(1) Pay higher interest on CPF savings
(2) Delay citizens’ withdrawal from their CPF savings
(3) Encourage Singaporeans to work longer and retire later
(4) Make everyone invest in annuities
Okay, that wasn’t too difficult. The devil is in the details, and the actual mechanics will take plenty of working out. But the “big picture” strategy is fairly clear, and PM Lee announced it in his Rally Speech last night. What Mr Wang will explore today are a few scenarios which PM Lee didn’t explicitly touch on.
During his speech, PM Lee mentioned “longevity risk”. This is the risk that you end up living longer than you expected, and therefore you eventually run short of money to support yourself. Furthermore, a high proportion of Singaporeans in their 20s, 30s and 40s today are choosing not to have children at all. Thus many of them will one day become senior citizens literally without any living relatives at all, to depend on.
Harsh as it may sound, the problem is its own solution.
PM Lee described a future where, thanks to advances in medical knowledge and healthcare, people will live longer and longer, with life expectancies climbing to, say, 90 or 100 years or perhaps even more. However, the implicit assumption is that you are able to afford living to such an old age, or that someone else (your relatives, or the state) will pick up the tab.
If you can’t afford this, and if no one else picks up the tab, well, you die. Death is the simple solution to living too long. That’s the brutal truth. (And it’s not so bad really, everyone has to go someday).
It is not necessarily the case that many old people will not be able to afford food and water, and therefore die alone, of starvation, in their little HDB flats. No, not so dramatic or tragic. A more likely scenario is that as they grow older and their savings gradually run out, they find themselves unable to afford the various medical treatments that would prolong life.
For example, let’s say that you are 75 years old. Your heart has developed a valve problem. The doctors recommend a $50,000 operation. They say that if you don’t go for the surgery, well, you are in no immediate danger, but your heart will probably fail sometime in the next five years. On the other hand, if you do go for the operation, they will plonk a new artificial valve into your heart, and it will probably last you another 20 years.
The question then is whether you can afford $50,000. If you can, you get to live longer, perhaps up to the age of 95 years. If you can’t, you’ll die sometime in the next five years.
So essentially your life expectancy (80 years or 95 years) has become a matter of money. Your life expectancy is a function of the medical care available to you, which in turn is a function of the amount of money you have. Ultimately you die, not of starvation, but of a curable heart condition which you could not afford to cure.
My next point is about the likely pattern of wealth distribution in an aging population. It is often said that in an aging population, the working population (that is, the young and the middle-aged) will end up bearing the heavy burden of supporting (either directly or through paying income taxes) the older retired folks.
This is no doubt true, but is there any silver lining for the younger folks? Let’s consider what happens to a person’s assets when he dies.
If you die with a will, then your assets will go, of course, to whoever you named as the beneficiaries in your will (and most people will name their own relatives as the beneficiaries).
If you die without a will, your assets will be divided according to a very specific order stated in the law. For example, if you have a spouse but no children, the spouse takes all. If you have a spouse and children, the spouse takes half the assets, and the other half is divided among the children. If you have no spouse and no children, but do have certain other relatives, then your assets will go, in a certain order, to your parents, siblings, nephews, nieces, aunts, uncles etc.
Now, assume that birth trends in Singapore don’t undergo any drastic change in the foreseeable future. So our population continues to age rapidly. In an aging population, a relatively high proportion of the general population are in the older age-groups.
This means that if in the year 2040 or 2050, you are a middle-aged working adult in Singapore, then the probability is that you will have many more old relatives than young relatives. In other words, the total number of your parents, uncles and aunties will probably exceed the total number of your siblings and cousins, and almost certainly exceed the number of your children, nephews and nieces.
Now as your older relatives start dying off, you will inherit their assets. You may not have been very close to your Auntie Ling (the one you never bothered to visit even during Chinese New Year). Nevertheless she will give you all her assets when she passes away. Why? Simply because she has no one else to give her assets to. After all, Auntie Ling was a typical Singaporean of her generation – she was an only child (or had only one other sibling, whom she outlived), married late (and also outlived her husband), and never had no children of her own. She was literally all alone in the world, except for you. So after she dies, you get everything.
As the population ages, the combined wealth of a relatively greater number of old Singaporeans will become concentrated (after they die) in the hands of a relatively lesser number of younger Singaporeans. This is in contrast to countries with a young population, where the wealth of the recently-deceased will be divided among a greater number of living people.
So in an aging population, there is some economic “silver lining” for the younger folks, after all. In a sense, this alleviates the economic hardship of the relatively younger section of the population, in supporting the relatively older section of the population.