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Budget 2015 in review: Role of government in retirement adequacy

Published

10 years ago

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cpfBy Benedict Chong

Like any other Budget before it, Budget 2015 was not without its fair share of handouts. Singaporeans were treated to a smorgasbord of goodies, ranging from the Silver Support Scheme to pension fund contribution increases, subsidies and grants to SMEs and more taxes for the rich.

Some have viewed the Budget as “progressive”, but the key question we need to ask is, progressive in what way? If we are speaking in terms of additional social spending, then it would be true, and never had Singaporeans ever made a louder call for increase in social spending.

But if we were to look at how Budget 2015 has allowed us to progress as a nation and a competitive economy, much is still to be desired. Budget 2015, like any other, lacked the necessary foresight and policy gumption to take Singapore into the next 50 years and beyond. It spells a temporary relief for the short term, but doom for the future.

There has been much debate and scrutiny in the past two years about our Central Provident Fund, Singapore’s version of a pension fund, and this is in part due to the protest at Speakers Corner and the case of Roy Ngerng vs the Prime Minister. The government cannot deny that it had to take action to ensure retirement adequacy.

On its part, the government has rolled out a number of policy tweaks. Recommendations by the CPF Review Committee had called for greater flexibility in how older workers can access their CPF savings. The government will likely accept and implement all of the committee’s recommendations. However, the key node of the recommendations – allowing citizens to partially access their minimum sum, which they would otherwise not be able to touch between the age of 55 to 65 – can only be seen as a piece-meal gesture.

SDP New Economic Vision Feb2015 05Among the policy alternatives we have, the Singapore Democratic Party has proposed in its economic policy paper, launched in early February 2015, for CPF savings to be returned in full to retirees.

Dr Chee Soon Juan, SDP’s secretary-general, had said that withholding savings through the Minimum Sum Scheme is “not only impractical but also immoral”. Strangely, he did not go as far as to call for the total abolishment of the CPF scheme, “broken and immoral” as it is.

The CPF is indeed a fundamentally immoral system. It is enforcing a mandatory scheme against the will of workers, in a system they cannot choose to opt out of nor be given the freedom to choose an alternative against, for better or worse.

Even if the government has the best interests of the worker at heart, it is still immoral to force and coerce any individual into any scheme. There is zero reason to keep CPF, especially when private insurance companies can provide similar services at more flexible terms.

The CPF system is also essentially broken. The bigger problem lies in the inadequacy of the system to provide for retirement. It says a lot about the usefulness of a savings scheme if saving up to 40% of income every month is still insufficient for any individual’s retirement.

Of course, when pursuing the abolishment of State-managed pension schemes, the government will necessarily counter rhetorically, questioning the paucity of comparable alternatives available to the people. Research papers by State sponsored institutions will then surface, proliferating how the returns on CPF contributions are superior to private alternatives, due to their supposedly guaranteed and risk-free nature which in turn is due to the State’s power to tax.

CPF’s risk-return quotients, as compared to other forms of investment. (Image - IPS-TW)

CPF’s risk-return quotients, as compared to other forms of investment. (Image – IPS-TW)

But when the State forcibly appropriates almost 40% of every individual’s income, how is it even possible to nurture a competitive and private retirement insurance scheme? Life insurance policies offered by financial institutions such as AVIVA, AIA and Prudential will hardly be able to exploit the economies of scale required to make such schemes both profitable to the insurer and beneficial to the insured (consumer).

In many countries, retirement schemes, whether private or public are heavily regulated by the State. Such funds are typically limited to the purchase of sovereign bonds, resulting in indirect financing of government spending. The consequence of such overt use of regulations together with expansionary monetary policy leads to a depression of interest rates that punish responsible savers while rewarding irresponsibility; that is until the house of cards collapses.

The presence of government in the provision of social security also trivializes the bonds within families and between friends. An instinctive response to financial desperation would be to turn to one’s near and dear, of which government and the State is not a part of. If unavailable, the next plan would be to approach charities hat in hand. But with the State taking over such functions, the damage to communal bonds can hardly be overstated.

In addition, the coupling of CPF with healthcare and housing funds distorts both the market for health insurance and housing. With large amounts of CPF monies being poured into the housing market and supply restricted due to State controls, the only way the market can react is through high prices, effectively pricing out individuals and families late to the party.

HDB corporate video websiteWhile the government has reasoned how CPF funds are in actual fact taking the form of housing assets whenever it was used to fund residences, the present system quickly disputes those assertions. With the practise of leasing policies that depreciates property prices the instant they are bought, how is it possible that said CPF monies are ‘parked’ in housing assets? With constant depreciation of housing prices running down their leases, are Singaporeans really “asset rich and cash poor”?

In any case, whether Singaporeans purchase insurance schemes or not for retirement sustenance should not be a concern of the government. There are individuals right now who place a higher utility on the present value of earnings than the future value of their CPF disbursals. Such individuals are typically sole breadwinners from middle-class families. The larger the number of dependants, the higher the utility placed on present value of earnings.

By attempting to universally calibrate individual behaviour through a national savings scheme, only inefficiencies and hardships can abound for the majority of middle class families, the colloquial ‘sandwiched-class’.

But if the government were to admit its wrongdoing and either return the CPF savings or at the very least, allow individuals to withdraw their contributions in an opt-in/opt-out scheme, such inefficiencies can be corrected.

Undoubtedly, there will be irresponsible individuals who will splurge their ‘windfall’ on exotic trips and gambling but many more will benefit from renewed flexibility in their finances. People should be free to make their own decisions, if not necessarily free from the consequences of their choices.

Of course, such a practice has never been initiated before in any contemporary country with a strong centralized government, which throws up the question regarding the role of government in retirement insurance. Active regulations are unnecessary, counter-productive and of little effect, as evidenced by how financial institutions in the United States still tottered on the brink of collapse despite purported federal regulations.

What government can do, however, is to provide the necessary arbitration avenues through which contractual disputes may be resolved. As a last resort, judicial courts should also be available to provide for legal rulings between defendant and plaintiff.

Regulations (if any) on consumer advocacy groups should also be relaxed to provide professional help to consumers and possibly initiate and organize justifiable class action lawsuits against errant insurers. The possibility of such lawsuits and reputational strains together with free competition in the marketplace for insurance policies would be more than sufficient to discourage deleterious practices by any insurer.

Whenever government policies are criticized, a natural response from our elected officials will be for us to propose alternative models. Yet, this assumes that the government has to act and do something, anything to solve some imaginary problem. But many of these problems are actually the consequence of government policies and not intrinsic to society and the economy. As individuals, we should be responsible for resolving our own problems and not turning to ‘big brother’ to tackle them.

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Lim Tean criticizes Govt’s rejection of basic income report, urges Singaporeans to rethink election choices

Lim Tean, leader of Peoples Voice (PV), criticizes the government’s defensive response to the basic living income report, accusing it of avoiding reality.

He calls on citizens to assess affordability and choose MPs who can truly enhance their lives in the upcoming election.

Published

1 year ago

on

15 September 2023

By

SINGAPORE: A recently published report, “Minimum Income Standard 2023: Household Budgets in a Time of Rising Costs,” unveils figures detailing the necessary income households require to maintain a basic standard of living, using the Minimum Income Standard (MIS) method.

The newly released study, spearheaded by Dr Ng Kok Hoe of the Lee Kuan Yew School of Public Policy (LKYSPP) specifically focuses on working-age households in 2021 and presents the latest MIS budgets, adjusted for inflation from 2020 to 2022.

The report detailed that:

  • The “reasonable starting point” for a living wage in Singapore was S$2,906 a month.
  • A single parent with a child aged two to six required S$3,218 per month.
  • Partnered parents with two children, one aged between seven and 12 and the other between 13 and 18, required S$6,426 a month.
  • A single elderly individual required S$1,421 a month.
  • Budgets for both single and partnered parent households averaged around S$1,600 per member. Given recent price inflation, these figures have risen by up to 5% in the current report.

Singapore Govt challenges MIS 2023 report’s representation of basic needs

Regrettably, on Thursday (14 Sept), the Finance Ministry (MOF), Manpower Ministry (MOM), and Ministry of Social and Family Development (MSF) jointly issued a statement dismissing the idea suggested by the report, claiming that minimum household income requirements amid inflation “might not accurately reflect basic needs”.

Instead, they claimed that findings should be seen as “what individuals would like to have.”, and further defended their stances for the Progressive Wage Model (PWM) and other measures to uplift lower-wage workers.

The government argued that “a universal wage floor is not necessarily the best way” to ensure decent wages for lower-wage workers.

The government’s statement also questions the methodology of the Minimum Income Standards (MIS) report, highlighting limitations such as its reliance on respondent profiles and group dynamics.

“The MIS approach used is highly dependent on respondent profiles and on group dynamics. As the focus groups included higher-income participants, the conclusions may not be an accurate reflection of basic needs.”

The joint statement claimed that the MIS approach included discretionary expenditure items such as jewellery, perfumes, and overseas holidays.

Lim Tean slams Government’s response to basic living income report

In response to the government’s defensive reaction to the recent basic living income report, Lim Tean, leader of the alternative party Peoples Voice (PV), strongly criticizes the government’s apparent reluctance to confront reality, stating, “It has its head buried in the sand”.

He strongly questioned the government’s endorsement of the Progressive Wage Model (PWM) as a means to uplift the living standards of the less fortunate in Singapore, describing it as a misguided approach.

In a Facebook video on Friday (15 Sept), Lim Tean highlighted that it has become a global norm, especially in advanced and first-world countries, to establish a minimum wage, commonly referred to as a living wage.

“Everyone is entitled to a living wage, to have a decent life, It is no use boasting that you are one of the richest countries in the world that you have massive reserves, if your citizens cannot have a decent life with a decent living wage.”

Lim Tean cited his colleague, Leong Sze Hian’s calculations, which revealed a staggering 765,800 individuals in Singapore, including Permanent Residents and citizens, may not earn the recommended living wage of $2,906, as advised by the MIS report.

“If you take away the migrant workers or the foreign workers, and take away those who do not work, underage, are children you know are unemployed, and the figure is staggering, isn’t it?”

“You know you are looking at a very substantial percentage of the workforce that do not have sufficient income to meet basic needs, according to this report.”

He reiterated that the opposition parties, including the People’s Voice and the People’s Alliance, have always called for a minimum wage, a living wage which the government refuses to countenance.

Scepticism about the government’s ability to control rising costs

In a time of persistently high inflation, Lim Tean expressed skepticism about the government’s ability to control rising costs.

He cautioned against believing in predictions of imminent inflation reduction and lower interest rates below 2%, labeling them as unrealistic.

Lim Tean urged Singaporeans to assess their own affordability in these challenging times, especially with the impending GST increase.

He warned that a 1% rise in GST could lead to substantial hikes in everyday expenses, particularly food prices.

Lim Tean expressed concern that the PAP had become detached from the financial struggles of everyday Singaporeans, citing their high salaries and perceived insensitivity to the common citizen’s plight.

Lim Tean urges Singaporeans to rethink election choices

Highlighting the importance of the upcoming election, Lim Tean recommended that citizens seriously evaluate the affordability of their lives.

“If you ask yourself about affordability, you will realise that you have no choice, In the coming election, but to vote in a massive number of opposition Members of Parliament, So that they can make a difference.”

Lim Tean emphasized the need to move beyond the traditional notion of providing checks and balances and encouraged voters to consider who could genuinely improve their lives.

“To me, the choice is very simple. It is whether you decide to continue with a life, that is going to become more and more expensive: More expensive housing, higher cost of living, jobs not secure because of the massive influx of foreign workers,” he declared.

“Or you choose members of Parliament who have your interests at heart and who want to make your lives better.”

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Political observers call for review of Singapore’s criteria of Presidential candidates and propose 5 year waiting period for political leaders

Singaporean political observers express concern over the significantly higher eligibility criteria for private-sector presidential candidates compared to public-sector candidates, calling for adjustments.

Some also suggest a five year waiting period for aspiring political leaders after leaving their party before allowed to partake in the presidential election.

Notably, The Workers’ Party has earlier reiterated its position that the current qualification criteria favor PAP candidates and has called for a return to a ceremonial presidency instead of an elected one.

Published

1 year ago

on

5 September 2023

By

While the 2023 Presidential Election in Singapore concluded on Friday (1 September), discussions concerning the fairness and equity of the electoral system persist.

Several political observers contend that the eligibility criteria for private-sector individuals running for president are disproportionately high compared to those from the public sector, and they propose that adjustments be made.

They also recommend a five-year waiting period for aspiring political leaders after leaving their party before being allowed to participate in the presidential election.

Aspiring entrepreneur George Goh Ching Wah, announced his intention to in PE 2023 in June. However, His application as a candidate was unsuccessful, he failed to receive the Certificate of Eligibility (COE) on 18 August.

Mr Goh had expressed his disappointment in a statement after the ELD’s announcement, he said, the Presidential Elections Committee (PEC) took a very narrow interpretation of the requirements without explaining the rationale behind its decision.

As per Singapore’s Constitution, individuals running for the presidency from the private sector must have a minimum of three years’ experience as a CEO in a company.

This company should have consistently maintained an average shareholders’ equity of at least S$500 million and sustained profitability.

Mr Goh had pursued eligibility through the private sector’s “deliberative track,” specifically referring to section 19(4)(b)(2) of the Singapore Constitution.

He pointed out five companies he had led for over three years, collectively claiming a shareholders’ equity of S$1.521 billion.

Notably, prior to the 2016 revisions, the PEC might have had the authority to assess Mr Goh’s application similarly to how it did for Mr Tan Jee Say in the 2011 Presidential Election.

Yet, in its current formulation, the PEC is bound by the definitions laid out in the constitution.

Calls for equitable standards across public and private sectors

According to Singapore’s Chinese media outlet, Shin Min Daily News, Dr Felix Tan Thiam Kim, a political analyst at Nanyang Technological University (NTU) Singapore, noted that in 2016, the eligibility criteria for private sector candidates were raised from requiring them to be executives of companies with a minimum capital of S$100 million to CEOs of companies with at least S$500 million in shareholder equity.

However, the eligibility criteria for public sector candidates remained unchanged. He suggests that there is room for adjusting the eligibility criteria for public sector candidates.

Associate Professor Bilver Singh, Deputy Head of the Department of Political Science at the National University of Singapore, believes that the constitutional requirements for private-sector individuals interested in running are excessively stringent.

He remarked, “I believe it is necessary to reassess the relevant regulations.”

He points out that the current regulations are more favourable for former public officials seeking office and that the private sector faces notably greater challenges.

“While it may be legally sound, it may not necessarily be equitable,” he added.

Proposed five-year waiting period for political leaders eyeing presidential race

Moreover, despite candidates severing ties with their political parties in pursuit of office, shedding their political affiliations within a short timeframe remains a challenging endeavour.

A notable instance is Mr Tharman Shanmugaratnam, who resigned from the People’s Action Party (PAP) just slightly over a month before announcing his presidential candidacy, sparking considerable debate.

During a live broadcast, his fellow contender, Ng Kok Song, who formerly served as the Chief Investment Officer of GIC, openly questioned Mr Tharman’s rapid transition to a presidential bid shortly after leaving his party and government.

Dr Felix Tan suggests that in the future, political leaders aspiring to run for the presidency should not only resign from their parties but also adhere to a mandatory waiting period of at least five years before entering the race.

Cherian George and Kevin Y.L. Tan: “illogical ” to raise the corporate threshold in 2016

Indeed, the apprehension regarding the stringent eligibility criteria and concerns about fairness in presidential candidacy requirements are not limited to political analysts interviewed by Singapore’s mainstream media.

Prior to PE2023, CCherian George, a Professor of media studies at Hong Kong Baptist University, and Kevin Y.L. Tan, an Adjunct Professor at both the Faculty of Law of the National University of Singapore and the NTU’s S. Rajaratnam School of International Studies (RSIS), brought attention to the challenges posed by the qualification criteria for candidates vying for the Singaporean Presidency.

In their article titled “Why Singapore’s Next Elected President Should be One of its Last,” the scholars discussed the relevance of the current presidential election system in Singapore and floated the idea of returning to an appointed President, emphasizing the symbolic and unifying role of the office.

They highlighted that businessman George Goh appeared to be pursuing the “deliberative track” for qualification, which requires candidates to satisfy the PEC that their experience and abilities are comparable to those of a typical company’s chief executive with shareholder equity of at least S$500 million.

Mr Goh cobbles together a suite of companies under his management to meet the S$500m threshold.

The article also underscored the disparities between the eligibility criteria for candidates from the public and private sectors, serving as proxies for evaluating a candidate’s experience in handling complex financial matters.

“It is hard to see what financial experience the Chairman of the Public Service Commission or for that matter, the Chief Justice has, when compared to a Minister or a corporate chief.”

“The raising of the corporate threshold in 2016 is thus illogical and serves little purpose other than to simply reduce the number of potentially eligible candidates.”

The article also touches upon the issue of candidates’ independence from political parties, particularly the ruling People’s Action Party (PAP).

It mentions that candidates are expected to be non-partisan and independent, and it questions how government-backed candidates can demonstrate their independence given their previous affiliations.

The Workers’ Party advocate for a return to a ceremonial presidency

It comes as no surprise that Singapore’s alternative party, the Workers’ Party, reaffirmed its stance on 30 August, asserting that they believe the existing qualifying criteria for presidential candidates are skewed in favour of those approved by the People’s Action Party (PAP).

They argue that the current format of the elected presidency (EP) undermines the principles of parliamentary democracy.

“It also serves as an unnecessary source of gridlock – one that could potentially cripple a non-PAP government within its first term – and is an alternative power centre that could lead to political impasses.”

Consistently, the Workers’ Party has been vocal about its objection to the elected presidency and has consistently called for its abolition.

Instead, they advocate for a return to a ceremonial presidency, a position they have maintained for over three decades.

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