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Abstract
This paper analyses the multi-pronged approach of Singapore to managing prolonged low fertility which has led to population ageing, labour force shortages, increasing elderly dependency ratios and feminization of the elderly population. This approach has emphasized high growth, and has given priority to becoming an attractive business location over providing adequate and equitable retirement and health financing; and has pursued policies designed to generate high levels of net immigration. The chosen policy priorities have created a dilemma centring on ensuring its business competitiveness on the one hand, and meeting its residents' needs and expectations on the other. In spite of a lot of measures to boost fertility levels (official total fertility rate was 1.29 in 2007, a rate at which population becomes half in 45 years), as well as high net immigration, population ageing is expected to accelerate after 2010. This, along with high income inequalities (Gini coefficient was 0.52 in 2005), will make continuation of current policy priorities even more challenging for the policy makers. While the future policy developments are difficult to predict, greater political contestability is likely to hasten the path towards policy priorities which give greater weight to the needs and expectations of the current Singapore residents, even if it leads to lower (but more sustainable and socially cohesive) growth.
Acknowledgements
The authors are grateful for the useful comments by the anonymous referees. Excellent research assistance by Geeta Karkhanis is greatly appreciated. The usual caveat applies.
Notes
1. Between 1900 and 2000, there was a near quadrupling of the world's population.
2. TFR is defined as the average number of children that would be born to a woman over her lifetime, under certain specific assumptions. The officially reported TFR for Singapore at 1.29 in 2007 is however much higher. The TFR of 1.3 has a special mathematical significance for the demographers. At that rate, a country's population becomes half in 45 years.
3. There are concerns however that some of the recent policy measures have been inconsistent with this element. Thus, in October 2008, power tariffs increased by nearly 22% at a time when the price of oil declined, and Singapore was officially in recession (Seah Citation2008). The average Singaporean has noticed that on 1 October 2008, Hong Kong reduced its electricity prices by 3%.
4. Data for other countries are obtained online from ILO LABORSTA database. Available from: http://laborsta.ilo.org/ [accessed 12 June 2008].
5. As at 31 March 2000, the total assets of the Singapore government were US$319 billion (Asher Citation2003). Estimates of such assets are not available for recent years.
6. The state currently holds more than 85% of land, which it leases to users. At the time of Singapore's Independence in 1965, the government however owned only 40% of the land. There is neither a constitutional nor a common law right to own land.
7. Singapore's two sovereign wealth funds (SWFs), Government Investment Corporation (GIC) and Temasek Holdings, as a result of specific statutes, are not required to provide any information on their investment policies and performance. Recently, there has been a provision that 50% of net investment income (whose definition is not provided by the authorities) will be included in the budget. So, the figures cited in the text on the contribution of investment income to fiscal revenues significantly understate their contribution. Truman (Citation2007) estimates Singapore's foreign exchange reserves at US$152 billion (as of September 2007) and its SWF assets at US$323 billion.
8. For a more detailed analysis of the composition of saving in Singapore, see Peebles and Wilson (Citation2002).
9. The Baby Bonus Scheme was introduced in 2001. It provides children of citizens (first to fourth child) a cash gift of US$6000 and co-savings (i.e. a dollar for dollar matching) of up to US$12,000 per child by the government. The scheme applies until the child is 6 years old. Available from: http://www.babybonus.gov.sg/bbss/html.index.html. These appear to be a relatively small proportion of the total cost of bringing up a middle-class child.
10. Personal communication with Dr. G. Shantakumar.
11. Foreign workers who are not citizens or permanent residents (PRs) are not permitted to be a part of the CPF system. They also do not receive public assistance or other benefits.
12. The total CPF contribution rate was 36% in 2001, with a wage ceiling of US$6000, with the employer and employee contributions at 16% and 20%, respectively. The employer contribution was reduced to 13%, for a total of 33% in 2003. The rate and the wage ceiling changes have been undertaken in response to macroeconomic conditions and the perceived need to sustain Singapore's business competitiveness. But these changes are potentially reducing resources from the CPF for retirement at the time when the need for more resources is urgent due to demographic trends.
13. The minimum sum is the amount people must keep in their retirement accounts after withdrawing their CPF at age 55. Currently, a member may withdraw the minimum sum (as of 1 July 2007 this was US$99,600) at age 62 in monthly instalments over a roughly 20-year period. According to official figures, of the 22,600 CPF members who turned 62 years in 2006, only 34% were able to meet the minimum sum requirements. The median shortfall for the remaining members was US$49,300, nearly half of the minimum sum.
14. Chua (Citation2007b) has argued that the inflation rate in Singapore, as measured by the consumer price index (CPI), is significantly understated, primarily because of the way the housing component is incorporated. This could result in even lower real rate of return.
15. On balances in SA and MA of the CPF funds, the administered interest is 1.5% points higher than the declared rate.
16. As at March 2004, total accumulated budget surpluses were US$399.1 billion or 228% of GDP (IMF Citation2006, p. 16). The IMF (Citation2006) study reports that ‘there is … no comprehensive information on the market value of the government's assets, including those of the Government of Singapore Investment Corporation (GIC)’ (p. 16).
17. In August 2007, the government announced that the members will have to compulsorily purchase an annuity from their own balances at age 55, while the benefits will be paid after a member reaches 85 years. The government has ruled out any budgetary support for the scheme. But the other details have still not been announced. The compulsory annuity will reduce already low CPF balances, thus adversely affecting the adequacy. If the generally observed correlation between income and life expectancy holds for Singapore, then the compulsory annuity will be inequitable as poorer groups will receive proportionately less benefits. There are no plans for inflation indexation of the annuity.
18. The ongoing global financial turmoil, which has led to steep falls in stock markets around the world, sharply diminishing normal banking activities, leading to direct or indirect nationalization of the banking systems of the United States, Europe and the United Kingdom, underscores the necessity for a multi-tier retirement financing system. For chronicling of the current turmoil, see www.rgemonitor.com.
19. The Singapore government has adopted an opt-out method for enrolling newborn babies into the Medishield Scheme. Such a method is to be extended to school-going children as well.