An Important Missing Component of a Social System

I just saw an article in the Independent.sg (a portal that has republished some of my blog postings), in which was reported that the Reform Party (one of our opposition parties) has declared that if elected, it would return all CPF (Central Provident Fund – Singapore’s main pension system and bedrock of Singapore’s social security system) monies to those who reach 55 and it would make CPF a voluntary scheme if elected. More details on the story can be found at http://theindependent.sg/reform-party-promises-to-return-cpf-at-age-55-and-make-cpf-savings-voluntary-if-elected-into-parliament/

It suddenly looks like the Reform Party has found a hot button issue, in which it should be able to hurt the government. The topic of CPF savings has been a sensitive one. There have been occasions when things like the “minimum sum” and the age in which you can withdraw your CPF have been raised. To a worker contributing 20 percent of his monthly income, such moves are frustrating. It’s a case of being forced to save but never being able to see a penny of your savings. To put it bluntly, contributing to CPF no longer feels like contributing to a compulsory savings account but paying an additional tax.

However, while the perception of what is happening to CPF monies is not positive, there is a reason behind things. Firstly, life expectancies are raising and so are working lives. Someone who takes the money at 55 is very likely to outlast it. Then there’s also the fact that if people treat the money like a lottery windfall, they’re likely to look to the government to support them once they’ve gone through the money.

Furthermore, for all its faults, the CPF system remains the only system that Singaporeans have in place to ensure that there is some form of money available to them in their old age. As I get older, I understand that while I may not see much of my CPF money when I reach retirement age, the 20 percent of my salary that I’ve set aside has allowed me to do things like ensure there’s a roof over my head and there’s some form of medical insurance to ensure that should I get hospitalized, I won’t end up in the dog house. Assuming that all your citizens will be prudent about saving for old age is going to make an ass of any government, particularly one of an aging society like Singapore.

If Mr. Kenneth Jeyaretnam, the Secretary-General of the Reform Party, were serious about helping the population in their old age, he would have been better of focusing on how make the system better (easier for the worker to access the money without running it down) rather than tinkering with it to suite his political needs.  

Furthermore, Mr. Jeyaretam has also missed a valuable opportunity to address one key issue, namely what happens to people who lose their jobs in their later years. The current CPF system works on the basis that one’s working life and therefore contributing life will be consistent. Hence, it takes into account things like paying the monthly mortgage (which I am doing) and that you won’t have to use your disposable cash pool to fund a medical procedure and there should be a lump sum once you’re no longer able to work.

What the system does not cater for is the fact that working lives are no longer consistent. This is something that has become an increasing reality as Singapore enters an age of slowing economic growth and corporations get disrupted and the need to hire workers gets shorter. Retrenchment of workers has become more common and one has to ask what does one do about this.

I take myself as an example. At the age of 45, I am experienced enough to be useful but at the same time, I’m not exactly what companies rush to hire based on the fact that I’m perceived as a less energetic old dog, who will cost money and be difficult to teach. OK, I’m an unusual case in the sense that I’m relatively comfortable in the gig economy and have gone down the proverbial social ladder to do blue collar jobs. I have to effectively write off the fact that I am probably out of the corporate game.

Unfortunately for social planners around the world, I’m not the only 45-year old who no longer has a corporate job. A while back, I was on Facebook chat with an army buddy who told me that a few of his friends have been retrenched and found it difficult to find new work. This should be worrying for Singapore’s social planners. Worrying about what happens when you’re 60 is something distant. Worrying about what happens now is a different story.

What Singapore needs to do is to recognize that retrenchment and unemployment will be a fact of life for many. We also need to recognize that the period in between jobs will be longer. So, there must be a safety net for people who find themselves jobless through retrenchment.

The obvious solution would be an “unemployment insurance” scheme. This should not follow the “dole” system used in Western countries in as much as it would be a burden on tax payers and it should be very clear to all parties that the system should not disincentivize work – it should still be better to have a job than to get money off the state.

Currently, social assistance schemes are funded via community groups. I pay 50 cents a month to the Chinese Development Association (CDAC) and that rate is because I’m part of the ethnic majority – my Indian, Malay and Eurasian friends pay more to their respective communal organisations. However, these social assistance schemes are only valuable to the very poor and helpless.

What we need is a social insurance scheme, funded for the worker by the worker. Across the cause way there is an Employees State Insurance Scheme (ESIC), which is paid by employers on top of the EPF contributions (Employee Provident Fund – Malaysia’s version of CPF – rates of contribution are lower than in Singapore -12 and 13 percent versus 20 and 17). Costs is not significantly higher.

Alternatively, given that Singapore’s CPF contribution rates are significantly higher than Malaysia’s, why can’t it be possible for a small portion of the CPF contribution to be set aside for unemployment income.

You can place restrictions on such an insurance scheme. For example, it should be for people who get retrenched rather than for people who chose to leave their jobs. Such monies can then be added back to the retirement system should a worker never utilize it.

My Jeyaretnam was onto something when he talked about CPF but he was off focus. This is a pity because he had the chance to tackle a real issue that no one else was looking at. Perhaps some of the other politicians should be thinking of getting such a scheme implemented.