Singapore's pension system in need of reforms

Singapore only scores 54.8 out of 100 in global pension Index value, way below top rank Denmark.

According to Mercer, Singapore scores 54.8 in overall Index value. Countries with similar scores in the 50 to 60 range include USA, Germany and France

Denmark received an overall index value of 82.9 and becomes the first system to be classified as ‘A’ grade, moving Netherlands from the top position in the rankings. Denmark’s unique ‘A’ grade ranking has been awarded in recognition of the country’s well funded pension system, its high level of assets and contributions, the provision of adequate benefits and a private pension system with well developed regulations.

Mercer Senior Partner and author of the report, Dr David Knox, said: “Many of the world’s retirement systems are under increasing stress with an ageing population, low investment returns and, in some cases, significant government debt. Reform is needed to ensure that adequate benefits are provided over the long term in a sustainable manner.

Mercer pointed that Singapore’s pension system in need of reinforcement by employers and individuals

The report recommends that Singapore’s retirement income system can be improved by:increasing participation in employer-sponsored retirement plans; increasing the labour force participation rate amongst older workers increasing the percentage of CPF contributions required to be saved for retirement; raising the level of basic social assistance available to the poorest members of society

Mark Juneau, ASEAN Business Leader for Mercer’s Retirement, Risk & Finance business, notes that Singapore’s Central Provident Fund (CPF) plays an integral role in the provision of retirement income for Singaporeans. However, the CPF is but one pillar considered in a five-pillar context developed by the World Bank and used as the foundation of the Index. Other pillars include corporate sponsored retirement programs and personal savings. According to Mr Juneau, “Along with an increase in personal savings, increased employer sponsorship of supplemental retirement programs could increase Singapore’s rating.”

Mr Juneau added that recent experience has shown greater interest by employers in implementing programs such as Section 5 plans, Supplemental Retirement Schemes and customized schemes that are offered by banks and insurance companies, which would improve Singapore’s rating. He also notes that steps are being taken by the Singapore government to raise Singapore’s labour force participation amongst older workers. The Retirement and Re-employment Act was enacted in January 2012, which enables employers to retain older workers in a sustainable manner, leading to increased retirement savings.

Regarding the CPF, Mr Juneau points out the Index measures countries’ retirement systems only, while the CPF is designed to address a broader range of needs, such as home ownership and medical costs. “As our study is focused on retirement systems, the other uses of CPF funds does not directly factor into the assessment,” Mr Juneau adds. Once again referencing the multi-pillar system, Mr Juneau said the Index puts value on a social safety net provided through a taxpayer-funded basic pension. However, he added this does not imply that the lowest income Singaporeans are necessarily exposed to substantially greater risk, since Singapore has a strong culture of family and local community support for those in need. According to Mr Juneau, “The Index only measures quantifiable statistics. It is not meant, or able, to capture cultural differences.”