Banks, financial firms should start old age pension schemes
By Quintus Perera
Sri Lanka's old age dependency, in the future, is growing significantly and would be similar to OECD countries, increasing the potential for banks and financial institutions here to launch old age retirement benefit schemes, says Dr. Shantha P. Yahanpath, a Sydney-based management consultant.
The Sri Lankan specialist was speaking at a recent two-day convention of the Association of Professional Bankers - Sri Lanka held in Colombo. Dr. Yahanpath is principal consultant of AGAPE International, a Sydney-based management and investment consultancy.
He said this would be a novel concept for Sri Lankan bankers to adapt themselves rather than sticking to traditional borrowing and lending.
Dr. Yahanpath told The Sunday Times FT that the total number of dependants is gradually exceeding the working population.
The table shows that the total dependency of 53.3 percent of the population in 2001 would increase to 72.5 percent by 2041.
While the child dependency percentage of 38 percent in 2001 drops to 24.6 in 2041 the old age dependency is seen rising to 47.9 in 2041 from 15.3 in 2001.
Yahanpath said that the drop in the child dependency rate is due to a well-managed birth control programme in Sri Lanka that could compare favourably with developed countries.
Most of the OECD countries have encouraged financial institutions to find solutions to problems created by an aging population with private and public sector participation.
While there are state pensions in most countries, employer-funded pensions and independent self-funded pensions are common.
He said that in many countries the state sector reduces involvement in pension schemes while the role of the private sector increases.
Apart from traditional private sector players like large insurance companies, the profit segment in this sector has attracted a range of non-insurance finance sector players including banks.
Yahampath said that in Sri Lanka there is an increasing proportion of older people while employment trends show a tendency towards early retirement.
If life expectancy increases and the retiring age is extended to 55 years then the retired population increases further.
Thus Sri Lanka would be in a more complex situation than OECD countries.
If the non-working population requires an increasing proportion of the GDP then the rest of the population will have a decreasing proportion of the GDP and if the problem of retirement savings is not properly addressed, the standard of living of the working population would eventually decrease. He said that if banks look beyond their traditional role as financial intermediaries, the ageing population in Sri Lanka presents attractive opportunities and is a growing market segment with accumulated wealth.
The challenge is to unlock the full commercial potential of this market.
Banks would not be able to find commercially viable solutions to all segments of the market, but, if the private sector can assist with an increasing proportion of the middle class segment, the role of the state would be reduced to that of providing a welfare net to the lower end of the market.
Some of the areas the banks should partner with other private and public sector institutions are - retirement planning products, wealth creation strategies, lifestyle financial planning, reverse mortgages, annuities, pensions, residential accommodation units, self-care units, nursing homes, health insurance and geriatric care.
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