In PMO Minister Lim Boon Heng’s trial balloon about the need to raise the retirement age to 68, he used the example of Finland which faces a similar aging population problem. Let us look at why the example of Finland is not useful for Singapore as well as the other structural problems in our country that makes the raising of the retirement age an ineffective means of dealing with the inadequate savings problem.
We Lack Finland’s Strengths
In Finland, as in most other developed countries, quality control of both long-term and short-term immigrants is fairly robust, and immigration policy is tailored towards enhancing the well-being of citizens. In contrast, our government’s overwhelming concern is in this area is for economic growth, achieving through the use of foreign labour to lower costs for employers.
In addition, Finland is also an innovation-driven economy (see Michael E. Porter’s Competitive Advantage of Nations) where its companies can produce goods and services that have pricing power. On the other hand, the short-term growth focus of our economic policies for the past 20 years (since Prof. Porter’s book was published) has resulted in our economy being stuck at the ‘factor-driven’ stage, dependent on containing costs to satisfy the profitability needs of multinationals and local companies.
Thirdly, Finland has evolved a social compact where citizens and companies share both the burdens of their welfare state and the benefits thereof. On the other hand, Singapore citizens are told to fend for ourselves due to the risk of companies packing up and moving to cheaper locales. Clearly, the social glue that is present in Finland is not found in Singapore.
Given the aforementioned, it is reasonable to believe that raising our retirement age to 68 will not result in higher employment for older, less productive workers.
Other Structural Problems
The biggest structural problem that I can think of now is the high cost of housing in Singapore. In the recent decade (at least), HDB has allowed the pricing of its flats to move with fairly high correlation with the price movements in the private property market, thus deviating from its mandate of providing affordable housing to citizens. With prices rising faster than salaries, this means that CPF savings that can be productively invested elsewhere in the economy has been used up to pay for housing. Furthermore, as the US housing bubble shows, depending on the value of one’s home for retirement can result in a lot of grief, since it is premised on ever-increasing prices that some later generation has to pay when the properties are sold. Somewhat like a Ponzi scheme, don’t you think?
As the economy is increasingly become more service-oriented, the inherently lower productivity of the services sector will mean greater income inequality when coupled with our current immigration policy. For most of us who don’t have exceptional skills, the need to compete with foreigners in our own country will mean diminished income growth prospects, and thus lower savings for retirement.
What Does It Mean For Us?
Since there is no way we can restructure our country to be more like Finland in the short time before some of us are hit with the retirement crisis, it basically means that we have to start to look for our own solutions to this problem. And as advocated in my previous article, this definitely means an aggressive plan to lower current costs of living in other to transfer purchasing power into the future to fund retirement.
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