CPF scheme among top 10 pension systems in the world

S'pore jumps six places in pension index rankings

CPF system rated well in integrity and sustainability; less so in adequacy

By Chuang Peck Ming, The` Business Times, 8 Oct 2013

The Republic has moved up sharply in the latest Melbourne Mercer Global Pension Index rankings, placing its Central Provident Fund (CPF) among the top 10 retirement-income systems in the world.

Singapore jumped from 13th to seventh spot, with its overall index value at 66.5 this year, up from 54.8 last year.

Although the Republic moved up a grade - from C to B - Mercer said the CPF system has room for improvement in some aspects "that differentiate it from an A-grade system", although it had a sound structure and many good features.

The 20 countries in the rankings were scored in three key areas: adequacy, sustainability and integrity.

Denmark, the Netherlands and Australia held onto their top three spots. Denmark, the first country to achieve an A grade last year, maintained it this year, despite its overall score falling to 80.2 from 82.9.

Mercer said: "Denmark's well-funded pension system with its high level of assets and contributions, the provision of adequate benefits and a private pension system with developed regulations, are the primary reasons for its top spot."

Singapore's B grade puts it in the company of other highly developed countries such as Germany, the US and France.

Mercer said the Republic's overall index rose mainly because the Organisation for Economic Co-operation and Development (OECD) revised its approach to recognise the CPF's three separate accounts, instead of just its retirement account.

The OECD also updated its data on private pension coverage.

When Singapore was graded C last year, its system was described as one with "some good features", but also with "major risks and/or shortcomings that should be addressed".

Don Yeo, CPF's deputy chief executive for corporate development, said of the new ranking: "Mercer now better recognises the merits of Singapore's approach to help Singaporeans save, not only for retirement, but also healthcare and housing."

In a breakdown of the overall index, Singapore scored above average in the "integrity" sub-index - 77.2 against the average of 69.4; this reflected high confidence in the CPF system for its effective governance and efficient operations.

The CPF, which has been around since 1955, is also seen to have stood the test of time. It scored above average in sustainability too - 66.5 against the average of 60 in this sub-index. Mercer said it expected the system to stay effective in the future.

But Mercer gave integrity a weightage of 25 per cent, and sustainability, 35 per cent, leaving "adequacy" with the biggest weightage of 40 per cent - and it was here where the CPF fell short.

Mercer said that "adequacy", which represents the benefits that the system provides, is where the Singapore system could fare better.

Singapore racked up 59 in this sub-index, below the average of 61.2.

Mercer identified three ways to bring up Singapore's overall index:

- By upping the minimum level of support for the poorest aged Singaporeans;

- By lowering the barriers to set up tax-approved group corporate retirement plans and encouraging non-residents to save for their retirement; and

- By increasing the labour force participation rate among older workers.