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The financial crisis created setbacks for many Singaporeans. But we have weathered this well and the 10 percentage points CPF cut from employer's contribution helped to soften the impact here by reducing business costs and keeping jobs for workers. At the close of the last millennium, it seemed that the worst was over. Whilst some countries in the region were still recovering from the crisis which decimated many of the 'tiger' economies, Singapore had already shown robust growth in certain sectors. So much so, towards the last quarter of 1999, the nation's economy registered a 7.1 % surge.
Singapore therefore enters the new millennium with a positive economic outlook. In view of the quick economic recovery, the government announced that the CPF cut would be gradually restored ahead of schedule - two percentage points of the employer's contribution are to be restored to the Special Account from 1 April 2000. The crossing over to the new millennium, however, brings forth many new challenges for the CPF Board.
For the past 44 years, the CPF scheme has worked well for all Singaporeans. Thanks to this old-age defined-contribution savings scheme, we have one of the highest savings rates per capita in the world. Considering that in 1955 the fund started with 10% contribution and a members' balance of $9 million, we have come a long way. In the early days, CPF funds helped to develop Singapore - turning a mangrove-swamped nation inhabited by a large immigrant society into what we are today - a thriving metropolis. Many Singaporeans have used their CPF savings to buy their homes and today about 90% of Singaporeans own their own homes. We are one of the highest home-ownership nations in the world.
Today, CPF members can use their CPF savings not only for old age and housing, but also for healthcare, insurance and even investments.
Although we should all be proud of what we have achieved in the last four decades, we should not rest on our laurels. Like our nation, CPF must continue to change and face challenges to enhance and keep up with the old-age needs of its members.
Though the financial crisis is over for the moment, great uncertainties lie ahead. Economic restructuring for a place in the global economy is just beginning. The crisis has compressed the pace of restructuring, and served as a wake-up call for the average Singaporeans where jobs could be lost overnight. There is therefore a need to review the CPF system as the assumption of life-long continuous employment (on which the current system is based) may no longer be true in the future.
The current CPF scheme has thus far worked well in enabling CPF members to save enough for their basic retirement needs. CPF members with continuous employment from the time they start work will on retirement, have sufficient cash savings to allow them a life annuity income of about 20% to 40% of their last take-home pay, enough Medisave savings for healthcare, and a fully-paid home commensurate with their income. If members wish to have more than this, then they must be prepared to augment their CPF with private savings.
The new economy is, however, changing the rules in the labour market. The old notion of life-long continuous employment will have to give way to a new focus on life-long employability. With tougher competition for investments in the new economy, the tenure of jobs will become shorter and shorter. The labour market must be flexible because businesses will restructure and reorganize to remain profitable. Even profitable firms wanting to be more competitive may retrench their employees, and more businesses will hire more contract and part-time staff. Job "churning" and job mobility will become the features of the new economy. An average employee would be expected to change jobs several times in his career with some periods of non-employment in between.
In the new economy where market conditions change rapidly and competition is global, people are prepared to change jobs quickly and therefore an imperative for winning in the new economic race is the ability of a firm to attract and retain talents. Employers would have to respond with innovative remuneration packages to attract, motivate and retain talents. The system of compensating employees will therefore see a shift from one that was primarily cash-driven (in terms of regular salaries) to one where the larger part of the compensation package could come from company shares or stock options.
While certain features of the current CPF scheme are still able to address the needs of Singaporeans in the new economy, e.g. the portability of CPF benefits (i.e. when an employee changes jobs, he should be able to take with him what he has earned in social-security contributions), the CPF system will need to be reviewed since the fundamental assumption of life-long continuous employment will no longer hold true. Also, how could one plan for financial security when there is no more job security but only job mobility and constant skills upgrading? What should be the CPF contributions from the employer and employee if a large part of an employee's compensation is in the form of employee stock options? In addition, the employer-employee equation on which the CPF system is structured could be transformed into one where the individual is his own employer and employee, as there will be more outsourcing of services on contract terms. With the increasing number of self-employed, CPF Board may have to look for innovative ways of collecting CPF contributions.
The Inter-Ministerial Committee (IMC) on the Ageing Population had, in November last year, made certain recommendations on the role and functions of the CPF in the context of providing a comprehensive framework for financial security in old age. One of the key recommendations made by IMC is that CPF members must and should plan early for retirement and invest their old-age savings wisely. The Board has already stepped up its public education programme to reinforce the importance of planning early for retirement. With Singapore's population ageing rapidly over the next 30 years, financial security is one of the major concerns in old age. There were about 235,000 (7% of population) elderly persons (aged 65 and above) in 1999. This will rise to 796,000 (19% of the population) by the year 2030.
The key messages that must be driven home to Singaporeans are that they should take charge of their own financial needs - and not depend on their family or the state -- and that they should start early in providing for their retirement. The Board on its part can make a decisive contribution in making sure that the messages -- "Take Charge. Plan Early. Secure Your Retirement" - sink in.
In fact, the CPF Board had introduced the CPF Investment Scheme (CPFIS) as a way for members to manage part of their old-age savings. The Board had provided on an ongoing basis more investment choices to its members. They can later sell off their assets bought with CPF savings - namely, residential and commercial properties and financial instruments bought under CPFIS so as to have a more comfortable retirement.
The Board has gradually liberalised the CPFIS to provide members with a wider range of investment choices if they prefer the option of investing their CPF savings after considering the risks involved. The changes are designed to encourage CPF members to invest their retirement funds in statutory bonds, unit trusts or other professionally-managed products rather than punting in the stock market. The former can offer good returns if approached on a long-term basis and at the same time reduce the risk exposure for CPF members.
From the perspective of planning for the financial needs of a person's old age, investments or financial products that are developed to enhance cash flow during the person's retirement are preferred to other schemes as they effectively reduce the risk of individuals "squandering" away their retirement savings. CPF members are therefore encouraged to build up the cash component of their minimum sums and to buy approved life annuities since these would give them a guaranteed income for life.
The 21st century will be full of challenges for Singapore and the CPF Board. Increasingly, we are living and working in a borderless world where competition will be keen and the pace of life quickened. There is a need to re-orientate and re-organize to meet the needs of the new economy. The CPF Board needs to be agile in adapting and equipping itself with the necessary skills and knowledge to meet the changing expectations and demands. Aside from fine-tuning policies, the Board is also ready to face the many service challenges in the new millennium. It also has to balance ths.e benefits of individual needs with delivering a cost-effective service across the board. As a non-profit organisation, careful deployment of resources is vital. However, I know I can count on the Board to deliver as it has done in the past.
My Board Members and I are confident that together with the Management and staff of the Board, we will be able to continue to serve CPF members with the kind of quality service expected of us.
Ngiam Tong Dow
Chairman
Central Provident Fund Board
July 2000 |