ETHOS Issue 01, Oct 2006
The first warns of looming disaster — a shrinking labour force, unsustainable pension, and healthcare subsidies increasing the fiscal strain and destabilising the economy. Here, demographic upheaval foreshadows an inevitable economic decline, if not total collapse.1 Those who disagree consider this analysis too Malthusian: it overlooks increases in productivity, and the reduced fiscal burden of households with fewer children to support. These pundits see demographic change as a gradual transition and not an imminent crisis.2
Neither fatalism nor nonchalance is likely to help much in informing public policy. How ageing affects a society will vary; the individual conditions of each country decide if a crisis will set in. The Japanese economy remains intact, even as one in five citizens are now aged 65 and above. In contrast, scores of nations with much younger populations are struggling.
Japan’s case suggests that an ageing society can still thrive. On the other hand, what could be disconcerting for Singapore is its exceedingly rapid pace of ageing. Its over-65 population is projected to grow by 372% from 2000 to 2030 – faster than in noted ageing countries Japan (54%), Germany (63%) and China (170%).3 In 2005, one out of every 12 Singaporeans was aged 65 or above. By 2030, they will number one in five.4 Post-war baby boomers lead this surge, with the first cohorts hitting 65 years of age as early as 2012, and setting off an exodus from the workforce. By 2050, 38% of Singaporeans will be 60 years or older.5
These dramatic changes mean policies cannot continue as before. Existing fiscal systems, retirement and healthcare provisions, structured in the context of a younger population and a growing economy, may no longer be suited to meet the needs of a rapidly ageing society.
Singapore could level up quickly by adapting the successful strategies of governments who already support a significant aged population. The latitude of policy response, however, does vary with the context of each country.
In 2005, Japan’s population declined for the first time since 1945. The proportion of persons aged over 65 rose to 21%; it is estimated to rise further to 35.7% by 2050. Its Total Fertility Rate (TFR) has fallen to a record low of 1.25. Despite this, Japan remains focused on raising TFR and is reluctant to open its borders to immigrants, for fear of their impact on its homogeneous society. Foreign residents account for only about 1.2% of Japan’s population as at end 2005.6,7
Singapore, in contrast, has augmented its population through both immigration and pro-natal policies. Today, non-residents constitute around 20% of the total population8 and make important contributions in various industries. However, this approach has its trade-offs – competition for jobs and other opportunities will inevitably create some foreigner-local tensions. A successful immigration policy also needs to go beyond attracting foreigners to live and work in Singapore; immigrants must integrate well into the society, and foster emotional ties with the country. The 2005 French riots, fuelled by the discontent of its immigrant enclaves, attest to how easily social fragmentation can take place within a few short years.
Policies intended to raise fertility have proven to be complex and controversial. Yet Singapore is not the only country with an explicit population policy. France has a long-standing, conspicuous and active family policy. French politicians have gone so far as to appeal to nationalistic sentiments, talking of demography as a “source of vitality”.9 In Australia, parents were urged to “have one (baby) for mum, one for dad, and one for country”.10
Nordic states, on the other hand, take a more subtle approach. Through quality childcare services and generous parental leave, their policies focus on building favourable conditions for people to have children, without pitching the objective of population growth. Germany, France and Belgium target families as the focus of benefits, while resources targeted at children are proving to be popular in Sweden.11 Scholars have also called for the expansion of assisted reproductive technologies such as in vitro fertilisation, which accounted for some 4.2%of total live births in 2002 in Denmark.12
SOCIAL SECURITY AND PENSIONS
Pension systems were originally designed to alleviate the elderly poverty that became rampant after the Second World War. They have since become a financial burden and a political minefield for many governments, particularly in the West. Pension entitlement is typically pegged to price inflation, but as growth in wages outpaced inflation over the past decade, an uncomfortably large gap between workers’ last drawn pay and their entitlements has emerged, leading to much discontent. Consequently, these governments have become pressured on all fronts, having to finance a rapidly increasing pool of pensioners from a shrinking tax base.
Under the fiscal strain, many pension systems are gradually moving away from the pay-as-you-go model, where contributions by workers go directly to pay benefits to pensioners, to a funded or savings plan model, where contributions are invested in assets which pay for their own retirement benefits, or are notionally recorded, to entitle them to their contributed sums plus some interest upon retirement.
Yet the pace of reform is slow. Few pension programmes in Organisation for Economic Co-operation and Development (OECD) countries have been radically overhauled in favour of private or fully-funded schemes. Measures to reduce benefits or raise the retirement age are also politically unpopular. Tweaks and half-measures suggest that the root problems will linger. As a result of this historical baggage, the problem of pension reform is likely to continue to dominate the discourse on population ageing worldwide.
Founded on a social ethic of self-reliance, Singapore’s Central Provident Fund (CPF) is a compulsory savings scheme, fully funded by workers’ and employers’ contributions to individual accounts. It is immune to many of the pressures faced by pension systems elsewhere. However, in a bid to lower labour costs, legislated contribution rates to the fund have declined. From a peak of 50%, contribution rates have settled to their present levels of 33%. While the Government has maintained CPF as the primary instrument for retirement financing, it has also encouraged citizens to be more proactive in personal financial planning, and continued to emphasise the family as a source of support in retirement.
Individuals tend to be poor long-term planners. While 61% of working Singaporeans are seriously concerned that they might not have enough money to last them through their retirement years, only one in 10 surveyed actively save for retirement.13 One safeguard introduced to address this is the 1987 CPF Minimum Sum Scheme. Currently set at S$94,600, this minimum sum will be raised gradually to S$120,000 (in 2003 dollars) in 2013; it cannot be withdrawn from members’ accounts until retirement. This sum ensures a monthly payout of S$711, which is roughly 21% of the monthly income of an average earner,14 for 20 years from retirement at age 62. In comparison, average earners in OECD countries can expect a post-tax pension of about 70% of their earnings after tax.15 Nevertheless, only four in 10 Singaporeans aged 55 had the mandatory nest egg in their CPF accounts in 2005.16
The CPF differs from pensions in one other aspect: basic pension schemes provide all retirees with a flat rate payout, as long as they have worked for a specified number of years. As a further social safety net, targeted schemes pay a higher benefit to poorer pensioners and reduced benefits to better-off retirees. The CPF system, while self-sustaining and generally equitable across different generations, does not redistribute income in this way. Accordingly, it has limited merit in forestalling elderly poverty, since lower-income earners are less able to accumulate as much savings.
As more people move up the population pyramid, higher expectations and practical needs will fuel greater demand for instruments that complement and make up for the inadequacies of the CPF. As other nations have found, it may be the Government, rather than fragmented private sector services, that is in the best position to operate or facilitate such programmes with sufficient economies of scale.
SUPPORTING SENIORS: A NATIONAL APPROACH
Many countries have found it useful to adopt a whole-of-government approach to supporting an increasingly senior population, whose needs straddle several sectors. The “National Strategy for an Ageing Australia” is reportedly exemplary: its comprehensive mix of policies, a result of a wide participative process, addresses the multi-faceted concerns of its senior citizens.17 Like Australia, New Zealand has a dedicated minister overseeing the welfare of seniors. That such resources are invested in the public services reflects the growing emphasis and importance accorded to this sector of the electorate.
Canada takes a slightly different approach. Its policies focus on nurturing lifelong employability of workers, instead of targeting senior citizens as a specific group. The Ministry for Human Resources and Social Development looks after all aspects of education, youth, employment and pension with the aim to “help Canadians invest in themselves to move through life’s transitions – from families with children to seniors, from school to work, from one job to another, from unemployment to employment, from the workforce to retirement”.18
Population ageing is not limited to developed nations. The most serious challenges will likely be faced by developing countries, which have yet to build a sound economic base to withstand the economic impact of a greying society. Literature shows that early intervention offers the best chance of success in influencing population trends. Singapore is in an advantaged position – it is not caught in the pension trap and its fiscal health allows it to prepare adequately for an impending demographic shift. It should therefore be able to restructure successfully to meet the challenges of an ageing population –if it acts in good time.
- Egendorf, K. Laura, Aging Population (San Diego, CA: Greenhaven Press, 2002), pp 202.
- “S’pore firms ignoring elderly market: poll,” The Business Times, February 13, 2006, Singapore section.
- Committee of Ageing Issues 2005, Report on the Ageing Population (Singapore: Ministry of Community, Youth and Sports, 2006).
- Cabinet Office, Government of Japan, “Annual Report on the Japanese Economy and Public Finance 2005,” http://www5.cao.go.jp/zenbun/wp-e/wp-je05/05-00000.html (accessed August 15, 2006).
- National Institute of Population and Social Security Research, “Population Projections for Japan: 2001-2050,” (January, 2002),http://www.ipss.go.jp/pp-newest/e/ppfj02/top.html (accessed August 15, 2006).
- General Household Survey 2005, (Singapore: Department of Statistics, 2005).
- Thornhill, John, “French Population prediction rises sharply,” Financial Times, May 12, 2006.
- “Australia Celebrates Baby Boom,” BBC, June 2, 2006, http://news.bbc.co.uk/1/hi/world/asia-pacific/5040582.stm (accessed September 11, 2006).
- Dixon, Mike and Margo, Julia, Population Politics (London, UK: Institute of Public Policy Research, 2006).
- Grant, Jonathan et al., “Should ART be Part of a Population Policy Mix?” RAND Corporation, 2006. http://www.rand.org/pubs/documented_briefings/DB507/ (accessed August 15, 2006).
- Chen, Gabriel, “1 in 10 S’poreans actively saved for retirement; Few saving though survey shows 61% fear that they may not have enough,” Straits Times, February 16, 2006.
- Queisser, Monika and Whitehouse, Edward, “Comparing the pension promises of 30 OECD countries,” International Social Security Review 56 (2006): 49-77.
- Lim, Lydia, “How to bank on a pretty pension,” Straits Times, October 8, 2005.
- Human Resource and Social Development Canada.. “About Human Resource and Social Development Canada” (2006), http://www.hrsdc.gc.ca/en/cs/comm/about_us.shtml (accessed August 15, 2006).