Singapore has often been lauded for its efficient and effective systems, including its pension system. However, upon closer inspection, it becomes clear that the Singaporean pension system has several flaws that make it less than ideal for retirees. In this article, we will compare Singapore’s pension system to those of other countries, highlight its shortcomings, and suggest options for improvement based on the positive experiences of other countries.
Central Provident Fund
First, let us compare Singapore’s pension system to those of other countries. Singapore’s pension system is based on the Central Provident Fund (CPF), a mandatory savings scheme that requires employees and employers to contribute a percentage of the employee’s salary into a personal account. The money in this account can be used for retirement, housing, and healthcare expenses. While this system has helped Singapore maintain a high savings rate, it has several shortcomings.
A Low Rate of Return
One major criticism of the CPF is that it provides a low rate of return compared to other countries’ pension systems. In Singapore, the average CPF interest rate is 2.5%, which is much lower than the average return on pension funds in other developed countries, such as Australia (6.4%), Canada (6.6%), and the United States (6.8%).
CPF is Not Flexible Enough
Another criticism of the CPF is that it is not flexible enough to accommodate different needs and circumstances. For example, the money in the CPF can only be used for certain expenses, such as retirement, healthcare, and housing. This limits retirees’ ability to use their savings to cover other expenses, such as travel or leisure activities.
So, how can Singapore improve its pension system?
One option is to borrow from the positive experiences of other countries. For example, countries like Australia and Canada have adopted a “superannuation” system, which is similar to the CPF but provides a higher rate of return and more flexibility. These systems also offer a wider range of investment options, allowing individuals to choose how their money is invested.
To Adopt a Hybrid Pension System
Another option is to adopt a hybrid pension system, which combines a defined benefit (DB) plan with a defined contribution (DC) plan. In a DB plan, the employer promises to pay a certain amount of retirement benefits to the employee, regardless of how much money has been contributed to the plan. In a DC plan, the employee contributes a certain amount of money to a personal account, and the amount of retirement benefits is determined by the amount of money in the account at retirement. A hybrid system combines the security of a DB plan with the flexibility of a DC plan.
Conclusion
While Singapore’s pension system has some positive aspects, it is clear that it has several shortcomings compared to other countries’ pension systems. To improve the system, Singapore can borrow from the positive experiences of other countries, such as adopting a superannuation system or a hybrid pension system. By doing so, Singapore can provide retirees with a more flexible and higher-returning pension system that better meets their needs and circumstances. We also recommend reading our article The Simple and Efficient: A Closer Look at Singapore Tax System.
