ASIA, INC.  DEC 1994

ECONOMICS: Aging in Asia*

dec 1994

*: Co-winner, Citibank Pan-Asia Journalism Award.

Can Asia Afford Its Elderly?

The gray market is coming, but due to inadequate pensions and a lack of social security, millions of senior Asians will not be able to buy the wonderful products designed for them. While a 75-year-old in China next year will get 98 percent of his last drawn salary as pension, a five-year-old can expect a pension of only 36 percent of his final salary when he retires. That's because the work force will have shrunk, leaving fewer workers to support more seniors, thanks to the country's successful one-child policy. Lee Yean-Ju of the East-West Center at the University of Hawaii fears the "4-2-1" problem in China: Four grandparents and two parents will have to be supported by one child. With fewer working people supporting the aged, worker contributions will rise dramatically, which is why pay-as-you-go systems are easy to install but are more difficult to adjust to changing demographics, as Hong Kong will discover. Governor Chris Patten calls the colony's proposed pension scheme practical and affordable. Even though the contribution rates in Hong Kong would be low -- 1.5 percent of an employee's salary each from employers and employees -- Ian Perkin, chief economist at the Hong Kong General Chamber of Commerce, calls the scheme costly. He says: "I think the new plan should be means tested (based on need). No doubt there is a need for more benefits for the elderly in Hong Kong. The cheapest way to do this is increase the amount of money already being paid (into other welfare programs)." Employee contributions to Singapore's Central Provident Fund (CPF), mandatory until age 55, are based on a percentage of salary. That's why, at the end of 1991, 6.2 percent of contributors owned 28.7 percent of the fund's net balances. That year the average CPF savings for Singaporeans aged 50 to 54 was a mere $ 25,059. Few Singaporeans have savings in any other form. Given an average life expectancy of 76, such a sum is hardly enough for a comfortable retirement. South Korea began a pension scheme in 1988 that won't mature until 2008. It spends only 6.4 percent of its budget on social welfare, compared with a global average of 17.2 percent. Meanwhile, less than 12 percent of Indonesia's labor force is covered by a formal pension plan. In Thailand the figure is 3 percent, and employers are waiting for the government to expand social security to include retirement benefits, rather than embrace a proposed provident fund. For the entire region, the job ahead is enormous.

The Graying Of Asia
The region's mushrooming elderly population will need either new products to buy or more social assistance. Rich or poor, their demands will be overwhelming

The muezzin's call to prayer pierces the thickening haze covering the blue hills of Penang. On the upper deck of the luxurious Langkapuri Star Aquarius, docked at the Malaysian port of George Town, Toh Seng Chong and his neighbors from Singapore's Serangoon Gardens begin the ancient ritual of tai chi.

The air is cool with a salty breeze wafting over the Strait of Malacca as 80 -year-old Toh moves gracefully, celebrating the autumn of his life. After exercise, the former cashier shares laughter and beer with his friends, former insurance agent Ee Hoon Khye, 72, cabinet-maker Ng Chee Song, 64, and manager Tan Lip Ker, 80.

They have all prospered with Singapore's economy and retired with decent Central Provident Fund (CPF) balances allowing them to buy homes, spoil their grandchildren a little and good-naturedly grumble about rising prices. On this day the ship's upper deck echoes with the sounds of a Singapore coffee shop.

Booming economic growth, the easing of poverty and improved life expectancy are swelling the ranks of Asia's elderly population, while allowing thousands of the region's senior citizens a whiff of luxury. But the next generation will demand even more, predicts the head of a Singapore-based management consulting firm. "The dynastic view is supposed to apply to Asians: You accumulate wealth to pass down to the next generation," says Peter Baldwin, managing director of Intercedent Asia. "But today's Asian yuppies are as hedonistic as their Western cousins, so attitudes will change when they grow older." Others, like Peter Walsh, managing director of market researchers Frank Small & Associates in Singapore, see the future as money in the bank for many businesses. "Nobody in Southeast Asia wants to look at the mature market yet. But gray power will hit this region in 10 years."

A gray tsunami has already struck Japan, where about 14 percent of the population are older than 65, and the phenomenon is about to hit much of the rest of Asia with similar force. While the needs and aspirations of this new class of consumers are not yet defined, the market is starting to be tapped. Among those poised to reap the rewards:

fund managers, who will direct sizable and carefully built portfolios;

property developers planning new retirement communities;

insurance agents, who will create individually tailored schemes;

cosmetic surgeons, who tuck tummies and smooth wrinkles;

beauticians offering new ways to look young;

cruise operators selling specialized tours at a relaxed pace;

health-care professionals catering to medical needs.

U.S. and Japanese businesses have been mining their gray markets for years. In America that market is worth as much as $ 800 billion annually, while in Japan the figure will soon reach $ 720 billion, says Tokyo-based Nomura Research Institute Ltd. (NRI). An advisory group to the Ministry of Posts and Telecommunications projects Japan's total domestic gray market will be worth $ 1.24 trillion in 2010. "Corporate Japan is no longer in the study phase of tapping this market," says NRI's Yamada Kenji. "They're actively exploiting the niches they've identified."

Demands are already strong for money-management services. "Asia is a huge market for retirement planning, probably the fastest-growing one in the world," says William Tatham, divisional director for financial planners Towry Law International Ltd. in Hong Kong.

Another gray-market niche is housing-related (see box, page 40). On display at Tokyo Gas Co.'s Shinjuku appliance showroom is a large door-lock with a keyhole twice the usual size, making it easier for seniors to enter. Japan's home-escalator market is also on the move, exceeding the anticipated demand of 3,000 units annually. Market leader Otis Elevator Co. expects to sell 1,200 units this year of Noriai-go ("carry with love"), a device that lifts people up stairs, at $ 50,000 each.

But not all gray products are aimed at a feeble and shuffling caricature of life after 60. Some Asian "whoopies" (well-heeled older people) are more active than their children. And marketers know it.

Says Eddy Lee, chief executive of Star Cruise, which offers Singapore-Penang and Hong Kong-Hainan Island voyages: "The senior market will certainly be a growth area for us because 20 percent of our guests are elderly. They have spending power and are looking for something different." Michael Hewitt, Far East director of Cunard Line Ltd., which operates the Queen Elizabeth II cruise ship, agrees: "The aging of Asia will cause explosive growth."

Even Rolls-Royce, the ultimate status symbol in much of Asia, expects growth in the region. One-quarter of the 1,360 Rolls-Royces sold in the world last year were bought by people in the Asia-Pacific region and most of them were in their 50s, says Terence Cheng, marketing manager of MD Motors in Hong Kong.

For centuries, Asia's population pyramid looked static -- a massive base of young supporting a sliver of elderly. But increased life expectancy, falling birthrates and improved medical care are changing that. Business opportunities aside, the socioeconomic impact of changing demographics will be staggering, and most of Asia is not ready to deal with it.

Nowhere will the aging crisis be as severe as in China. The Beijing Center of Gerontology says the proportion of Chinese over 65 will double from 10 percent to 20 percent by 2015. And China has no effective pension programs.

In Hong Kong, while the colony's business elite clashes with the government over a recently proposed pension scheme, employers are already feeling the pinch of an aging population: a smaller and less-talented labor pool. Says Trevor Sunderland, director of KPMG Human Resources Consulting: "There's definitely a labor shortage already today. I've noticed a significant drop in the quality of applicants."

Though Singapore is far from China, its leadership derives inspiration from Confucianism. Walter Woon, a university law professor and nominated member of Parliament, is a polite, thoughtful man with legal savvy to spare. This year he successfully spearheaded a bill allowing Singapore parents to sue their children should they fail to maintain them in their senior years. The measure provoked raging debate, and Woon was raked by critics who feared his measure would lead to a U.S.-style litigious society. In his book-lined office at the National University of Singapore, the cherubic Woon says: "My critics miss the point. A father can be compelled by law to look after his children. A husband can be forced to support his wife. But a son without a sense of moral obligation to support his parents has no legal obligation to do so. Being sued by parents would be a massiveloss of face."

Parental suits aside, Senior Minister Lee Kuan Yew worries about Singapore's declining birthrate, in part the result of a highly successful family planning program when Lee was prime minister. Today some 10 percent of Singapore residents are 60-plus, a figure that is expected to balloon to 27 percent by 2030. Lee's concern is well founded. Singapore has overtaken Japan as the world's fastest-aging country. Even with current tax incentives for child-bearing, Singapore demographer G. Shantakumar says, "Singapore will not be able to replenish its labor force." Senior Minister Lee now wants to give two votes to each family man between 35 and 60, as opposed to the present one-person-one-vote system, to prevent the gray lobby from pushing up welfare costs.

As for Japan, the Ministry of Health and Welfare predicts that by 2025 the country's elderly (those aged 65 and above) will reach 25.8 percent of the population. Its growing army of seniors could cost taxpayers up to $ 4 trillion annually by 2025, a staggering one-third of projected national revenues for that year.

The number of Japanese elderly needing nursing care is forecast to double to 5.2 million in 30 years. Japanese medical costs rose 7.6 percent last year, with one-third of the health budget paying for care for the 70-plus. In the future, by one estimate, younger Japanese may have to pay up to half their salaries toward health care for the elderly.

In Malaysia, Prime Minister Mahathir Mohamad fears his Vision 2020 program for making his country a developed nation by that year will be jeopardized if the work force doesn't expand. Despite a population of 19 million, Malaysia has a serious labor shortage. One idea calls for importing more workers. There are already more than 400,000 registered foreign workers in the country, plus up to 1 million working illegally. Kuala Lumpur recently agreed to recruit at least 50,000 Bangladeshi nurses, doctors and other skilled and semi-skilled workers.

South Korea will also have its hands full. Its elderly population (those 65 and over) is expected to rise from 5.5 percent of the population to 11.2 percent by 2020. With the decline of the extended family, the number of elderly living alone has grown, and the average household size has shrunk from 5.7 people to 3.7. In a 1989 survey, 65 percent of the elderly said they faced financial difficulties. Filial piety is also being tested. Confesses a Korean office worker: "I live with my mother, wife and two daughters, but I often find myself more willing to spend money on my children than on my mother."

If this harried-sounding Korean seems ready to send his mother away, there are some countries that would be happy to receive her, if only she were rich. Many wealthy seniors are signing up for retirement plans such as the one offered by the Philippine Retirement Authority. As of last July, 2,132 people from 52 countries, including wives and dependent children, had taken up the scheme. Taiwanese make up the largest group; Hong Kong retirees are second. Each settler pays a $ 50,000 deposit, plus $ 15,000 per dependent child. In return, they receive the right to live in the Philippines, with the deposit returned if they leave the country.

The Philippines, lured Gulab Thadani, a septuagenarian Indian who maintains homes in Hong Kong, Singapore, Taiwan and Indonesia. He's just added another: a plush $ 375,000 penthouse in Metro Manila's bustling Makati district. A leading Singapore surgeon envies him: "I can see myself retiring in the Philippines in another 10 years. The cost of living is low, the people are nice, and there is none of this stress of Singapore."

Kuala Lumpur also wants well-off retirees. In 1993 the Malaysian government implemented a "Silver-Haired Program" to attract Japanese and Europeans over the age of 55.

But while Rolls-Royce dealers and insurance brokers anticipate a gold rush, many of Asia's elderly won't even be able to afford the magazines in which such things are advertised. Most senior Asian males remain trapped in a low-skill, low-wage cycle, their meager pensions eaten away by inflation. In many cases, their children have left to seek work in overcrowded cities. The situation raises some painful questions: Will the family structure survive? Who will take care of the elderly? Will vast numbers of elderly absorb budget allocations that could be earmarked for other needs? Will governments have to ration health care to the neediest?

"It's not yet a crisis scenario," says a senior Singapore official. "Even by 2010 we'll still have 4 percent to 5 percent growth, so we'll be able to cushion the burden of the aged who have no savings and need subsidies. But further down the road the politics of redistribution will be more acute." And that's Singapore, with a population of only 3.1 million.

Across the region, conflicts could arise between retirees receiving pensions and the shrinking ranks of younger workers forced to pay higher taxes to support them. On the flip side, some seniors who feel they are not receiving enough are already becoming feisty. In Taipei last June, nearly 4,000 elderly marched on the legislature beating gongs, wearing headbands and demanding a modest monthly pension of $ 185 for those over 65. The Taiwan government currently pays just $ 111 a month to the most needy, though in certain circumstances it also gives tax breaks to companies keeping employees beyond age 65.

Those who do work into their sunset years may open a window of opportunity for many countries' labor-starved service sectors. Employers resist hiring older people today, but that is changing. Companies in Japan are eager to hire retired civil servants (called amakudari, or people who come down from heaven) for light administrative tasks.

At Singapore's 56 McDonald's restaurants, about 40 percent of the 4,000 staff are considered "mature" (over 40). Among them is a 79-year-old woman earning $ 2 .52 an hour at the Changi airport outlet. By next year half the company's work force in Singapore may be over 40. "Older workers are absolutely no trouble," says Irene Lim, human resource manager of McDonald's Restaurants Pte. Ltd. "They are accurate and hardworking. Our medical costs haven't gone up."

The best news about the aging crisis is the wealth of opportunities it will present entrepreneurs. Marketers are busy plotting trends likely to appear after 2000. Perhaps the early part of the 21st century will be "golden years" for many companies currently catering to Asians in middle age. One sector expected to benefit is the housing industry. Parkway Holdings Ltd., a property company that owns and operates Gleneagles Hospital in Singapore, hopes to develop a hospital-equipped retirement condominium by the turn of the century in Kuala Lumpur or Penang. Hostels for traveling seniors are also emerging in Japan and Singapore.

Singapore property developer Daniel Teo wants to create a seniors' housing project but is mildly frustrated by his inability to draw the interest of the government and investors. "There are retired people able and willing to pay for the privilege of special homes, but they're not catered to by the market," says Teo. "Most homes in Singapore are unsuited for the elderly. They're too big or they don't have low steps, handrails, emergency warning lights or call systems."

As the emergence of hospital-equipped condominiums suggests, medical care is going to occupy a giant share of the gray market. While more seniors today are staying fit and enjoying their retirement years, many elderly won't be so fortunate. With more people living longer, research into age-related ailments is becoming profitable.

British-based drug company Glaxo Singapore Ltd. is funding a $ 34 million project with Singapore's Institute of Molecular and Cell Biology to study central nervous system disorders in an attempt to understand how brain cells die. And Glaxo officials expect Asia to be a major growth area for a new cardiovascular drug in the works. Baxter International Inc., which makes dialysis solutions, expects sales of $ 1 billion from health-care equipment in the region, since the number of dialysis patients is rising steadily. It plans to set up factories in China and India.

Tokyo-based Paramount Bed Co., which makes electronically adjustable beds, earned $ 70 million last year with its 67 percent share of the domestic market. That followed 40 percent annual growth over four years -- harsh, lean years for most other Japanese companies mired in recession.

While medical-care companies are ready to answer the call, leisure merchants are prepared to pamper healthier seniors. Gwenda Loong, general manager at Alfred Dunhill in Singapore says: "The aging affluent population is a more focused target market for us."

In Taipei, it's out with the new and in with the old, says Katherine Newman Mack of stockbrokers Kleinwort Benson (HK) Ltd. She says traditional but newly packaged oolong tea is outselling perennial front-runner Coke. Singapore-listed Tiger Medicals Ltd., which makes the popular Tiger Balm pain-relieving ointment, raked in $ 29 million last year selling more than 14 million jars worldwide. Says general manager Han Ah Kuan: "Old users are our ardent followers, our best word-of-mouth endorsers."

In Singapore, John Englehart of ad agency Ogilvy & Mather places considerable emphasis on such individuals. "Older consumers are brand-loyal," he says. "The challenge for the marketer is to anticipate their needs and wants in their golden years, but secure loyalty before they get old." Many elderly would be grateful to manufacturers that make it easier for them to dress themselves, carry purchases home and perform other daily chores. How quickly can businesses satisfy this demand? And how will governments respond to the more basic needs of those who can only dream about cruises instead of shopping for them? While these questions may be debated by seniors such as those vacationing aboard the Langkapuri Star Aquarius, the answers will ultimately come not from them, but from their grandchildren.

*: Co-winner, Citibank Pan-Asia Journalism Award.