Singapore—For 2019, the Melbourne Mercer Global Pension Index gave Singapore’s Central Provident Fund (CPF) a grade of “B” on its report card, based on three categories: Adequacy, Sustainability, and Integrity.
To offer the best kind of protection for its pensioners, shouldn’t the country aim for an “A” rating, given the much-vaunted “Swiss standard of living” that Singapore’s leaders say they aim for?
Speaking of Switzerland, it’s in the same category as Singapore, a “B,” with its overall score actually being lower than Singapore’s. And while Singapore’s score on the index rose from 70.4 in 2018 to 70.8 in 2019, Switzerland’s score went down from 67.6 to 66.7 for the same time period. (Therefore, in this aspect, maybe Switzerland should be reaching for a Singapore standard, if not higher.)
However, this does not mean Singapore is number one on the list. Only the Netherlands and Denmark received an “A” rating among the pension systems studied in 37 countries, with total scores of 81 and 80.3 respectively. Australia, with a score of 75.3, was the lone country to receive a B+ rating. On the other hand, Argentina ranked the lowest, received a score of 39.5.
Overall, Singapore ranked seventh on the pension index, behind Finland (73.6), Sweden (72.3) and Norway (71.2). Moreover, Singapore is the only country in Asia in the top 10 in the index, scoring higher than New Zealand (70.1), Canada (69.2), UK (64.4), Hong Kong (61.9), the US (60.6), and Malaysia (60.6).
Nevertheless, it would be good for Singapore to aim for an “A” rating, which is described as “a first class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity.”
In other words, there is room for improvement for Singapore’s CPF system.
Its rating on the Melbourne Mercer Global Pension is as follows: for adequacy, 73.8; for sustainability, 59.7; and for integrity 81.4.
Here is where Singapore’s CPF could improve, based on the report:
“The overall index value for the Singaporean system could be increased by:
—reducing the barriers to establishing tax-approved group corporate retirement plans
—opening CPF to non-residents (who comprise a significant percentage of the labour force)
—increasing the age at which CPF members can access their savings that are set aside for retirement, as life expectancies rise.”
These recommendations are essentially the same as the ones found in the Melbourne Mercer Global Pension report from 2018, where it recommended raising the Central Provident Fund withdrawal because people are living longer as well as to allow non-permanent resident workers to make contributions.
Governments around the globe are facing the challenges of aging populations, and policymakers have to walk a fine line between making sure retirees have enough, as well as keeping the pension system sustainable.
The average life expectancy in Singapore is 83.1 years, the third-longest in the world. Japan takes the top spot at 83.7 years, while the Swiss are expected to live an average of 83.4 years.
The Melbourne Mercer Global Pension Index, which has been published for the last 11 years, covers almost 2/3 of the global population. The index is supported by the Victorian Government of Australia, and is a collaboration between the Monash Centre for Financial Studies (MCFS) – a research center based within Monash Business School at Monash University in Melbourne – and professional services firm, Mercer.
The 2019 report reads, “The Index uses the weighted average of the sub-indices of adequacy, sustainability, and integrity to measure each retirement system against more than 40 indicators. The 2019 Index takes a new approach to calculate the net replacement rate, that is, the level of retirement income provided to replace the previous level of employment earnings. While most previous Index reports have calculated a net replacement rate based on the median income earner, the current report uses a range of income levels based on the Organisation for Economic Co-operation and Development data to represent a broader group of retirees.”—/TISG