How does your Singapore pension stack up, and do you have enough for a comfortable retirement?

Singapore pension system one of best in Asia, but lagging globally

Singapore’s pension scheme regularly ranks as one of the best in Asia. This is in stark contrast to the Japanese national pension system, for example, which was started at about the same time, around 70 years ago. Despite its size as one of the world’s largest, Japan’s government pension is widely regarded as completely unsustainable without a significant overhaul. On the other hand, Singapore is not usually included in the global top 10 national pension schemes, and according to some surveys, ranks below even countries like Chile. Given that Singaporeans enjoy some of the highest average wages in the world, the poor global showing in pensions is somewhat surprising. So, why the low world ranking, and should Singaporeans be concerned about their pension?

The state of your Singapore pension is unique to you!

Government pension schemes around the world, and Singapore is no exception, are often a little more complex than they might at first seem. This is because each member of any pension scheme is a unique individual with a different family background, job, and financial circumstances – which will inevitably impact his or her pension.

So let us first take a brief look at how the Singapore national pension scheme operates. Having started out purely as a pension scheme, the government-managed Central Provident Fund (CPF) now encompasses health and housing too, but for the purposes of this article, we will look at just the pension scheme. The CPF is a mandatory savings scheme funded by both employers and employees. There is additionally a non-contributory pay-as-you-go pension scheme, otherwise known as the Government Pension Scheme, which is limited to certain civil servants, and a Savings and Employees scheme for some armed forces personnel. The Supplementary Retirement Scheme is a voluntary private pension scheme without employer involvement that enjoys tax advantages.

A recent study carried out by the insurance company, Aviva, showed that 69% of Singaporeans with permanent residence aged 18 or older, were saving for their retirement via the CPF. However, more than a third of Singapore’s population is comprised of expats, and they are currently not eligible to join this scheme. Therefore, if you are a Singapore expat, unless you have already joined a well-funded employer pension scheme, you should be seriously considering various savings or private pension fund options.

For permanent residents, amongst the clear advantages of the CPF are the ability to access funding for both housing and medical care, as well as retirement. The obvious question then becomes: will your CPF Singapore pension and savings be enough for a comfortable retirement?

Guarantees are in place, but depending on your needs, that might not be enough

As with most government pension funds, the CPF rules for contribution and for accessing the CPF retirement funds in old age, do change regularly. While specific guaranteed returns are in place, these also change according to government decisions and economic and financial necessity. Although the Singapore CPF specifics are one-of-a-kind, the issues the fund faces in terms of seeking returns in a global low-interest rate environment, and people living much longer, are universal to all pension schemes these days.

The results of a recent MasterCard survey showed that Singaporeans occupy only sixth place in Asia when it comes to financial literacy. This needs to change. The good news is that over 60% of adults in Singapore save through bank deposits or savings accounts, 37% are investing directly in bonds and shares, and just over a quarter of the population invest in property. There is also ongoing discussion about introducing more tax incentives for retirement savings.

The world’s most highly regarded pension schemes, for example the one in Denmark, tend to have a much greater allocation towards bonds than the CPF. Naturally, the pension guarantees therefore appear more tangible. But in any event, the onus really is on everyone, including every Singaporean, to make sure he or she fully grasps the basics of his or her pension, and has a plan in place so that there is indeed enough saved for retirement.

(By Celia Farnon)

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