Introduction
Inadequate pension savings for present and future generations of retirees has grown into crisis proportions. The need for reform in the social security system is dire. To this end, reforms must necessarily target the PAP's public housing policy, the HDB's alliance with the CPF scheme, and the returns paid by the government on the people's savings.
Reduce the cost of HDB flats
The inescapable truth is that HDB apartments have become too expensive. The PAP's muddle-headedness about this matter is evident when, on the one hand, it strains all credibility by continuing to insist that flats are affordable and, on the other, proposes that older couples take out a reverse mortgage on their homes or 'trade down to a smaller unit' to finance their retirement.
The PAP must also be made to account for the prices of HDB flats. Simply making warm pronouncements about flats being affordable is clearly not a solution. The breakdown of administrative, labour, and building material costs of flats should be made transparent.
An index of such costs should then be constructed and prices of flats pegged to this indicator. The present practice of passing on the cost of land at market rates enables the Government to enrich itself at the expense of the people and their CPF savings. Such price fixing of flats also distorts the property market and has the tendency to cause macro-economic instability.
Reduce CPF contribution rates
With a substantial reduction in HDB prices, the need for maintaining high CPF contribution rates just so that members can make withdrawals for housing payment is no longer present. CPF contribution rates should be evenly divided between employer and employee and capped at 15 percent of wages, an amount slightly higher than what experts agree to be the minimum savings rate adequate for retirement expenditure. The savings must not be diluted with questionable schemes (such as the Singapore Bus Services Shares Scheme and the Singapore Telecom Shares Scheme) to entice savers to make pre-retirement withdrawals.
The reduction in CPF contributions will improve the supply of capital for businesses to re-invest as well as for consumers to save, spend or invest as they see fit. As it is, the PAP government uses CPF reserves for non-transparent and non-accountable investments with questionable returns. The fact that social security systems in other countries do not have forced pension savings schemes with the government using the money to conduct business—and yet are still able to deliver adequate retirement benefits—makes the PAP's CPF policies highly questionable.
Make the political process transparent
Reform of the CPF system cannot occur without a simultaneous democratisation of the political process. A good starting point would be to ensure the independence of the labour movement. Instead of the state-controlled National Wages Council, free and independent trade unions must determine the market rate of workers. It is altogether naïve to talk about the free market when pricing goods and services while consigning wage levels to a centrally planned mechanism. Suppressing wages cannot gauge accurately the savings rate that is sufficient for workers' retirement.
It is also important for the people to have ready access to the operations of the GIC especially information pertaining to the returns it makes from investments. Whatever profit the government has made over the years must be returned to CPF members. The present system of running the GIC like a private enterprise using public funds is unsatisfactory and unacceptable. With a reduction in CPF contributions, the GIC should play a less prominent role in the economy and be gradually phased out altogether.
Ensure government undertakes share of responsibility
By reducing its share of expenditure on health care and setting up the Medisave scheme, the government has made the difficulties of the elderly even more burdensome. Add these to the commercialisation of medical care as well as the inclusion of health-related expenses in the Goods and Services Tax (GST) and the load on the elderly is greatly multiplied. The taxation structure must be revamped to ensure greatest support for the poorest segment of the population. The removal of the GST on drugs and health services would be a step in the right direction.
The reduction in government expenditure on health care and welfare for the aged together with increased longevity means that working individuals today not only have their children to take care of but also their parents, and possibly grandparents, as well. According to Asher, this is an unrealistic expectation: 'It is just not in the household budget to do all that.'
A good idea misused
The sheen of Singapore's CPF system that has dazzled so many is beginning to lose its lustre after decades of misapplication. It has resulted in a crisis that has wrought hardship for many Singaporeans especially the retirees. Things look set to get worse.
The root of the problem lies in the PAP's decision to turn CPF savings into a housing finance scheme. When it allowed CPF members to withdraw their compulsory savings for the purchase of HDB flats, the people—motivated by their distrust of the government in returning them their savings when they retire—did so with a vengeance.
This suited the PAP just fine because as the funds flowed from the CPF into the HDB, the government consolidated its role as banker, property developer, and landlord. This gave it unbridled power over the economic and social activities of the citizens. The government continues to cajole and compel Singaporeans to sink even more of their savings into upgrading their flats or move into bigger ones.
Without political opposition, the PAP has found it increasingly easy through the years to reduce its share of expenditure in various areas, most notably in education and health care. The shortfall was passed onto the people under the various CPF schemes, which allowed, and even encouraged, people to make pre-retirement withdrawals to fund their education, medical care, and even investment ventures.
It doesn't take much to figure out that such a scheme drains the people's retirement savings. Whether this consequence is due to the PAP's deliberate machinations or whether it was a result of myopic planning, it brings little comfort to the many who have little to fall back on during their retirement.
Conclusion
Clearly the social security system is in dire need of an overhaul. Unfortunately the reluctance of the PAP to shoulder the blame and to move decisively to alleviate the crisis in the system will leave more and more Singaporeans in uncertainty and insecurity during their years of retirement.
When one considers that part of the solution requires the reallocation of CPF reserves away from the government and back to the people—meaning less political leverage for the PAP—one thing seems certain: the situation will get worse before it starts to right itself. The more the people wait for the PAP to reform itself and the CPF system, the more painful will be their experience.
Inadequate pension savings for present and future generations of retirees has grown into crisis proportions. The need for reform in the social security system is dire. To this end, reforms must necessarily target the PAP's public housing policy, the HDB's alliance with the CPF scheme, and the returns paid by the government on the people's savings.
Reduce the cost of HDB flats
The inescapable truth is that HDB apartments have become too expensive. The PAP's muddle-headedness about this matter is evident when, on the one hand, it strains all credibility by continuing to insist that flats are affordable and, on the other, proposes that older couples take out a reverse mortgage on their homes or 'trade down to a smaller unit' to finance their retirement.
The PAP must also be made to account for the prices of HDB flats. Simply making warm pronouncements about flats being affordable is clearly not a solution. The breakdown of administrative, labour, and building material costs of flats should be made transparent.
An index of such costs should then be constructed and prices of flats pegged to this indicator. The present practice of passing on the cost of land at market rates enables the Government to enrich itself at the expense of the people and their CPF savings. Such price fixing of flats also distorts the property market and has the tendency to cause macro-economic instability.
Reduce CPF contribution rates
With a substantial reduction in HDB prices, the need for maintaining high CPF contribution rates just so that members can make withdrawals for housing payment is no longer present. CPF contribution rates should be evenly divided between employer and employee and capped at 15 percent of wages, an amount slightly higher than what experts agree to be the minimum savings rate adequate for retirement expenditure. The savings must not be diluted with questionable schemes (such as the Singapore Bus Services Shares Scheme and the Singapore Telecom Shares Scheme) to entice savers to make pre-retirement withdrawals.
The reduction in CPF contributions will improve the supply of capital for businesses to re-invest as well as for consumers to save, spend or invest as they see fit. As it is, the PAP government uses CPF reserves for non-transparent and non-accountable investments with questionable returns. The fact that social security systems in other countries do not have forced pension savings schemes with the government using the money to conduct business—and yet are still able to deliver adequate retirement benefits—makes the PAP's CPF policies highly questionable.
Make the political process transparent
Reform of the CPF system cannot occur without a simultaneous democratisation of the political process. A good starting point would be to ensure the independence of the labour movement. Instead of the state-controlled National Wages Council, free and independent trade unions must determine the market rate of workers. It is altogether naïve to talk about the free market when pricing goods and services while consigning wage levels to a centrally planned mechanism. Suppressing wages cannot gauge accurately the savings rate that is sufficient for workers' retirement.
It is also important for the people to have ready access to the operations of the GIC especially information pertaining to the returns it makes from investments. Whatever profit the government has made over the years must be returned to CPF members. The present system of running the GIC like a private enterprise using public funds is unsatisfactory and unacceptable. With a reduction in CPF contributions, the GIC should play a less prominent role in the economy and be gradually phased out altogether.
Ensure government undertakes share of responsibility
By reducing its share of expenditure on health care and setting up the Medisave scheme, the government has made the difficulties of the elderly even more burdensome. Add these to the commercialisation of medical care as well as the inclusion of health-related expenses in the Goods and Services Tax (GST) and the load on the elderly is greatly multiplied. The taxation structure must be revamped to ensure greatest support for the poorest segment of the population. The removal of the GST on drugs and health services would be a step in the right direction.
The reduction in government expenditure on health care and welfare for the aged together with increased longevity means that working individuals today not only have their children to take care of but also their parents, and possibly grandparents, as well. According to Asher, this is an unrealistic expectation: 'It is just not in the household budget to do all that.'
A good idea misused
The sheen of Singapore's CPF system that has dazzled so many is beginning to lose its lustre after decades of misapplication. It has resulted in a crisis that has wrought hardship for many Singaporeans especially the retirees. Things look set to get worse.
The root of the problem lies in the PAP's decision to turn CPF savings into a housing finance scheme. When it allowed CPF members to withdraw their compulsory savings for the purchase of HDB flats, the people—motivated by their distrust of the government in returning them their savings when they retire—did so with a vengeance.
This suited the PAP just fine because as the funds flowed from the CPF into the HDB, the government consolidated its role as banker, property developer, and landlord. This gave it unbridled power over the economic and social activities of the citizens. The government continues to cajole and compel Singaporeans to sink even more of their savings into upgrading their flats or move into bigger ones.
Without political opposition, the PAP has found it increasingly easy through the years to reduce its share of expenditure in various areas, most notably in education and health care. The shortfall was passed onto the people under the various CPF schemes, which allowed, and even encouraged, people to make pre-retirement withdrawals to fund their education, medical care, and even investment ventures.
It doesn't take much to figure out that such a scheme drains the people's retirement savings. Whether this consequence is due to the PAP's deliberate machinations or whether it was a result of myopic planning, it brings little comfort to the many who have little to fall back on during their retirement.
Conclusion
Clearly the social security system is in dire need of an overhaul. Unfortunately the reluctance of the PAP to shoulder the blame and to move decisively to alleviate the crisis in the system will leave more and more Singaporeans in uncertainty and insecurity during their years of retirement.
When one considers that part of the solution requires the reallocation of CPF reserves away from the government and back to the people—meaning less political leverage for the PAP—one thing seems certain: the situation will get worse before it starts to right itself. The more the people wait for the PAP to reform itself and the CPF system, the more painful will be their experience.
