ETHOS Issue 01, Oct 2006
The ageing of populations worldwide has had national governments scrambling to stave off looming economic decline and fiscal disarray. Common policy measures to this effect include raising the retirement age, encouraging savings, and tightening the eligibility criteria on social security. The underlying principles are sound: extend the working life of healthier, longer-lived individuals, exercise prudence, and reduce the burden on fiscal and social support systems.
Yet policy makers will need to address more fundamental issues to be truly effective in the long term. For instance, is raising the retirement age helpful if there are no new jobs to fuel demand for elderly workers? What causes over-consumption and hinders people from saving? What is the extent of the Government’s responsibility for retirement financing, vis-à-vis the individual’s?
Singapore faces challenges on each of these fronts. Economic and job growth can be limited by a small population size and talent pool. A longstanding policy stance encouraging home ownership, coupled with high property prices, may reinforce over-consumption. In addition, the Singapore Government, having shunned the Western social security model, needs to find ways to care for an increasing pool of low income elderly, without eroding the work ethic or undermining familial and community support structures.
THE RACE FOR GROWTH
In tackling the challenges of an ageing population, oft-mentioned factors such as social security, elderly-friendly infrastructure or healthcare provisions are clearly valid concerns. Nevertheless, developed countries have been able to sustain increasingly elderly populations primarily because rising productivity has outweighed the costs on society. Economic growth – sustained by a highly competitive and innovative economy and a well-trained workforce – is the best defence against any potential crisis arising from an ageing population. Part of the energy devoted to examining the implications of an ageing population may be better spent on strengthening the fundamentals for a strong and vibrant economy.
An ageing population with a shrinking workforce calls for stronger economic growth to compensate for the increased costs to the economy. Ironically, to grow its GDP by an average of 3% to 5% annually, the Economic Review Committee estimates that Singapore needs to increase its labour force by 1% to 2%a year.
Furthermore, Singapore’s current population size limits the extent of expansion possible. Global cities, centres for international commerce, trade and finance like New York, London and Tokyo average a population of 7 to 8 million. With a large talent pool to draw from, these cities can support diverse industries and services. Singapore cannot rely indefinitely on a few key industries to drive growth, as increasing global competition will make it harder for Singapore to maintain its market share. Furthermore, dependence on a few key sectors leaves the entire economy vulnerable to the cycles of these industries.
Singapore’s current sub-replacement Total Fertility Rate (TFR) of 1.24 offers little hope of kindling population growth. If Singapore is to grow its workforce, it will have to increase the current stock of non-citizens. However, citizens must be able to accept a larger pool of migrants than they have been accustomed to.
This policy is clearly challenging. Migration is not a tap that one can turn on and off at will. More notably, it can be difficult to garner public support, as the Government may be viewed as catering to the interests of foreign talent at the expense of locals. It will be tough, but crucial, to persuade citizens of the need to grow the population in good time. The Government should capitalise on the current cycle of healthy economic performance and high employment to introduce aggressive immigration policies that will boost its population.
Singapore’s savings rate is already one of the highest in the world. Exhorting citizens to save more will have a marginal net effect. Instead, the focus should be on addressing over-consumption, particularly on housing.
Since Singapore’s independence in 1965, housing policy has played a pivotal role in national development. As incomes rose, so did home ownership, surging from 29% in 1970 to 90% in 2003. Even among the lowest 20% income households, home ownership rates were as high as 87%. They have, on average, accumulated home equity (the sum they would earn after selling their flat and paying off their outstanding home loans to the Housing and Development Board) of$138,000 per household.
Current rules allow citizens to use their Central Provident Fund (CPF) accounts, intended for retirement, to finance their mortgages. This, coupled with easy access to loans with relatively long repayment periods, makes monthly instalments more affordable and facilitates larger home purchases. Indeed, liquidity in the market was one factor that contributed to a significant inflation of property prices in the nineties. Earlier, in the 1980s, the Government also stopped building smaller sized flats because demand was leaning towards larger apartment units. With easy financing and lack of choice, some people may have been encouraged to buy larger properties and take on heftier loans.
Housing has a considerable impact on retirement adequacy because over-consumption in property adversely affects the ability to save, reduces capital available to invest in other assets, and thereby results in a smaller retirement nest egg. People have more of their wealth locked up in housing than in other assets, yet have relatively few avenues to monetise housing equity, especially when the property market is weak.
As a foremost factor affecting financial adequacy for retirement, housing policy as a whole may need to be rationalised. Housing as an investment tool should also be de-emphasised, particularly when expectations of property assets rising indefinitely are likely to be misplaced. In recent years, steps have been taken to address this issue. The Government has tightened controls on the use of CPF funds for housing purchases, as well as resumed the construction of two- and three-bedroom apartments.
DRAWING THE LINES OF RESPONSIBILITY
In Singapore, it is socially accepted that families should bear the filial responsibility of caring for their elderly. However, appearances of functioning familial support structures could be unreliable. The normative expectation of caring for aged parents should be discerned against actual behaviour, as normative culture can act as a cover, concealing more serious problems. These difficulties may not be surfaced or adequately dealt with because grown children avoid the issue, and aged parents are too embarrassed to talk about them openly. Academics point out that in reality, more and more children are no longer supporting their parents, even in countries like South Korea, where a strong normative culture of filial piety still holds sway.
As the ratio of children to parents decreases, filial piety should not be emphasised to the point of creating an unrealistic burden on children. The concept of filial piety can be used to raise awareness and garner support for a family approach towards caring for the elderly, but the provision and regulation of community and institutional care may need to be expanded, and should not be seen as an arrangement of last resort.
From the point of view of an ageing Singapore, these three key challenges –generating economic growth, avoiding over-consumption of housing and remapping the lines of responsibility for the elderly – will demand shifts in policy. How Singapore turns out as we age will likely be influenced by how these challenges are met.