Perspective Unlimited

Saturday, February 02, 2008

Talking a Policy to Death

An Australian friend of mine once remarked - if the Singapore government wanted to do something, it would just announce the policy and get on with it. As Singaporeans would attest to, there is veracity in that statement. At its best, our government is often bold and decisive in implementing policies. The flipside of this boldness and decisiveness is that it will often be criticised for being authoritarian. But we should pause for a moment and reflect on the following question: if boldness and decisiveness are indeed virtues, where does it leave consultation and compromise?

The Importance of Consultation and Debate

Having lived in the UK for seven years, I fully understand the important role public consultation, discussion and debate play in a properly functioning democracy. If a policy affects the livelihoods or the fundamental rights of citizens, it is only right that its rationale be publicly aired and properly debated. There is no running away from the fact that public debate is the hallmark of an open and transparent government.

But as Master Ringisei wryly noted in his recent post, there is a difference between an "open" and "gaping" government. During my years in the UK, I also witnessed first hand how an open-ended discussion could also give exactly the wrong image of the government: one that lacked direction; unsure, dithering and equivocating; losing political capital without making any real policy progress. The end result can be depressing. When the debate is finally over, good policies become watered down and compromised to a point of doing more harm than good.

Compulsory Annuity

I have never made a secret of my enthusiasm for the compulsory annuity scheme (here and here). The economics are compelling: to have citizens pool risks into a national scheme that pays out a small but potentially crucial stipend to the advanced aged. The committee's recommendation is therefore a source of bafflement and disappointment. "Flexibility" and "Compulsory" are not exactly easy bed-fellows.

Emotionally, it does make a lot of sense to return the unconsumed part of the annuity. But it would mean two things. First, the insurance element across citizens would be eliminated, or at least greatly reduced. Second, it will mean that premiums will have to be considerably higher since the national fund would still have to pay out to the families. If everyone can collect (whether dead or alive) whatever he pays in, how does the fund reach a sustainable level of coverage against advanced old age without premiums being bitingly high? There is no escaping from the actuarial reality.

But of course I understand the difficulties faced by the committee - it must surely have tried hard to produce a formula that works while being palatable to citizens. But in trying to make the policy acceptable to everyone, we could well have reduced its effectiveness. After months of deliberation, we are back full circle. Either we make a hard choice or live with an inefficient compromise. It seems like in some cases at least, boldness and decisiveness do have a place above consultation and compromise.


  • "if the Singapore government wanted to do something, it would just announce the policy and get on with it." - isn't this done all the time. In simpler terms, they announce it, they implement it. Was there any stage between announcement and implementation that you can say no?

    It seems like in some cases at least, boldness and decisiveness do have a place above consultation and compromise. - it is frightening to hear this. Yes, people can let the planners to decide if the road turns left or right. But, letting the government to have near total control over our hard earned money is really beyond the comprehension of a lot of people.

    From what I gathered, you have been in UK for seven years, doing your study. The rest of us are in Singapore working hard for the same seven years, trying to survive and make ends meet. Sir, you should come back here often to feel the real beat on the streets.

    In your opinions as an economist, the scheme would make beautiful numbers and meet some long term goals. But, have you ever ask yourself what is the real political motivation behind all these "for your own good" schemes.

    Sorry to sound blunt here. I have come to realise that you like to talk about numbers and more numbers. I do not fault you for that as you are in that field. But, these things are bigger than that. You are careful not to speak about the political aspects (politics is dirty?) behind our "for your own good" schemes. There are always some unknown reasons for the things that the government are doing. Reasons that you and I will never know, they will be in the closets. Some day, I hope to see what are inside the closets.

    To me, the cold hard calculations highlighted the distance between the people on the grounds and our government. You can choose to avoid the political aspects, I do not blame you because of your position in the government services. But, privately, I hope that you have some serious reservations about things happening in Singapore.

    Come back, come home soon. Walk the ground and see for yourself. The real world awaits you. Come home and start your day in the office, meet your colleagues again.

    Have a nice day.

    By Anonymous Manonthestreets, at 4:44 am  

  • The fundamental problem of this annuity scheme is that it DOES NOT solve the problem of S'poreans not having enough CPF $.

    What good does digging a hole (taking our CPF to buy annuity) to fill another hole (ppl not having enough $ to retire) does?

    In my opinion they should just start a state pension scheme that is funded out of the budget to complement CPF. I'm sure this will pool the risk in a much better fairer way. In this way we can even get our beloved Foreign Talents to contribute to our pension scheme via the tax system.

    By Anonymous state pension for spore, at 6:36 am  

  • Hi MOTS,

    Yes, I studied for years overseas. This is why I find any debate about old age provision frightening.

    Whether we are talking about US social security, or UK pension system (private and govt), they are all in trouble, with future liabilities is totally unsustainable. It is like watching a slow motion car crash - every one, all politicians, know that trouble is looming. The debate goes on and on, with no solutions.

    Yes, CPF is people's money. But the fundamental economics is the same: how much welfare to be transferred inter-generationally and cross-sectionally.


    I am deeply against fleecing foreign talent through taxation for our retirement needs. In the UK, even if you are foreigner, you do get health benefits. If you work there and contribute to National Insurance, you will get pension. Foreigners, if they are contributing to the national coffers, should be entitled to benefits as well. But I do agree that distribution issues aside, there is in principle no difference between compulsory annuity funded through CPF or through general taxation.

    By Blogger Bart JP, at 11:17 am  

  • Sorry to say I am a man in the street and knows not much about economy. But out of curiosity, may I ask are prices of goods and services in UK constantly on the rise like Singapore?

    Certainly You are awared that much of the essential goods and services are state owned in Sg. Yours sincerely; saintmoron.

    By Anonymous Anonymous, at 11:58 am  

  • The Gahmen should actually start from the fundamentals as any shortcuts will only lead it to disaster. The problem is that we are not convinced at all that the Gahmen have our interests at heart.

    For any annuity scheme to benefit the participants, one has to start it from young. One cannot just cannot force it to apply across the board at one go and expect it to be well accepted by all. Those at the losing end will of course jump to conclusions and suspect that the Gahmen has other reasons to make the scheme compulsory.

    As with any other annuity schemes, there should be a choice and this fundamental choice should not be removed from us. Removing this fundamental choice from each member is no different from depriving each member one of his very basic human rights. How one decides to do with his CPF retirement funds would vary from person to person. Some members may need the funds for some emergency use while others have many other plans for it. It is one thing that it would be silly for us not to participate in a good scheme but why should we allow the Gahmen to further dictate how best our own retirement funds should be put to use, even if it is perceived to be for our eventual good.

    On the other hand, to make it compulsory, then they should not have exceptions. If it is something that is so essential that it has to be made compulsory, then the Gahmen should make sure that everyone must be able to participate in it. To exempt certain sections of the population such as those with little or no CPF funds eg. housewives, etc. seems to make a mockery out of the compulsory scheme. Then does it mean that the Gahmen is prepared to look after the welfare of those who are unable to participate in the annuity scheme for one reason or other. So at the end of the day, someone will still not be able to fend for himself or herself. (Remember those photos showing our destitute picking on trashbins and leftover cardboard). One just cannot help suspect that the Gahmen is really scared that our society will be full of such destitute people in the street that this may become the real reason for making the annuity scheme compulsory so that the majority burden of the Gahmen is now shifted to the people themselves.

    Unless and until they make the annuity scheme a choice attractive enough for the average CPF member, If not, one suspect it may be true that the real reason is to delay/prevent the full refund of the CPF funds to each retiring member.

    By Anonymous Alan Wong, at 12:31 pm  

  • Hi Alan,

    Whether the govt cares enough is not something I can comment on. I only talk about the economics. But many of the things you say do make sense, and I can agree. I do think that there should be no exception (except for terminally ill). Included every one, keep cost low.

    One of the ways to keep cost low is that the unconsumed part of the annuity should not be returned to families. Insurance products can be generalised into 2 types - Term Plans and Endowment plans.

    Term plans can be cheap and affordable for high levels of coverage, precisely because they do not provide any returns if the insured event is not reached. Endowment plans are very costly by comparison because buyers expect to get something back one way or another.

    Therefore, to compulsorily make every one buy into the annuity that returns leftovers to families is like asking every one in Singapore to buy an expensive endowment plan! I think you too can see the problem with that.

    By Blogger Bart JP, at 1:41 pm  

  • The gahmen can peg the payout of state pension scheme to a fix proportion of the GST, gambling tax, alcohol tax, cigarette tax and other consumption taxes.

    Furthermore the state pension can start to kick in from age 85 or more preferably 80.

    I am sure with these measures the pension scheme will be sustainable in the long run.

    By Anonymous state pension for spore, at 5:11 pm  

  • You know ... by NOT having the rather expensive NS expressway, increasing ARF and road tax by another 15% (instead of decreasing it), we can solve traffic congestion and fund the longevity problem(curse?) in one stroke?

    Afterall, old folks only need $290 per month unless you think PAP is lying? decrease the defence budget by 10% and we can even give them an extra $15 per mth ( to cope with inflation).


    By Anonymous Anonymous, at 1:54 am  

  • Hi Noname,

    I would actually de-link old age provision against other expenditures. Demographic changes are long term and structural in nature, better have a system that is robust. I can equally argue that ageing population requires us to invest more in defense (not less) since we need more technology to overcome numerical inferiority. Likewise, to cut infrastructure development to fund ageing needs does not make a compelling argument IMHO.

    By Blogger Bart JP, at 3:01 am  

  • So we keep the NSE (new ERP will ensure it pays for itself anyway). How about increasing ARF by say 50%, COE fixed at $50k and with the new 16 (and counting) ERP gantries, I say we can easily raise the moolah to fund the longevity plan.

    Newsflash: MM Lee say optimum population is 5.5 mio. Unless YOU want to tell him that he is wrong :-)
    Otherwise I say our population structure will be very predictable!


    By Anonymous Anonymous, at 6:20 am  

  • Oh you are the lucky ones who can stay outside of Singapore working outside grumbling about the lousy government of the country that you are now working/studying in so let me bring you up to speed.
    First learn that money can make money.Aka conservancy "Sink the poor" fund(to buy creative stocks),CPF (not linked to GIC sure of couse not, no need for transparency),and NKF now making 3 million plus on the donation that they beg for(previously to buy golden toilet taps) which they can subsidized the patients more.
    So where is the need for a new spangling policy to make sure that we have enough for golden year while reducing the tax for the nova rich?
    Come back and enjoy the longevity scheme please or volunteer for it.
    And whats there to prevent our health care from becoming like the US where they can block your insurance payment and make money from it.
    Financial markets (bond and stock markets) and financial intermediaries (banks,
    insurance companies, pension funds) have the basic function of getting people together by moving funds from those (might not be willing,education fund, baby milk money) who have a surplus of funds to those who have a shortage of funds (who made bad investments and have to meet the bottom line).Eg China aviation oil
    Reason for comment? Poor timing and lack of consideration for the common people,the real majority.

    By Anonymous Onlooker, at 4:26 pm  

  • I would suggest you are missing the point. The problem of the policy is not with just the economics.

    eg can I go to your bank account take say 10 k to buy an annuity plan because 1 in 2 singaporean will live beyond 85 and your CPF minimum sum will not provide for. Even if you disagree, I have to buy the annuity plan for you because this is the law. Do you accept that? The government can be bold and decisive but it should not be deciding how I want to spend my money. The government can suggest that we eat fish instead of pork or don't buy branded bread and rice because bread is bread and rice is rice. The government cannot tell us you got to buy house brand bread.

    Secondly they did not do a study on the population life expectancy vs social economic status. If most of the lower SES citizens die before 85 what is the use of the annuinity plan? How can the great economics you learn about, help to solve the problems faced by the poor? Not only do they receive less for the monthly CPF payouts they die before they get their annuity payment.

    Why should the government implement a plan that does not benefit the citizens.

    The constant delay of payouts for CPF can only signify that the CPF does not have the liquidity to pay citizens and they are just buying time.

    Come to think of it, using your Phd economics, would you recommend a $300 payout for the annuity 30 years down the road for an 85 yr old citizen?

    You keep telling us it make economic sense but what is the use of making economic sense if it doesn't help the citizens live a better life.

    Does it then make economic sense with a whole pool of CPF resources sitting there and collecting 4%(variable) interest?


    By Anonymous Anonymous, at 7:34 pm  

  • Yo people, u come to this site to hear good news. Bart spins it better than straits times. and its free.

    real life is and will always be depressing for the poor. I believe Lucky's blog is where u want to discuss stuff like "help the citizens live a better life" or "feel the beat on the street".


    By Anonymous Anonymous, at 1:42 am  

  • yo Bart, are u ok?
    no new post to assure the peasants how wonderful the singapore budget is? I know its only tharman and therefore cant compete with the budget of love 2007 but all the more u should jazz it up ya?

    Or are you still distressed that for a superpower with international interests as far away as .. Brunei, our defence spending is only 1.5% (or so) of the total defence spending in the world?

    Or are you still shocked that economically useless got a totally undeserved $40 monthly raise while the cream la de cream gets a mere $2000 in rebates and our leaders an inadequate 15% raise to cope with inflation?

    Or is it the miserable budget surplus (not including land sales, etc) for 2007 that makes u decide that CPF Life is too generous and is a risk that might deplete our golden goose?

    U reckon they should take out the refund clause and make the default norefund-100?


    By Anonymous Anonymous, at 5:35 am  

  • [url=]GnBBRiQ[/url] , JeVtefkygEMiBsDJd -

    By Anonymous Anonymous, at 4:40 am  

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