Monday 28 May 2012

Looming weight on young shoulders

The children of today will have to support many more non-working elderly people than their parents, if current demographic trends continue. In the first of an occasional series on population issues, Insight looks at what a shrinking old-age support ratio means for the city state.
By Phua Mei Pin, The Straits Times, 26 May 2012

YEE Yan Wan is just three years old but policymakers here are already worrying about her future choices.

The concern arises because of Singapore's shrinking old-age support ratio. That is the number of people aged 15 to 64 available to support each person 65 or older.

If Singaporeans do not start having more babies, and even with a steady intake of 30,000 new immigrants each year, the ratio will plummet from 10.3:1 in 2010, to 3.9:1 by 2040.

That is the year Yan Wan turns 31 and enters her prime working years.

Strip away the foreigner quarter of the population, and that ratio shrivels to 2.7:1 by 2040.

To get a preview of what Singapore will be like then, look to Japan. It has fewer than three workers supporting each retiree. By 2025, that figure is expected to drop to two. As the workforce shrinks, Japan's economic weight will follow suit.

Japan scholar Lam Peng Er says the Japanese government is caught between a rock and a hard place.

On the one hand, voters demand more medical benefits for the old and worry about the insolvency of the pension system. On the other hand, they are reluctant to pay more taxes to fund more social security.

Will Singapore be subject to these same pressures? What are its options in dealing with this shrinking base of working adults?

Assets or liabilities?

AN AGEING society is a costly one. Thye Hua Kwan Moral Charities' group director for senior activity centres Joseph Cheong explains why.

As people live longer, many acquire chronic conditions such as diabetes or hypertension. Those who become home-bound due to illness will require even more costly home- care services, he says.

Mental health is also a concern. Otherwise healthy seniors may suffer from feelings of depression and loneliness.

That means the state will have to invest in more hospital beds, a long-term chronic health-care framework, more in-home care services, as well as the trained personnel to staff all of the above.

National University of Singapore (NUS) ageing expert Ng Tze Pin says: 'Increasing numbers of older persons with chronic diseases and functional disability will escalate the societal use and costs of medical and social care, and the burden of care on family and caregivers.'

There is a silver lining. The generation of Singaporeans due to retire in the coming decades is likely to be richer and healthier than the elderly of today.

More of them will be like retiree Thomas Kuan, 66, who lives on his own savings even though he has three daughters of working age. 'It is the senior citizens who have the dough to put in the bank. They can also contribute a lot in terms of sharing ideas,' he says.

NUS senior consultant psychiatrist Rathi Mahendran notes: 'By and large, the baby boomers are in a more enviable position than the 'old old', those aged 75 or older.'

The baby-boomer generation encompasses those aged 47 to 65, who grew up and worked during Singapore's years of rapid industrialisation. Professor Kua Ee Hock, a member of that generation who wrote a book entitled Ageing Baby Boomers, estimates most of his peers have at least an O-level education.

They had a chance to accumulate wealth over their working lives as the nation's economy grew, and benefited from improved health-care services.

But health economist Phua Kai Hong points out that even though the baby boomers are generally better off, they are also likely to have more expensive tastes and preferences, compared with the more stoic generations before them.

Hence, even if their health-care needs may not be as dire, they may demand higher- quality health-care services and be more vocal about it, he adds.

They are also likely to have a smaller family support base to fall back on than earlier generations, says Prof Mahendran, and some will not be able to cope without state support.

In this year's Budget debate, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam gave a sense of how government spending will have to go up as society ages.

Health-care spending, he said, would go up from today's 1.6 per cent to 3.5 per cent of gross domestic product by 2030.

Even as government expenditure climbs to cater to the needs of the elderly, the ranks of those who can help to foot the bill, that is the young and working, are also shrinking.

Shrinking workforce

THIS year is a demographic turning point as the 900,000-strong baby-boomer generation starts turning 65 and begins its exodus from Singapore's workforce.

Leaving foreign workers out of the equation, it will take only eight more years for Singapore to reach a point where more citizens stop work than start work each year, according to figures from the National Population and Talent Division (NPTD).

If Singapore maintains the proportion of foreigners at the current one-quarter of the population, the workforce will grow at 0.5 per cent annually over the next few decades.

That is significantly lower than the growth of about 3 per cent a year in the last few years.

Bank of America Merrill Lynch economist Chua Hak Bin predicts that the slowdown will cause 'a dramatic shock' to the economy. 'Even at 2 per cent, companies and manufacturing are already complaining. You can easily knock off about 2 to 2.5 percentage points from economic growth,' he says.

Slower workforce growth will be a drag on economic growth unless productivity improvements can help make up for the labour shortfall.

A slower-growing economy could also mean fewer and less exciting job opportunities for young Singaporeans, which may in turn push more of them to work overseas.

As Acting Minister for Community Development, Youth and Sports Chan Chun Sing said at a forum this week: 'Will our young still have the opportunities that we have today? That is our first order of business.'

Those who remain may have to help shoulder a heavier overall tax burden. Dr Chua says that as the old-age support ratio falls, the overall tax burden on those who are working and on businesses will grow by a corresponding amount.

'The demographic dynamics can generate a vicious negative fiscal circle,' he warns. 'Raising the tax burden will dampen growth and investment, which in turn worsens the fiscal dynamics.'

Such a prospect worries undergraduate Muhammad Nadjad Abdul Rahim, 24, who is pursuing a degree in molecular and cell biology. 'Chances are our workforce would be more mobile and they would leave.'

Options available

WHILE few societies in the world are ageing as fast as Singapore's, the city state is also better prepared than most for this eventuality.

That is the view of demography expert Paul Cheung, who points out that the average Singaporean has higher savings set aside in his personal Central Provident Fund (CPF) account than his counterparts in other developed countries.

Later this year, the CPF contribution rates will be raised by between 0.5 and 2.5 percentage points for those aged 50 to 65.

Further down the line, those aged 50 to 55 will see further increases of another 3.5 percentage points, though when the hikes will take place will depend on employment market conditions.

Such moves will help the baby-boomer generation to accumulate more savings for their old age. But it remains to be seen if these will be enough to address shortfalls in the retirement savings of those who have been held back by low incomes or periods of joblessness.

Beyond helping the elderly be more self-sufficient in their retirement years, Singapore also needs to ensure a working population large enough to continue powering economic growth.

Here is where the controversial issue of foreigner inflow enters the picture.

Younger, economically productive immigrants can help to top up the labour force and slow the decline in the old-age support ratio.

Foreigners currently account for a quarter of Singapore's total population. If that proportion stays, and given current demographic trends, the old-age support ratio will sink to 3.9:1 by 2040.

If the share of foreigners in the population were to go up to one-third, the old-age support ratio would fall by less, to 4.5:1 in 2040, according to scenarios drawn up by think-tank Institute of Policy Studies.

The size of the workforce would also be 4.3 million, instead of 3.7 million.

There is thus a trade-off between wanting to slow the inflow of foreigners and the exigencies of an ageing society with one of the lowest total fertility rates in the world.

That is a matter which Singapore society will have to grapple with in the years ahead.

And the debate may well hinge on the level of economic growth that society considers adequate for its ends.

Economist Yeoh Lam Keong advocates aiming for long-term economic growth of 2.5 per cent to 3.5 per cent a year, with annual labour force growth of under 1 per cent. That would maximise productivity and real wage growth as well as long-term well-being, he argues.

Dr Yeoh notes that other developed economies like the United States, Switzerland and the Scandinavian countries have been growing at 2 per cent to 3 per cent overall and with 0 per cent to 1 per cent labour force growth, 'with no ill effects and reasonably high productivity growth' for decades.

He frames the issue in these terms: 'It's a choice between Dubai and Denmark. Do you want a more crowded economy with a higher proportion of foreigners, lower productivity and real wages, or a less crowded, more indigenous country with slower but higher-quality economic growth and living standards?'

A less aggressive growth strategy does not negate the need for immigrants, as the resident population will still decline unless the birth rate rises significantly.

The policies being debated today will shape the future of Yan Wan and many other children.

But probably the most important policymakers in her life are her parents. Yan Wan's mother Goh Yee Hua, 32, an administrative executive, says: 'Definitely I don't think her generation will be able to take care of so many... We are saving so that she need not worry about us when she grows up.'

Luckily for Yan Wan, her parents are hoping to have one more child. They will give their daughter a sibling to share the fun of childhood with, and the responsibility of caring for parents and grandparents in the decades ahead.

The elderly will not be a problem to you young people. Those who say the elderly are a problem have got all the wrong ideas... What's more important now is functional ageing. The community must give them a certain role so that they feel they are of value rather than a liability.- Psychiatrist Kua Ee Heok, author of the book, Ageing Baby Boomers

There is room for optimism... In future, with active ageing, we may possibly redefine the age dependency ratio. The age cut-off to define 'age dependency' may well extend to 75 or even 85, hence increasing the dependency ratio.- Gerontologist Ng Tze Pin

A shrinking population is not a problem if a larger proportion of the labour force is able to operate in high-value industries than they do currently. The core of our labour force will always be Singaporeans, and we must ensure that they are equipped with the skills and creativity to think and act in such an economy.- University student Muhammad Nadjad Abdul Rahim

People need to understand that living with foreigners in our midst is going to be a reality. At the same time, Singaporeans want to feel that they are recognised too... The Government needs to do more on the positive side of managing people's emotions.- Demographer Paul Cheung

Sixty-five is like the 55 of 20 years ago. It is important to change the definition of the elderly. As long as people have that desire to contribute and they are healthy mentally and physically, they should not be defined as elderly as such.- Associate Professor Kalyani Mehta, head of SIM University's gerontology programme

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