Why is there a dependence on sale of housing for retirement adequacy in Singapore

By Chris Kuan

Deputy Prime Minister Tharman touched on many things in his speech but I want to focus a clever use of a half argument when he claimed that “the CPF system provides a level of retirement adequacy comparable, if not superior, to other pension systems once you take into account the savings that are locked in one’s housing.”

If our Central Provident Fund (CPF) system is comparable if not superior to other pension systems with the monetization of our housing, then it must logically mean that once the beneficiaries of other pension systems like the Americans, Europeans and Japanese, include the monetization of their own housing into the total retirement funding package, surely our CPF is therefore inferior to the other pension systems.

The point is; in no other pension system is there such an explicit dependence on monetization of housing in order to reach some level of retirement adequacy for the lower to middle-income segments of the population.

Take it as a veiled admission by Tharman even if it is not his intention.

But let us take this further. If there is such an explicit dependence on monetization of housing, then surely it means that house prices must remain at present elevated levels if not appreciating. This in turns means that there has to be additional population growth over and above what we have to seen in the last 10-15 years to sustain such a proposition.

Then a population of 6.9 million is not a mere planning figure but a target to be reach and beyond….10 million? Let us not even mention the issue of inequality because such an outcome leaves far more wealth in the hands of the high income, an aggravation of what we have already seen up to now.

Government figures from Ministers to Members of Parliament and even civil servants like Bihari Kausikan have variously lambasted that the actuarial certainties in Europe, i.e. lengthening life expectancy and falling birth rates, means the younger generation will be burdened by funding the retirement of the older generation. But as Donald Low note, this is exactly what Singapore does through the medium of house prices rather than through the tax system as in Europe.

I will go even further with a question: why housing?

Answer is the burden of mitigating the financial risk of the actuarial certainties is shifted from the government to individuals. This enables the government to sustain its ultra-conservative fiscal policies which are somewhat contradictory in the maintenance of low taxes on business and the wealthy which then require low social expenditures to balance.

But make no mistake, this is at the expense of the individuals among whom the low to middle income will need housing monetization to mitigate the actuarial certainties.

The crux of the problem is: the government, any well-run government, is in the unique position of having tax and revenue raising powers, having the ability to finance itself at the lowest possible cost and the ability to aggregate demand.

If such a government is unwilling to use its unique position to mitigate the risks then those risks have to be mitigated by individuals who have none of those unique powers of the government and therefore at considerable costs to themselves.

This is the position Singaporeans find themselves, hence the need to monetize housing with all the attendant social fissures that come from elevated house prices. To be real, one should not ridicule like our elites tend to, the Europeans for continuing to shoulder those social needs and actuarial certainties through their fiscal policies.