From left: Murtaza Jafferjee, Li Huang, Director/ CEO NDB Capital Limited and Colombo Stock Exchange Chairman, Vajira Kulatilaka and Fitch Ratings Lanka CEO and Country Head, Maninda Wickramasinghe
Sri Lanka’s ageing population is at risk as they will not have enough savings to manage their retirements, cautioned a senior analyst and an economist of a leading stock broking house in the country.
“We are ageing. Our average median age is about 32 – 33 years. In ten years’ time, median age will move to around 35 years.
The number of people above 60 will be 20 percent of the population. And a lot of them don’t have a proper savings to manage their retirement,” said JB Securities Managing Director Murtaza Jafferjee.
Sri Lanka’s working class almost entirely depends on the pension funds managed by the government for their retirement, which offers them a nominal return, barely sufficient to fight the inflation.
Besides, their savings are also left in banks as deposits which offer them negative real returns as the banks’ nominal interest rates fail to offer above the country’s core inflation rate which is on the higher side.
According to Jafferjee, Sri Lanka’s pension fund assets are under allocated for equities which usually offer higher returns. The government’s ‘one-size-fits-all’ view taken in allocating assets provides no choice for the contributor to have a say on the asset allocation based on his or her risk appetite.
“So, whether you are 25 years and starting your career or whether you are 55 years, the asset allocation remains the same,” he told Sri Lanka Investment Fund and Asset Management Forum organized by Fitch Ratings Lanka last week.
Pension funds’ share of Sri Lanka’s Rs.12 trillion financial system assets has been on the decline. During the six years to 2014, the share has declined to 15.5 percent from 18.4 percent in 2009.
Meanwhile, 90 percent of the Employees’ Provident Fund (EPF) assets are invested in government securities while only the balance is in equities and other corporate debts.
This is in vast contrast to other countries where 40 to 50 percent of the pension fund assets are in equities.
Hence, Jafferjee proposed to give the choice to the contributor to decide on the asset mix in his/her portfolio based on his/her risk tolerance.
Meanwhile, the Associate Director, Fund and Asset Manager Ratings for Fitch Ratings based in China, Li Huang expressed her surprise at the risk-averse nature of the Lankans and the gross disregard towards their retirement.
“I am not sure whether the people here in Sri Lanka just don’t worry about their future.
In China, we also have pensions but they alone won’t enough for your retirement. They worry lot more about their future and education. Hence they have more exposure to the financial industry.
The savings rate in China is quite high. Their savings rate is more than 50 percent. People in China not anymore keep their money in banks because they know they get a negative return and hence they allocate their funds into multiple asset classes.
They also borrow as much as they can and invest in property etc.,” Huang said.
Jafferjee thus believes this scenario offers upside for the country’s fund management industry which is still at its infancy stage to allocate assets into diversified asset classes offering relatively higher returns.