|
Singapore Forced Savings and Capital Formation
Singapore's much-vaunted savings rate--and much of the
funding
for development, particularly public housing--resulted in
large
measure from mandatory contributions to the Central
Provident Fund,
as well as voluntary deposits in the Post Office Savings
Bank. The
Central Provident Fund was set up in 1955 as a compulsory
national
social security savings plan to ensure the financial
security of
all workers either retired or no longer able to work. Both
worker
and employer contributed to the employee's account with
the fund.
The rate of contribution, which had gradually risen to 50
percent
of the employee's gross wage (coming equally from employer
and
employee), was lowered to 35 percent in 1986. In 1987 new
long-term
contribution rates were set calling for 40 percent for
employees
below fifty-five years of age, 25 percent for those
fifty-five to
fifty-nine, 15 percent for those sixty to sixty-four, and
10
percent for those over sixty-five, with equal
contributions coming
from employee and employer. A series of transition rates
leading to
the new long-term rates were first applied in 1988. The
contributions were tax-exempt and subject to maximum
limits based
on a salary ceiling. Beginning in 1986, the government
paid a
market-based interest rate on Central Provident Fund
savings (3.19
percent per year in June 1988).
Every employed Singaporean or permanent resident was
automatically a member of Central Provident Fund, although
some
self-employed people were not. Membership grew from
180,000 in 1955
to 2.08 million in 1989. At the end of 1988, the 2.06
million
members of the Central Provident Fund had S$32.5 billion
to their
credit. That same year, a total of S$2,776 million was
withdrawn to
purchase residential properties; S$9.8 million was paid
under the
Home Protection Insurance Scheme; S$1,059 million was paid
under
the Approved Investments Scheme; and S$13.7 million was
withdrawn
for the purchase of nonresidential properties.
Each member actually held three accounts with the
Central
Provident Fund: Ordinary, Special, and, since the
mid-1980s,
Medisave Accounts. The first two were primarily for old
age and
contingencies such as permanent disability. The Ordinary
Account,
in addition, could be used at any time to buy residential
properties, under various Housing and Development Board
programs,
and for home protection and dependents' protection
insurance. Two
further programs were established in 1987: a Minimum Sum
Scheme,
which established a base amount to be retained in the
account
against retirement, and a Topping-up Extension under
which, as well
as adding to their own, members could demonstrate "filial
piety" by
adding to their parents' accounts. Since the late 1980s,
members
could use their accounts to buy approved shares, loan
stocks, unit
trusts, and gold for investment. Part of the rationale for
the
latter was to allow Singaporeans to diversify their
savings and to
gain experience in financial decision making.
Although comparable to social security programs in some
Western
countries, the Central Provident Fund's concept and
administration
differed. Rather than having the younger generation pay in
while
the older generation withdrew, whatever was put into the
Central
Provident Fund by or for a member was guaranteed
returnable to that
person with interest.
Thus, at the individual level, Central Provident Fund
savings
promoted personal and familial self-reliance and financial
protection, an economic attitude constantly encouraged by
government leaders. Collectively, the Central Provident
Fund
savings assured the government of an enormous, relatively
cheap
"piggy bank" for funding public-sector development; the
savings
also served as a mechanism for curtailing private
consumption,
thereby limiting inflation. The result, according to some
critics,
was that the city-state had become overendowed with
buildings, with
too few productive businesses to put in them. They also
noted that
the bloated size of the Central Provident Fund (S$32.5
billion in
1988, equivalent to 82 percent of the GDP) was the most
important
factor behind the unwieldiness of public savings. Some
analysts
advised that the fund was beginning to outlive its
usefulness and
should be dismantled and replaced by private pension funds
and
health insurance plans. As a result, they stated, savings
would be
channelled to private businessmen rather than to
bureaucrats.
Data as of December 1989
|
