Low coverage in small businesses

Even the United States, which has a well-developed retirement system, needs to enhance the pension system, Zimpleman said.

"The challenge is how we get more small employers to adopt retirement plans," Zimpleman said.

All the larger employers with over 1,000 employees in the United States have pension plans, and it goes down to roughly 50 to 60 percent for employers with 100 to 1,000 employees. In the small segment, those with fewer than 100, only 25 to 35 percent of employers have a plan, he said.

Some governments make it a mandate for employers to have a plan, which is also in Principal Financial Group's interest because the small- and medium-sized businesses are right the potential pension market, but Zimpleman does not believe China will or needs to follow this path.

Market can work better at this front. As labor shortage becomes more critical and employers have to compete for attracting and retaining quality workers, one of the effective ways is to offer a retirement program.

"What usually happen is that small employers are not able to offer a plan, but as the business grows and they become a larger employer, 25 percent coverage goes to 50 percent coverage," Zimpleman said.

Poor financial literacy also hinders market development. Financial literacy, including how to make a budget, what a credit card is, how home mortgage works, and how to start a savings program for retirement, is often absent in the curriculum of middle and high schools, even in colleges, said Zimpleman.

It is a mutual responsibility of both public and private sectors to create more knowledge around financial literacy, he said.