Fairness and Sustainability of Pension Arrangements in Singapore: An Assessment
Singapore’s pension system is based on two major premises. First, it is possible to finance retirement expenditure almost entirely by mandatory savings of households which are micro-managed and intermediated by the state. Second, the pension system should focus on mitigating absolute rather than relative poverty. The analysis in this paper suggests that fundamental rethinking of these premises is needed to enhance sustainability and fairness of Singapore’s pension system. This will require use of social risk pooling methods such as social insurance and budget-financed non-contributory social pensions linked to per capita income, whose value does not decrease over time in real terms; and a shift in policy focus from addressing absolute poverty to relative poverty. The paper also suggests improvements in the design and governance of the Central Provident Fund (CPF) system such as a shift away from administered interest rate to crediting members with full-returns earned on ultimate deployment of CPF balances; and reforming age-based premiums for health insurance and CPF Life. The main constraints in reforming Singapore’s pension system towards fairness and sustainability are not fiscal, economic, institutional or capacity related, but arise from unwillingness of policymakers to reconsider pension system objectives, governance and design. More open and informed debate involving all stakeholders could facilitate public policy choices designed to enhance fairness and sustainability of Singapore’s pension system.