Sunday, 2 March 2014

Pioneer Generation Package: The young-old wealth-share shift

'Save for the future, invest in the young' has been the mantra. But the pioneer package spends some of Singapore's surpluses on the old. Charissa Yong looks at the move's significance.
The Straits Times, 1 Mar 2014

AS YOUNG and old digested what last week's Budget meant for them, they may not have realised it but it marked a pivotal change in the Government's approach to social spending.

The Budget's $8 billion Pioneer Generation Package takes away the widely expressed fears of those aged 65 and over this year of being unable to afford their own health care.

This marks a huge shift from nearly 50 years of the state telling Singaporeans that it is up to the individual and their family to fund their basic needs. The package bundles grants and subsidies for the elderly's health-care needs, all paid for by tapping this year's tax revenue and returns on national reserves that once would have been earmarked for future generations.

Till now, Singapore has had a social compact involving an implicit agreement that members of society take responsibility for paying for their own needs in return for the Government ensuring continued prosperity for all.

But as Singapore streaks ahead economically, some older Singaporeans risked being left behind, and the pioneer package seeks to redress this.

What are the implications of this change and might it chip away at a culture of self-reliance? Insight reports.

A tale of two generations

YET just over a decade ago, the narrative of Singapore as a vulnerable island-nation which must always keep funds for future generations was still in full flow.

In Parliament in 2001, then Senior Minister Lee Kuan Yew rejected a suggestion to use part of the country's reserves to defray the medical costs of senior citizens.

"At the end of the day, who do you owe your deepest obligation to as a government? To the future - not to the present, certainly not to the past," he said.

Bukit Timah GRC MP Wang Kai Yuen had suggested grouping the reserves into three "buckets", according to who contributed to them: working adults, retirees during the course of their careers, and the deceased (who contributed when they were alive).

Use the investment income yielded by the retirees' "bucket" to help with seniors' health-care costs, Dr Wang had urged.

Rejecting the idea, Mr Lee explained the need to protect the country's reserves for "the future of Singapore and the future of the children and grandchildren of these old people".

If tapping the reserves came to pass, Mr Lee reckoned it would be the death knell for Singapore, declaring: "I tell you what will happen, we'll all kick the bucket."

Today, a retired Dr Wang says the pioneer package shows that "the current crop of leaders in Parliament have finally overcome their reservations to take these measures". He added: "Up to now, it has been the responsibility of every individual to plan for his retirement where possible. If the individual cannot shoulder the increased costs of living, this is to be shared by the families."

This was reflected in Singapore's initial social policies, where the risk of having insufficient money to cover health-care costs if you lived longer or fell seriously ill was borne within each generation of policyholders.

But now, the pioneer package endorses inter-generational social policies of sharing wealth to cover the current needs of past economic contributors.

It follows a series of recent state transfers to funds which primarily benefit seniors: Medisave top-ups of $300 million last year and $404 million in 2012, the bulk of which went to those aged 45 and over. A total of $1.15 billion was injected into the ElderCare Fund from 2010 to 2013 to subsidise nursing homes and other long-term care services for the elderly. These signal a fundamental shift in social policy by pioneering the idea in Singapore that it is acceptable for the young to share the risks of the old, says Nanyang Technological University economist Walter Theseira.

Hard times

BUT does using returns on reserves compromise the Government's long-standing conservative fiscal policy?

Experts argue that it does not. Loosening the purse strings in this case addresses a very real problem, they say. The pioneer package, which is not means-tested, implicitly recognises that many of the poor in Singapore are also old.

In a speech last December, Finance Minister Tharman Shanmugaratnam acknowledged that among Singapore's lowest paid workers, "most are older workers, who had far fewer educational opportunities in their time compared to today's young".

As of last year, two-thirds of those earning below $2,000 a month were 45 and older. A quarter of them were pioneers aged 65 and over. Times may be even harder for those who have stopped working. For those above 65 to 70, their average Medisave balance was only about $19,000 in 2012, Health Ministry data shows.

Ang Mo Kio GRC MP Inderjit Singh says the pioneer generation's retirement savings are not enough to meet their needs today.

"We have come to a stage when the costs are so high that (this group) cannot support themselves and if the Government does not intervene, too many will face difficulties," he says.

Salaries were much lower when the pioneer generation was working. They were unable to accumulate enough savings to meet today's high costs of living.

Retirees contributed to the economy while working and continue to contribute informally today, and have not received commensurate benefits till now, says Dr Kanwaljit Soin, the past president of Women's Initiative for Ageing Successfully. "We're not just useless bodies, we're contributing just the same and still leaving our assets to the next generation. Why shouldn't resources be shared equitably between young and old?" asks Dr Soin, who believes this inequity needs to be corrected and the pioneer package goes some way in doing that.

Take, for instance, retired office manager Jessie Jesudason, 71. She helped take care of granddaughter Nicole, now 19, when her parents were busy with work or errands. She lives on the sale proceeds from her parents' house. When she had a fall some years back, she relied on private insurance and her own Medisave account to fund her hospital bills.

She says whatever benefits she receives from the package for pioneers will mean her two children and five grandchildren "will have more resources to themselves".

Workers' Party Non-Constituency Member of Parliament Gerald Giam notes that in 2010, out of the total amount of Medisave withdrawn for the elderly's health-care expenses, about 45 per cent was from their children's Medisave accounts.

Indeed, NTU's Dr Theseira says: "A lot of people are now living longer than they thought they would, with access to medical treatments that wouldn't have existed 30 years ago and who don't have enough money.

"That's when you introduce the idea that it's acceptable to share the risk across cohorts."

Experts also argue the pioneer package is not a compromising slide into fiscal irresponsibility, due to how it is funded.

The Government is setting aside the full amount required to fund the one-off pioneer package this year - in which the Budget slips into a paper deficit of $1.2 billion, or about 0.3 per cent of gross domestic product, in what is a non-crisis year.

"The commitments made will therefore not weigh on future budgets, where funds may be required for other priorities of future generations," says Bank of America Merrill Lynch economist Chua Hak Bin.

Mr Singh notes that Singapore still does not dig into past reserves, which continue to grow with each term of government, but instead uses some of the returns which were ploughed back. "(Using) returns from reserve investments does not erode the moral authority of protecting reserves for the future - the point Mr Lee was making," he says.

In contrast, most developed countries have "pay-as-you-go" social security systems, where the current generation funds transfers to the older one on an ongoing basis, says Mr Chua.

The United States, for example, started a social security retirement programme in the 1930s to support its seniors. Like Singapore now, the US then faced a situation of rising prices and longer life expectancy. Workers faced the prospect of outliving their savings, which bought less every day.

With Social Security, the US government "created an entitlement but always planned that it would be paid for by general tax revenue, at least for some recipients", says Dr Theseira.

But this method would not be sustainable in Singapore as the proportion of old folk to working population mounts. Its total fertility rate is below replacement level, and baby boomers aged 65 and older will form 30 per cent of the population by 2030.

"The younger generation risks losing out as they are not likely to realise the returns from their social security contributions when they retire," says Mr Chua.

Moreover, one pitfall of Social Security is that it did not end with the first generation of the elderly.

University of Chicago doctoral student Nadav Klein argues that Social Security, which continues today, makes little sense in a reality where America's old have become richer than its young.

He cites a Federal Reserve Bank of St Louis study which shows that in 2010 on average, older households (aged 62 and above) are 30 per cent wealthier than households headed by the middle-aged (aged 40-61).

In contrast, households headed by those under 40 were saddled with home mortgages and student loans and of negative net worth.

Yet younger Americans are still required by law to finance the retirement of the now-much-richer older Americans, Mr Klein writes.

Singapore, with its ageing population, can ill afford this. Policymakers here have chosen to avoid it altogether by pre-funding the entire pioneer package instead of paying as it goes along.

Great expectations

IN THE week since the package's announcement, Singapore's leaders have said repeatedly the pioneer generation is special in its history and needs. The underlying message: Future generations should not expect similar packages when they come of age.

But whether this big transfer of money opens the possibility of greater expectations - of increased social spending on those who perceive themselves as needy - remains to be seen.

It is unclear whether the public recognises the depth and magnitude of this policy shift, says Dr Theseira. "Frankly, it's quite a big change in the way we approach these (inter-generational) issues, which there would be a national debate about in many countries.

"We're making quite large changes to the underlying structure but not talking much about the nature of these changes or what they mean," he says.

Then there are the unknown implications of signalling to the young there is a collective responsibility to take care of pioneers.

Pioneer package recipients might pass some of these government transfers down to their children because their (tax-paying) children are the ones paying for it (see other report). On the other hand, seniors might also become less dependent on their families, a reversal of traditional Asian expectations of children looking after their aged parents.

Dr Soin says that by taking a load off the younger generation's shoulders in this way, "the young people have less of a financial obligation to the old".

Dr Theseira, however, notes children might reduce what they give the older generation, since the Government is paying.

And "there is a danger" the transfers to the old can spark a cycle of younger people seeking similar government intervention as they age, says Mr Singh.

"So we need to set the expectation and rules of funding right. We should never abandon the notion of self-sufficiency, and I think the future generations will be much better prepared for retirement years compared with the pioneer generation," he says.

Still, National University of Singapore sociologist Angelique Chan thinks the pioneer package is not a harbinger of future calls for similar policies, explaining: "This pioneer generation did actually help build Singapore, everybody can see that. But if you then introduce a similar package for baby boomers (born between 1947 and 1962), it might be more difficult because they got the best of Singapore as the economy was skyrocketing in the 1980s."

Capturing the dilemma of wanting to help the elderly and the pragmatic aspects of this largesse, Mr Liang Eng Hwa, deputy chairman of the Government Parliamentary Committee for Finance and Trade and Industry, says: "As an MP, I feel that giving a bit more is always better, (but) the responsibility is bigger than that. The more difficult part... is how to fund it and whether it's sustainable."

But Dr Wang cautions: "If the perception is everyone at 65 will always get this recognition of their contributions, all the measures so far for individual responsibility will be turned topsy-turvy. Then we'll be going to the fully social welfare state. The ultimate responsibility of the Government is to the future generations. I think that still stands today."

Future cohorts might expect even more
By Maryam Mokhtar, The Straits Times, 1 Mar 2014

THE new Pioneer Generation Package has set sales and marketing director V. Balu, 47, thinking about how he will pay for health care when he retires.

Too young to qualify for the package, he worries that with society evolving, he and others in his age cohort may not be able to depend on their children for support, as many of today’s elderly people do.

The father of two teenage sons, who is married to a nurse, supports his parents who will benefit from the package as they are in their 70s and suffer from chronic illnesses.

As for his own silver years, he says: “I’ve got two sons and I’m not sure they will have the same generational mindset. They will be more self-centred and we have to be ready for it. We cannot be dependent on our children even though we nurture good Asian values.”

The $8 billion Pioneer Generation Package is the biggest spending item in this year’s Budget and was unveiled on Friday last week.

It provides those aged 65 this year and older and who became citizens before 1987, grants and subsidies to help pay for health care.

Mr Balu agrees that it could well breed higher expectations from younger cohorts, who might expect more of the same for themselves in future.

“(When) you set a precedent, people’s expectations grow and they might even want more,” he says.

Grassroots leader Zin Handair, 55, argues that cohorts like his have also contributed to the country in their own way, and should be rewarded in their later years.

“The pioneers contributed to building the country at the start, but we carried it on,” he says. “We also contributed our part to building a first-class Singapore.”

Still, Mr Zin might be heartened that those aged 55 and above this year will receive Medisave top-ups of between $100 and $200 yearly over the next five years.

Younger Singaporeans in their 20s and 30s and for whom retirement and health-care woes seem a remote prospect, tend to be far less interested in the Pioneer Generation Package.

Graduate student Gloria Ong, 26, has no family members who will benefit but says “it’s a nice way to show how thankful we are for the people who made us what we are today”.

Magazine writer Kenneth Wee, 27, welcomes the package as it is “about time” the country’s pioneers were honoured, but adds: “I haven’t given the Budget much consideration because it doesn’t affect me or my family, but I feel the Government is doing the right thing.”

As for the pioneers themselves, what some like Mr Kamaldin welcome is how the package helps them to remain independent and self-supporting.

At age 83, he still works as an assistant in a provision shop. His two sons live with his wife overseas and Mr Kamaldin, who lives in a two-room rental flat, does not depend on them for financial support.

“(This package) helps me stand on my feet, so if you have your own health problems you don’t need to disturb your children and ask them to pay for this or for that,” he says.

Agreeing, retired civil servant Koh Yong Song, 71, welcomes the package but hopes a “one-off cash top-up” can help him pay for out-of-pocket expenses.

A significant challenge for some is understanding what the package means for them.

Part-time hawker Chua Yoon Hong, 65, is aware of the package, but as with other pioneers interviewed, is unclear about the specifics.

“It would be nice if the MP or some people come to our homes to explain, especially for those of us who are not so educated,” she says.

For pensioners like former teacher Lee Ngan Peng, 71, the advent of MediShield Life means she will have to pay for health insurance premiums, which she has not done to date.

She does not have MediShield currently as her health-care costs are paid for by the Government, except for a percentage of ward charges if she is hospitalised.

For individuals like Madam Lee, the package holds a symbolic meaning rather than a tangible one.

“I’m quite glad the Government came up with the idea to honour the work (pioneers) have done,” she says.

Additional reporting by Nur Asyiqin Mohamad Salleh and Rachel Au-Yong

Helping the elderly helps the young
By Charissa Yong, The Straits Times, 1 Mar 2014

EVERY month, sales manager Muhammad Dzul Azhan Haji Sahban, 33, gives his retired parents an allowance.

"I'm the only child. They've taken care of me until now. Out of filial piety, I give them a token amount," he says.

His father, a retired pharmacy assistant, and factory operator mother live with him, his wife and 10-month-old son in a five-room Yishun flat.

Large government transfers of money to the old, as with the Pioneer Generation Package, are recent measures.

But for a long time, many adult children here have been giving their parents money.

About 80 per cent of those aged 55 and over received financial support from their married children in 2008, up from 51 per cent in 1987, shows the Housing Board's latest sample household survey.

Children also help out with parents' medical expenses.

In 2010, about 45 per cent of the total amount of Medisave withdrawn for the elderly's health-care expenses was from their children's Medisave accounts.

So the pioneer package will end up helping the young, too. Mr Dzul, whose 65-year-old father qualifies for the scheme, says: "It indirectly helps young couples in the sandwiched class like us. We take care of our flat, our children and expenses, and our parents' allowance and medical bills. With the package, we can save for our future."

And when the Government gives money to grandparents, some may pass it on to their children. For example, Mr Dzul's parents paid part of his flat's renovation bills. They also look after his son when he and his wife are at work in the day.

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