ARE EMPLOYER PENSION PLANS REDUNDANT IN SINGAPORE?

Abstract

The ageing of popluations is putting a severe strain on unfunded social security systems worldwide. As a result, future retirees may rely increasingly on private pensions as a source of retirement income. As Singapore finances its social security system through a publicly managed, fully funded, mandatory programme of private savings via the Central Provident Fund (CPF), the likelihood of a financial crisis due to demographic changes is minimal. The CPF has served us well for the past four decades and its success is recognized internationally. However, it has its limitations too. The liberalization of CPF funds for housing and investment purposes eat up a large portion of CPF savings which is meant for retirement. In view of this, sole reliance on CPF savings to finance old age may become increasingly deficient in face of rising cost of living. The inadequacy of CPF savings to finance one's retirement is one of the many factors that have sparked off the feasibility of reviving employer pension plans to supplement the CPF. Other reasons for the revival are the liberal tax concession for retirement schemes, discouragement of workers to job-hop and the enlargement of Singapore's capital market. On the basis of these factors, employer pension plans may not be redundant in Singapore. In fact, professionals are optimistic about the growth of such plans. It is expected that within the next ten years, the majority of reasonably-sized companies in Singapore will adopt deferred compensation plans for their employees.