Hard Choices: Challenging the Singapore Consensus

10 New Options in Social Security

10 10 NEW OPTIONS IN NEW OPTIONS IN SOCIAL SOCIAL SECURITY SECURITY Donald Low Singapore’s social security system is premised on the principles of individual and family responsibility, community help (sometimes referred to as the “Many Helping Hands Approach”), and government assistance as a safety net of last resort. Besides housing and healthcare, the main expressions of our social security system are the Central Provident Fund (CPF) system—to help Singaporeans achieve a certain degree of retirement adequacy—and more recently, Workfare—to encourage low wage workers stay in work. For the chronically poor and others requiring targeted assistance, various programmes under the umbrella of ComCare have been developed in recent years, and delivered at the community level.1 Weaknesses of our Social Security System The three main innovations in our social security system over the last few years have been the Workfare Income Supplement (WIS), CPF LIFE, and the various efforts to enhance and increase the coverage of MediShield. The first addresses the problem of wage stagnation among low income earners through the government topping up the wages of low wage workers; the second addresses longevity risks by introducing social insurance into a system that has otherwise relied mainly on individual savings; while the third addresses the risks of catastrophic illnesses by increasing insurance benefits for a wider range of medical conditions and treatments, and by extending coverage to previously excluded citizens. These measures are important steps in strengthening our social security system. But the system still has significant gaps and is not sufficiently robust for three main reasons. First, Singapore’s social security system provides hardly any protection against the risks of involuntary unemployment. Workfare is aimed at employed, low-wage workers in the formal sector (roughly corresponding to the bottom fifth of the income distribution). CPF savings cannot be withdrawn before the individual reaches the age of 55. Even the subsidies that the government channels into various training programmes are mostly mediated through employers. While the unemployed are not excluded from these training subsidies, the principle of co-payment requires them to fork out their own monies to benefit from government subsidies in training and skills upgrading. We should think hard about how we can provide lower- and middleincome Singaporeans better protection against the risks of involuntary unemployment without creating significant risks of moral hazard. Second, for the majority of Singaporeans, our social security system relies mostly on the principle of individual savings. With the exception of the subsidies in healthcare, Medishield and CPF LIFE, Singaporeans do not fully benefit from social insurance and the power of riskpooling to deal with contingencies such as a loss of earnings, disability, or an extended period of illness. They are almost entirely reliant on their own accumulated resources to deal with such episodes of income instability. While self-reliance is a good principle in general, if taken to extremes, it may neither be efficient nor just. We should think hard HARD CHOICES 121 about how our social security system can find a better balance between individual savings, social insurance, and direct subsidies. Third, despite Singaporeans having one of the world’s highest savings rates and highest social security contribution rates, many Singaporeans struggle with attaining retirement adequacy. For instance, among active CPF members who reached 55 years old in 2009, only 37.5 per cent had met the Minimum Sum stipulated by the government with both cash and a property pledge, and only 20 per cent could meet the Minimum Sum wholly in cash. This means that four out of every five active CPF members who turned 55 in 2009 did not have sufficient cash to meet their basic needs in old age if they did not have sources of financial support other than their CPF savings. This lack of retirement adequacy has different causes for different segments of the population. Among lower-middle to middle-income Singaporeans, this is, in large part, due to the fact that so much of their CPF savings are locked up in housing. While housing represents a store of value that can be unlocked for retirement needs, this presumes that monetisation incurs relatively low costs. The fact is monetisation options are currently quite limited, not to mention households that need to unlock their housing assets may be doing so in the wrong part of the property cycle. While the lease buyback scheme introduced by government in 2008 is a step in...