Association of Investment Management Companies
ÊÁÒ¤ÁºÃÔÉÑ·¨Ñ´¡ÒÃŧ·Ø¹
| Saving for Retirement in Thailand by:AIMC |
|
Print This Page  |
|
Saving for Retirement in Thailand
It is a sad fact that you can work hard your whole life and then be let down when you are retired with a savings that is not enough to support you. And it is even worse that this is the future that most hard working people face. So, eventhough you want to be able to enjoy your family and do things like help your grandchildren’s education, it is just not going to be possible unless you take action.
For most of the last decade, household savings behavior in Thailand has changed in a number of ways. First, average household income rose by approximately 7.09 percent between 1999 and 2006. Consumption, on the other hand, rose 7.17 percent per annum during the same period, raising the average propensity to consumer to 85.5 percent in 2006 compared with 85.25 percent in 1999. As a consequence, average household savings shrink by 6.9 percent in 2006, lowering average propensity to save to 17.56 percent. The continuous fall in household saving was driven primarily by the boom in consumption. In particular, consumption of durable goods such as automobile, mobile phones, and electrical appliances grew average by 16.1 percent per annum, which increase much faster than total consumer expenditures and total disposable income. This trend of consumerism was partly stimulated by increased financial access in the past few years. The rise in consumption occurred across all age groups, but savings rates seem to fall the most among the poor. It is also the poor who save the least in absolute terms. Furthermore, households save less because they have less precautionary motives and less credit constraints. Specifically, household saving depends on variables such as financial access to saving and credit, government medical insurance schemes, uncertainty associated with certain occupations, housing tenure, and education attainment.
Source: National Statistic Office of Thailand, 2006
Most savings and wealth usually remain in the form of deposit at commercial banks, financial institutions or saving cooperatives, which amounted to 80 percent of the total saving. Some people may also consider using secondary saving options such as life insurance saving, government bonds, and provident funds. However, in Thailand, these saving options are not yet very popular, indicating by the low saving level of only 4 percent in both life insurance savings and provident funds. Saving in life insurance has been declining substantially nationwide in line with falling average real income (nominal income net of inflation). This is consistent with the fact that most life insurance savers tend to be in high income bracket, the small portion of people in Thailand. However, saving for provident funds is expected to rise marginally in a few years ahead.
Source: Socio- Economic Survey 2005-2006
On saving rationale, most households tend to save for general purposes including education, culture and recreation, and acquisition of other assets. The percentage of people who intended to save for old age is much lower at 33 percent. Though, Thais have positive view in their retirement but they do not have much preparation for retirement and start preparing themselves at average aged of 43 years and expect their retirement income to be lower than their last salary. This indicates that people do not prioritize life after retirement as the most important reason to save. Additionally, saving option for old age is mostly based on life insurance saving of 24 percent, which is then followed by 14.48 percent of provident funds. Retirement mutual funds and long term funds make up only a small portion of the total saving. Unsurprisingly, saving for old age is mainly contributed by the group of people with income equivalent to 15,000bht/mth or higher, compared with only 22 percent of those with income less than 15,000bht/mth. This is partly due to tax incentive, which is biased in favor of the higher income. Nevertheless, there are still quite a significant number of people who have none saving, at approximately 27 percent. People especially the low income earners, low financial literacy or low education tend to have lack of saving option awareness and lower frequency of saving which went hand in hand with the low percentage of total saving option for old age. Thus, these groups of people are currently not saving enough for their retirement needs, and among low income retirees, the standards of living have actually decreased for 40 percent
Source: Center of Contemporary Asian Studies (CCAS), Kyoto: Survey of savings for old age of private employees and civil servants, 2007
Moreover, the present demographic trends indicated that Thailand is becoming an aging society with old population increasing faster than other countries in Asia. This will become one of the long term challenges for Thailand to encourage people to save much more now to refinance their retirement in the future. At present, many households have reached their retirement stage with financial assets too small to maintain their standard of living, raising a significant concern for Thai government. Since social assistance is not sufficient, the government is trying to encourage more private saving. In the next 15-20 years, society and living arrangement will be much different and the reliance on family support will be declining. Thus, the question is “how can old aged maintain their standard of living without much reliance on their family support in the future?”
Source: World population prospects: 2006, United Nations
According to the survey of savings for old age of private employees and civil servants by Center for Contemporary Asian Studies (CCAS), Kyoto in 2007, 35.4 percent of the elderly in Thailand does not earn enough monthly income to support their household expenses. At the same time, there are only 30 percent of people who have adequate saving for old age while there are more than double of people who either have inadequate savings or unsure of their saving status. Worker aged below 30 have smaller proportion of saving every month since their expenses tend to be greater than their average monthly income. With retirement so far off, and with so many people, plenty of debt to be paid off, saving for old age may seem like nonsense. As a result, many people have difficulties in their extended retirement period, and sadly, often have to go back to work to survive. One of the main reasons is that they underestimate their retirement income need, causing them to start saving when too late. Thais have not much prepare for retirement, where only 4 out of 10 workers have already begun preparing for retirement, on average at aged 43. Those, who have not yet started, plan to do so around aged 50. Furthermore, as mentioned, currently the majority of people keep their saving and wealth in form of deposit. Although this is the most inexpensive and safe saving option to transform wealth into a steam of benefit, deposit provides the lowest yield among other saving alternatives, and hence, this can lead to insufficient income during old age, if not immediately, after certain number of years.
Source: Center of Contemporary Asian Studies (CCAS), Kyoto: Survey of saving for old age of private employees and civil servants, 2007
Besides, having inadequate savings for retirement, approximately 40 percent of the elderly have to continue working as their main source of income security whereas over 35 percent of them still have to rely on their family support. In addition, there are 18 percent of the elderly relying upon bank saving and only 4 percent of them use pension as source of income security. Nevertheless, for those who have inadequate saving or unsure of their saving status, over 30 percent still have no plan to save for old age while less than half indicate that they will save more. Similarly, 30.9 percent of people plan to continue working after their retirement with around 4 percent of people hoping to get assistance from either government or their own children. Being developing countries, Thailand has major problem of a large number of poor elderly, workers in informal sector, and income disparity. These groups of people tend to spend majority of their income on food and beverages, as well as transportation. Hence, saving tend to diminish as the level of income declined.
Source: National Statistic Office of Thailand: Report of the Elderly Survey 2002
In all, No one like the idea of putting money away for a rainy day sometimes in the future, but when it comes to retirement planning that’s exactly what you have to do. Otherwise, if you do not start saving while you are young, working and earning a salary, a financially secure retirement may be out of reach for you and your family. Many employees and workers, who are expected to retire within the next 15-20 years, are still under-saving for their retirement. The current demographic pressure together with unsustainably of the present income security, among others, lead to the need of increased saving and retirement planning especially for working aged group. To better manage the challenge of retirement, they simply need to build up retirement account through other saving options that generate higher return than deposit, for instances, provident funds, retirement mutual funds and life insurance savings. Additionally, saving for retirement usually take at least 15 years for savings to generate the highest contribution. Therefore, saving for retirement is mainly the matter of time. The longer you save, the better retirement you earn. So, let’s start saving, today!
References 1. National Statistic Office (NSO), Thailand, The 2007 Households Socio-economic Survey: Table 7.1 Average Monthly expenditure per household by expenditure group and region, 2007, www.nso.go.th
2. Macro Savings and Investment Policy Division, Bureau of Savings and Investment Policy, Ministry of Finance, www.fpo.go.th
3. Center of Contemporary Asian studies (CCAS), Kyoto: Survey of Attitude and Practice of Savings for Old Age (Private employees and Government officials), 2007
4. Krungthai AXA Life Insurance: New release as of February 11, 2008, “Thais have a positive view in retirement but being the latest preparing”
5. Watson, farley& Williams: “Life Insurance in Thailand-The Road Ahead”, www.wfw.com
6. Investment Wiki, “¡ÒÃÍÍÁà¾×èÍÇÑÂà¡ÉÕ³” â´Â ¤Ø³ ÇÕÃÐªÒµÔ ªØµÔ¹Ñ¹·ìÇâôÁ, http://edu.tsi-thailand.org/wiki/index
7. Bank of Thailand, Inflationary Report October 2005, “The adequacy of saving in Thailand”, www.bot.or.th
|
|
|
