[Andy Mukherjee] Singapore’s homes get an anti-aging lift

Singapore is buying insurance against the ill-effects of Japanese-style population aging. With some luck, the cover will extend to the city’s property prices, too.

The retirement age in the financial center will gradually rise to 65 from 62. Including the five additional years employers are required to provide to older workers willing to continue, albeit at a lower pay, Singaporeans’ sunset years will effectively start at 70. That will make the city home to some of the world’s oldest employees by 2030, although with many European nations planning to index working age to life expectancy, it won’t be too much of an outlier.

The idea behind the change is to help older residents retain financial independence. The combined employer-and-employee contribution rates into the city’s central provident fund -- the main pension plan -- currently drop from 37 percent at 55 years of age to as low as 12.5 percent for older workers. But with life expectancy at birth of 85 years, the longest in the world, Prime Minister Lee Hsien Loong is right to want to postpone the tapering by five years.

A support package for businesses in the next budget should help offset the burden of providing bigger nest eggs to their workers. Besides, higher contribution rates will only kick in by 2021. By then, the US-China trade war, which is inflicting a lot of damage on Singapore’s small, open economy, hopefully will have ended. To explain why this city of 5.6 million is even tinkering with retirement, look no further than Japan’s deflationary spiral.

For at least four years after Japan’s working-age population peaked in 1994, it was perfectly normal for employees to be pushed out when they turned 55. Replacing the lost income of highly paid retirees in a seniority-based wage system became impossible.

The cohort of less well-paid younger employees wasn’t large enough to fill the gap; nor did this group have the bargaining power to demand high salaries after the bursting of Japan’s 1980s bubble economy. For households to enjoy a higher living standard amid declining pay, prices had to fall. After more than six years of Prime Minister Shinzo Abe’s aggressive anti-deflation campaign, cash earnings in Japan are still 13 percent lower than their 1997 peak.

Singapore is at a similar inflection point. With the population unable to replenish itself naturally, and the government taking a hawkish view on immigration, employment growth is running out of steam. Most prices on the island will still largely be decided by supply and demand trends overseas.

Yet local incomes and savings matter to the Singapore housing market. Wages are too weak to do much heavy lifting. In line with global trends, a rolling three-year average of household income from work grew less than half a percent last year for condominium dwellers, the slowest since 2004. That’s why any increase in expected lifetime pension savings, which in Singapore can be used by members to pay for mortgages, should go some way toward making apartments more affordable.

Singapore’s otherwise obedient citizenry has been complaining about their pensions for years -- roughly 2,000 protesters gathered in 2014 to voice their dissatisfaction. The ongoing anti-government protests in the rival Asian financial center of Hong Kong, though ostensibly over an extradition bill, show the folly of leaving such pocketbook issues unattended.

When Singapore’s British colonial rulers devised the pension system, they allowed workers to take all their savings out when they hit 55. A lot has changed in the more than six decades since then. One in 3 Singaporeans aged 65 today will live to celebrate his or her 90th birthday. In a few years, that figure might rise to 1 in 2.

If negative interest rates become a permanent feature of the global economy, the lifelong monthly payments of between 730 Singapore dollars ($527) and SG$2,110 that the central provident fund starts providing members at 65 under its default plan could become unsustainable. Tiny Singapore may not be able to do much about long-term stagnation of the world economy; but it’s surely in a mood to resist its own Japanification.


Andy Mukherjee
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. -- Ed.

(Bloomberg)