Singapore is facing a workforce and population that is aging at a rapid pace. In this current year of 2018, the population of citizens age 65 and above has matched the share of population of citizens 15 years old and below. The aging of the population are caused by various factors. One of the contributing factor is the increase in life expectancy rate of its citizens and the declining birth rate in the country.
People are living longer now as compared to the past because of our medical advances. There is an improvement in our chronic disease management and doctors now can provide better care, diagnosis and treatment for the patient. With these advancements, it enables early detections of diseases like tuberculosis. There are also improvements to the way we treat cancer.
Declining birth rates are caused by 3 key trends amongst the other possibilities. Firstly, the number of singles aged 40 and above has been on the rise. Secondly, as men and women now pushing hard on their career fronts, couples are settling down later for a secure financial backing before planning for a family. Finally, couples now prefer to have less children as compared to the past due to different choices in lifestyle and also influenced by their financial stability.
With such a rapidly aging population, spending on healthcare and social services is expected to increase. In order to fund these increases, the government must find ways to increase revenue. Tax hikes are examples of such revenue. According to the information provided by the Department of Statistics Singapore, the old age support ratio had went down from 13.5 in year 1970, to 5.1 in year 2017. This shows that the number of working age Singaporean citizens and permanent residents per elderly above 65 years old are declining. Singapore needs to ensure that the elderly population is well taken care of without negatively affecting the taxes of future generations.
Looking forward, Singapore currently has the Central Provident Fund (CPF) in place. The primary goal of the CPF is to assist its members in preparing for retirement. With CPF, members can better manage their retirement funds, healthcare costs, housing needs and insurances etc. Besides the CPF, the government is also constantly working to encourage its people to improve on the fertility rate. Improving the healthcare system, especially for the elderly, is also one of the key focus.
The government also has to rely on immigrants to obtain growth to the workforce and government revenues. However, this solution may not be sustainable in the long run as immigrants will age as well. Due to the ongoing downtrend in the old age support ratio and low fertility rate, constant adjustment and improvement related to retirement planning has to be achieved in order to prevent greater taxes, which means relying heavily on the working population and future generations.
Since Finland has been facing aging population much earlier than many countries but still is the happiest country, we shall look at how the country deals with the demographic challenges.
For retirement income in Finland, the core pensions are the national pension, guarantee pension and earning related pension. The national pension and guarantee pension guarantee covers the whole population while the earning related pension applies to the workforce including the self-employed.
As compared to Singapore, Finland may have better retirement welfare like national pension to provide minimum payouts but the personal income tax is much higher. The maximum marginal income tax rate for Finland is 51.60% while as for Singapore, the rate is much lower at 22 percent. From the Organisation of Economic Cooperation and Development’s database, Finland’s tax burden is one of the highest few from the OECD countries. With data showing that the common demographic issues like ageing population and low reproduction worsening, it will not be sustainable to over rely on the nation’s funds and the shrinking younger generations. Finland’s government has already looked into cutting back on the country’s welfare to maintain sustainability of the system.
In Singapore, the system which places greater focus on individuals’ responsibility for retirement planning would be more feasible in the long term. Without excessive welfare, people will be more aware of the importance of retirement planning and take a more active role in retirement planning. This in turn will benefit the countries as a whole as it reduces the needs to raise taxes and the available funds can be better used in other areas like healthcare system etc. The government can also help by encouraging its people to save up more and earlier. Education and improvements on assets enhancement can also help to increase the retirement funds as well.
As life expectancy increased, the retirement age should be revised as well. If the retirement age remain unchanged while the life expectancy increases, the pension benefits are actually increasing. In addition to longer life expectancy, people are more health conscious, educated, skilful and technology savvy as time goes by. Staying healthy and productive at high age are increasingly common. Adjusting the retirement age and commencement of pension payouts will help increase the country’s productivity and moderate the government’s spending on retirement.
In Finland, the retirement age is from 63 to 68. Incentives will be given for those retiring at the higher retirement age. In Singapore, the statutory retirement age is 62 and the re-employment age is 67. Countries can consider increasing the retirement age/ re-employment age and adopt the age bracket approach for flexibility. The incentives for delaying retirement and commencement of pension payouts are great for encouraging later retirement.
Staying healthy can help alleviate the impact of an ageing population. Innovation can improve the prevention of illnesses, accessibility to necessary medical care and overall healthcare system. Countries can promote and facilitate growth in such industry. It not only can drive the economy, it can also help make the healthcare system more effective and productive. As people are healthier, there will be a reduction in the healthcare costs.
Finland had shared many innovative solutions during the 8th International Ageing Asia Innovation forum held in Singapore last year. One of the companies, Nightingale, managed to find a way to detect diabetes much earlier through a blood test. Another creative idea showcased during the forum was the mobile hospital lab which will encourage elderly to do regular follow up visits to prevent more serious health issues. Countries can also work on scheme like the Community Health Assist Scheme in Singapore. Subsidies will be provided for lower/ middle income households for visits to participating private clinics. With lower cost and greater convenience, it can prevent people from stopping necessary medical treatments and medications.
In conclusion, as the demographics situation changes, necessary changes has to be made for the country’s retirement system. Sustainability is as important as the welfare. Without proper planning and foresight, it may leads to high spending and budget deficit.