Mercer and the CFA Institute just released their annual Global Pensions Index, made up of 43 major countries reviewed and ranked this year.
Singapore’s CPF ranked respectable 10th (down three places since 2020) and, unsurprisingly, the best in Asia.
It is interesting to note that apparently developed and benevolent countries like South Korea or Japan rank very poorly (at 36th and 38th), tied with India, Thailand or the Philippines.
Devil in the details
I am wary of rankings of all kinds, especially those that attempt to greatly simplify very complex topics. That said, while the lists they produce may not be of much use, the work done may still have some value, which is why it makes sense to dig deeper into their reports.
After all, no one in their right mind would think that the retirement system in Japan can be considered India or the Philippines, or significantly outclassed by Malaysia or South Africa (with all due respect).
Likewise, Singapore’s 10th place, while quite high, is probably considerably lower than it (objectively) should be. So let’s take a look at what Mercer recommends for the city-state to improve its overall index:
The overall value of the index for the Singaporean system (after Mercer) could be increased by:
- Reduce barriers to establishing tax-approved corporate group retirement plans
- Improve the level of communication provided to CPF members
- Opening of the CPF to non-residents (who constitute a significant percentage of the working population)
- Increase the age at which CPF members can access their savings set aside for retirement, as life expectancy increases
Now the first two points are really remarks on the administrative decisions made in the way the system is run in the country. I’m not sure how Mercer and CFAI see this significantly changing the realities of retirement in Singapore.
The following two are however much more interesting because they target the fundamentals of the CPF.
I’m not sure if the report’s authors understand the realities of employment in the city-state, as non-residents who don’t qualify for CPF won’t be retiring in Singapore anyway. By design, the system provides pensions to those who will be living in Singapore upon leaving the labor market.
How does the exclusion of those who will not stay in the city-state affect the overall situation of the pension system? It’s a mystery… And yet, it was marked out for it.
Raising the age of eligibility
The final recommendation made by Mercer and CFA would probably prove to be the most controversial among Singaporeans, as many still yearn for the return of the days when you could withdraw your CPF in a lump sum after turning 55.
These times do not return, as it would leave many people without adequate protection in their old age, especially as life expectancy continues to grow.
But it appears the report’s authors have ignored the details of how CPF payments work in Singapore.
Currently, Singaporeans only have access to S $ 5,000 when they turn 55 and up to 20% of their savings when they turn 65.
Meanwhile, the local government has already announced a gradual increase in the retirement and re-employment age to 65 and 70, respectively, over the next decade. In fact, they’re set to jump to 63 and 68 on July 1, 2022.
In addition, nothing prevents older people from working beyond the statutory retirement age, and re-employment regulations actually encourage them to stay in the workforce for up to five more years. It does not seem to me that this is adequately reflected in the world ranking.
To top it off, CPF payouts can be deferred for up to 70 years (although I’m assuming they will gradually increase to 75). This means that future retirees can still contribute and earn interest on their pension savings if they do not wish to retire yet. After all, people age differently.
What Mercer and CFA seem to recommend is a legal compulsion, as the Singapore government has in fact given local retirees the freedom to benefit from the system by choosing to extend their employment and retire with a larger nest if they do. wish (while giving them access to part of the funds saved earlier, in case of urgent need).
In other words, compared to several European systems that rank higher than Singapore – and which, at least to some extent, rely on funding through a de facto A Ponzi scheme where current employees pay the retirement benefits of current retirees, CPF is considerably better funded, more resilient, more flexible, and already offers better protections for the rapidly aging society than any other solution.
So while the idea of pushing back the retirement age as society ages is, of course, logical and not at all new, not only is Singapore already doing it, but it also offers a range of incentives and incentives. protections to encourage people to work longer than any other country – while leaving the final decision on when to retire to people themselves.
After all, unlike anywhere else, it is their own money that they rely on, which makes Singapore’s pensions the most financially viable in the world.
Featured Image Credit: The Independent Singapore News
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