TL;DR – Not an easy problem to solve.
Singaporeans aren’t having enough children. At the same time, we are living longer. Put together, that means that our population is ageing rapidly.
Researchers from the Institute of Policy Studies (IPS) estimated there will be 91 elderly citizens for every 100 working-age Singaporeans by 2080 — up 10-fold from 1980. This was based on the assumption that total fertility rate stagnates at 1.3, with 20,000 immigrants adding to the population each year.
The problems and benefits of an ageing population
This ageing population means that the increase in aged residents will exceed the growth in the labour force. This will slow our economic growth by about 1.5% of our GDP.
It also means that the government will need to spend more on social needs. As a result, the government may have to raise taxes to meet the expenditure. This could hurt our economic competitiveness.
For many years, Singapore has used immigration to mitigate the economics of the ageing population. But that option poses its own set of challenges. Too much immigration and Singaporeans feel alienated and uncomfortable in our own country. As such, the government recognised that our immigration policies have to be well-calibrated. What’s more, immigrants also grow old.
But surely living longer can’t be all that bad, right?
Indeed, it isn’t.
There is such a thing as “longevity dividends” that Singapore can tap on. These include rising health expectancy, education, accumulated savings, and investments in technology.
The study also noted that with continued human capital investments in education, about 87 per cent of Singapore’s working-age population and 85 per cent of seniors will have tertiary education qualifications, representing a “substantial increase” in human capital potential, which can help to uplift productivity and well-being.
Unfortunately, this educational dividend could be limited. If people don’t continue to upgrade themselves and stay relevant to the constantly evolving demands of the labour market, they will find themselves obsolete.
Also, if employers discriminate against older employees, that will also limit the educational dividend.
But a lot more needs to be done
As such, there is definitely a need for more schemes to help people manage social risks that come with longevity, such as catastrophic health shocks, employment shocks and risks of outliving their financial and leasehold housing assets.
The researchers at IPS pointed out that we should “do more to pool social risks”. Universal long-term care insurance schemes, wage loss insurance and community-based living programmes are some examples of how social risks can be “pooled” and spread out across the community.
But who is to pay for these schemes?
One obvious way is to increase taxes. But should we?
A survey of 2000 Singaporean citizens and permanent residents by IPS found that Singaporeans are divided over the issue. About 40% of respondents said they were not comfortable with higher taxes and would rather tap reserves. However, 34% of respondents indicated the opposite. The remainder were neutral. Those aged 45 to 60 are likeliest to object to higher taxes.
Digging into our reserves shouldn’t be an option
It’s tempting to dig into our reserves. After all, we supposedly have quite a large reserve.
But that would be foolish.
As it is, the earnings from the returns of our reserves already make up 20% of the annual government budget. If we dig into reserves, we erode the capital base, which result in lower returns in the future.
That doesn’t just hurt the next generation. It hurts us too.
If you are only 45 this year, there’s a good chance that you will need some form of government support in healthcare or eldercare in the future. So if we dig into our reserves today, we end up having less for the future, which might mean you get less government support in healthcare or eldercare when you need the support most. Is that what we want?
Of course, there are those who have made the case that we can spend more from the earnings from the returns of our reserves. So we do not reduce our capital base. We just don’t grow that capital base as fast as we are doing now.
That might be possible.
But we will need to do our sums carefully and find the right balance. And if need be, those better off should bear a little bit more of the costs by paying higher taxes so that no one in our society is left behind. In that way, hopefully Singapore can be a truly inclusive and sustainable nation.