behavioural expected to outweigh compositional. 20

2. While the share of working age population in

Malaysia declines only slowly, it is important to

prepare the labor market

Focus areas to prepare the labor market for rapid aging include:

• Increase female labor force participation to prepare for the structural reversal in demographics, including through greater investment in public childcare and aged care

• Align official retirement ages with the new demographic realities & link them automatically to future longevity evolution

• Adjust labor market institutions & policies to encourage longer formal sector work of older people, e.g. abolish seniority wages; increase flexi-work to promote “glide” into retirement

• Enhance the emphasis on educational quality and develop systems for life-long learning to promote sustained skill upgrading across the life cycle & keep people productive for longer

21

For Malaysia, increasing female labor force participation

and remaining open to immigration best channels to

prepare for ageing

Malaysia lags regional average & economic competitors on FLFP (2014, WDI)

Converging female to male LF participation major mitigation for aging

22

0%

10%

20%

30%

40%

50%

60%

70%

80%

China Indonesia Malaysia Myanmar Singapore Thailand Vietnam EAP

3. Across EAP, major challenges for many countries

in expanding contributory pension coverage…

(contributory pension coverage of active labor force, early 2010s)

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At same time, often significant fiscal pressures

on current formal sector schemes

Projected increase in pension spending, 2014-2050 (WB 2016)

24

While coverage expansion challenge remains in

Malaysia, pension adequacy also major challenge

• EPF balances low at retirement despite reasonably high contribution rate (EPF Chair in 2014: 69% with < RM 50,000 balance at 55)

• Early withdrawal rules not helping & even new retirement age of 60 is low

• No redistribution in EPF

• B40 largely uncovered by EPF & efforts with matching schemes nascent and offering modest incentives

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4. Aging will put significant cost pressures on

health systems, but policy choices remain crucial

OECD + China, Hong Kong SAR China, Indonesia, Philippines, and Thailand findings:

• Ageing per se accounts for around one third of increase in health spending even in older countries, though some estimates for China higher

• Policy and technology choices remain the most critical factor in driving health expenditure growth

• For Malaysia, the best study predicts health spending will increase 0.7% of GDP from 2010-2030, with ageing accounting for less than one third of that growth (Rannan-Eliya et al, 2013)

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Aging & NCDs require a whole of healthcare system response

• Reduce exposure to risks in adulthood (e.g. higher tobacco taxation as in Philippines) and earlier in life (malnutrition), and promote healthier lifestyles

• Manage key risks better (CVD risk factors; cancer), including improved self-management and medication adherence

• Transform delivery systems – in particular reducing over-reliance on hospital care & putting primary care in the driver’s seat and emphasizing coordination of care

• Get better value for money from health systems – reforming provider payment mechanisms; get better value for pharmaceutical procurement; prioritizing new drugs & technologies transparently (e.g., Korea and Thailand)

• Preparing for the specific challenges of ageing – bridging health and long-term care; increasing community-based care; preparing for functional & cognitive decline among elderly (e.g. dementia care)

Aged and long-term care remains a challenge

in Malaysia and across developing EAP…

• Public sector support for long-term care remains nascent in developing EAP including Malaysia, though health systems are taking some of the brunt at high cost

• With strains on traditional networks, there is a need for proactive policy measures from governments in EAP – but government cannot do it all, and needs markets, families & individuals to play a role

• Aging in place should be the guiding approach, with a strong reliance on home- and community-based care – both more affordable and giving higher quality of life

• Financing LTC will be a challenge, with no definitive model – who should State prioritize for public subsidies and how to finance those? 28

For comments or questions, please contact Philip O’Keefe (pokeefe@worldbank.org)

The report is available at World Bank Open Knowledge Depository at www.worldbank.org

“Live Long and Prosper: Aging in East Asia and Pacific”

TERIMA KASIH…

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