International Symposium on Inclusion in Asset Building - Policy Innovation for Social Impact
Ladies and Gentlemen,
1. Good morning. A very warm welcome to our delegates from around the world. Thank you for coming together to share your experiences on inclusive asset building policies in your home countries.
2. I will spend the better part of this morning to share with you some of Singapore’s asset building policies. Now, to better understand Singapore’s approach to asset building, it behooves us to understand our circumstances and constraints.
3. We are a city, which is also the state. With a land area of only 719 square kilometres, we are slightly larger than Chicago, and that is only because 20% of our land was reclaimed deliberately from the sea. We have no natural resources to speak of.
4. We are largely the descendants of immigrants, who came here in the 19th century to work and make a living and intended to return back to their countries of origin.
5. When Singapore became independent, our economy was weak, unemployment was high and literacy was low. So when Singapore gained independence in 1965, the focus was on developing and growing our people. Our people are our only true asset and the result of the country you see today is largely because of the industry and the resilience of our people.
6. We did this through public housing which gave people a stake in the country, provide good education and skills for people to fish and provide jobs.
7. There was a strong emphasis on personal responsibility, hard work and resilience, with family as the first line of support and with the State providing a social safety net for those who fall through, with the objective of helping people bounce back wherever possible.
8. It is with this background in mind that our overseas friends can better understand our approach to asset building. Today, in the interest of time, I will broadly outline only some of the key pillars of inclusive asset building in Singapore.
9. We start with direct asset building policies: Central Provident Fund (CPF), Child Development Account (CDA) and Public Housing. I will mention the significant, progressive social transfers in our annual Budgets, to help those who have less, but I will not cover this in detail.
10. I will also touch on indirect asset building policies. These are policies that seek to empower people with education and skills to earn a living and build up their resources and assets for their families and themselves. It allows them to manage change, when industries and sectors get disrupted. It also enables the engine of social mobility for children from less well-off backgrounds.
Direct Asset Building in Singapore
11. Let’s start with the Central Provident Fund (CPF). This is a national social security saving scheme, started in 1955. Every Singaporean has a CPF account.
12. Three parties contribute to the savings in this account. Defined contributions are made from each employee’s monthly wage, along with a monthly sum which their employers have to contribute. From time to time, cash top-ups are also given from the Government especially to lower-income individuals, often in the ordinary account or the Medisave account.
13. These contributions grow over the years, with risk-free interest, throughout the working life of the individual. In Singapore, a fixed deposit typically earns around 0.1% to 0.35% per annum. The CPF account grows at a rate of up to 3.5% per annum for the Ordinary account and up to 5% per annum for the Special and Medisave Accounts.
14. CPF savings are meant primarily for retirement. But an innovative aspect of CPF is that it can be drawn down for asset building purposes, such as funding home ownership in both public and private housing, paying for education as well as other aspects of social security, such as healthcare.
15. The CPF has undergone many enhancements throughout the years and we continue to look for innovations. In 2014, the government set up an Advisory Panel to study possible enhancements to our CPF system. It looked at whether people could get payouts that would rise over time for instance, to cope with increases in cost of living, in areas such as education and cost of living. It also looked at whether it was feasible to give people flexibility to seek higher returns on their CPF savings, while balancing higher investment risks.
16. One example of a concrete recommendation made by the CPF Advisory Panel is a new CPF LIFE plan which provides a payout that increases at a set rate of 2% per year. The Government has accepted this recommendation and the CPF Board is currently working to see how we can implement this.
17. As we move forward, structural changes in the economy, as well as shifting social demographics, cultural and work practices, continue to pose challenges to our social security system. We continue to look at manners in which we can innovate and enhance existing policies like our CPF to meet these challenges.
18. One example is the rise of the “gig” economy where more people work as freelancers or independent contractors. These industries are fairly new as they are brought about by advancements in technology and the peer-to-peer sharing platform.
19. These workers receive little or no employee benefits or social security contributions from employers, than a typical member of the CPF would usually receive. This would have an impact on them and their families in terms of home ownership, healthcare and retirement. Such trends do call for policy makers to reconsider how our social policies can be improved to remain relevant and effective.
20. While CPF supports Singaporeans in saving for retirement, the Child Development Account (CDA), is a special savings account for Singaporean children to help parents with developmental expenses during the child’s early years.
21. It is a co-savings scheme, where savings deposited by parents are matched dollar-for-dollar by the Government, up to a specified cap which increases for those with larger families. The matching sum is not small – up to S$3,000 for the first or second child, S$9,000 for a third or fourth child and S$15,000 for any subsequent children.
22. Today, parents are actively using the CDA to pay for expenses such as fees at childcare centres, clinics, and pharmacies. The CDA scheme has also been refined over the years – increasing the amount co-matched by the Government, as well as helping parents and children better benefit from it.
23. In 2016, the scheme was enhanced so that the Government will inject $3,000 into every child’s CDA upfront, without requiring parents to co-save for that first $3000. This means that even families who may not be able to save much, or at all into the CDA will be able to benefit from the scheme. This scheme is designed to help parents defray child-raising costs in their children’s early years.
24. However, when the CDA closes at age 12, parents can still continue to use the money for their children. The balances will be transferred to the child’s Post-Secondary Education Account (PSEA). Parents can continue to save into the PSEA and receive dollar-for-dollar matching, up to the Government contribution cap, until the child turns 18 years old.
25. The PSEA is part of our effort to encourage every Singaporean to complete his post-secondary education, and underscores our commitment to support families who invest in the future of their children through education. Any remaining balance at age 30 will be transferred into the account holder’s CPF Account. The money can then be used for housing, tertiary education, healthcare and basic retirement.
26. Home ownership is another important pillar of direct asset building in Singapore. In the early years of independence, housing was a real problem. There was a serious shortage of good housing, and conditions were very poor. A Government agency, the Housing Development Board was formed in 1960, and it embarked on a massive public housing building exercise.
27. Today, over 80% of Singaporeans live in public housing and over 90% of Singaporean households own their own homes. HDB flats in the earlier days used to be good and basic living. But increasingly, they reflect the aspirations of our people.
28. Singaporeans who buy HDB flats get subsidies, and may be eligible for significant grants which make these flats affordable. Lower-income families get more grants. More affordable flats that are 3-rooms and smaller are reserved for lower-income families, with an income cap on who can apply.
29. Many households can pay for their home using their monthly contributions to their CPF account. There is also the HOPE scheme for low-income households, which looks at giving young low-income families various grants so that they are able to have a head start in life.
30. There are also various other schemes targeted at first and second-time HDB flat owners which further lower the ticket price of these flats. These flats can be resold by the HDB owner, on the open housing market at market prices, after a minimum occupation period of about 5 years.
31. After which, these flats can be sold on the HDB resale market to others who may themselves, be eligible for the resale housing grants from the government. Hence, these flats are both homes and assets for Singaporeans.
32. Our housing policies are constantly reviewed, and changes have been made over the years to recognise the changing social trends. For example, public housing is now opened up to singles, who for the longest time, were not able to own their own flats. These changes have been made to further promote social inclusivity and to make public home ownership more affordable for our people.
33. In fact, I visited the Senior Activity Centre in Dawson yesterday morning, and foreigners have been known to have mistaken the block of flats for private housing because of the design and the greenery.
34. I met a couple who were frequent users of this Centre and they pointed me down a flight of steps to where their daughter, son-in-law and children were staying. The loft arrangement allows for the family of three generations to live together but still have the opportunity to have their own space.
35. These policy reviews have also resulted in initiatives such as the Step-Up Housing Grant. This was introduced in 2013 to help families upgrade from subsidised 2-room flats to 3-room standard flats even though they are second-timers. When I say second-timers, I am referring to the people who have bought a flat directly from the government twice.
36. This is significant because most of our grants are geared towards people who are first-time owners, meaning they are purchasing flats directly from the government and owning it for the first time.
37. This grant also has the additional benefit of helping lower-income families increase their assets while rewarding their prudence as they have managed to save up despite the little that they have.
38. Most recent measures to promote social inclusivity include the Fresh Start Housing Scheme. This scheme helps vulnerable families living in the public rental housing. These are homes given to people and for those who do not have other option.
39. These people tend to be already first-time owners of a HDB flat but may have lost their ownership due to various reasons such as ill health, divorce or job loss. The scheme therefore, aims to help these people to get back into home ownership. This scheme assists them by integrating financial assistance with personal responsibilities, as well as community and social support.
40. There are now more options for people to monetise and unlock value from their HDB flats, which is generally an appreciating asset, to enhance retirement adequacy. For example, older Singaporeans, who are generally asset-rich but cash-poor, can use the Lease Buyback Scheme to sell a portion of the tail end of their lease to HDB, in order to get monthly cash payouts now, while continuing to live in their flats.
Indirect Asset Building in Singapore
41. Now, I will touch on indirect asset building. Government can help Singaporeans own homes, build up assets, and save for retirement. But the best way to help people to build assets in an inclusive way is to make education and skills training available and affordable to all, and more importantly in today’s context, to make life-long learning a way of life. This will enable people to take up good, fulfilling jobs, and earn a living.
42. Building up our human capital in terms of education and skills training is therefore a very critical aspect and enabler of indirect asset building in Singapore. In the interest of time, I will not speak at length about our national education system.
43. I will just add that in order to promote social inclusivity, from 2019, all children with moderate-to-severe special needs will be included within the ambit of the Compulsory Education Act, and be supported in attending government-funded special education schools, if their conditions permit.
44. Being innovative comes from trying to find opportunity amid our challenges. And with the rapid changes that we see around society and the world, it is important to prepare our people to face the uncertainties of the future.
45. A couple of months ago, I was driving to work and I heard a radio presenter talk about how technology and innovation has transformed the world. Many jobs that we know and are familiar with have vanished because technology has created new jobs. For example, jobs like app designers were non-existent a decade ago but it is very prevalent now.
46. The radio presenter and the people they interviewed said that there were two strategies countries can adopt to stay relevant. First, to close off their shores and give subsidies to businesses so that they stay to provide work for their people. Second, to make sure the worker of today is skilled enough to make the transition because these innovations will cross borders and they are larger than any one country is able to control.
47. In some sense, the country does this to protect workers by empowering them to adopt a life-long learning mindset as they transition from one career to another. We aim to do so by encouraging everyone to continue to upgrade their skills all through life, so as to remain employable and financially stable, amidst an ever changing environment.
48. The SkillsFuture Movement was therefore started in 2015 to equip all Singaporeans with skills to take on the challenges that will arise from the ever-changing nature and structure of work in the future. It also cultivates a spirit of lifelong learning among Singaporeans.
49. We have set up an agency, Workforce Singapore (WSG), to oversee the transformation of the local workforce and industry to meet ongoing economic challenges.
50. One of the initiatives under WSG is to encourage the hiring of older workers so that they are able to continue to work and contribute their wealth of experiences to the workforce. We do this through programmes such as WorkPro - which gives out grants to employers to help them to implement progressive employment practices - such as age management practices for older workers. In doing so, we incentivise employers to hire older and experienced workers instead of just hiring younger, inexperienced workers or foreign workers.
51. On a more macro level, it is one thing to give everyone a good pre-employment education pathway and a lifelong learning mindset, it is another to match and adapt that set of skills Singaporeans with the changing structures that are happening in the industries in Singapore.
52. The Government is working with industry as well as unions in a tripartite manner on Industry Transformation Maps (ITMs). In brief, this involves mapping out the landscape, future trends and identifying opportunities in 23 industries which make up about 80% of our GDP.
53. Government, industry and unions will then set out a suite of initiatives to systematically raise productivity of our firms, develop a suite of skills that our people need in order to do well, drive innovation and promote internationalisation of our firms and of Singaporeans.
54. This was initiated in a response to the increasing economic challenges, rising competition, and disruption from technological advances. By doing so, we hope to ensure that Singaporeans will be able to ride the waves of disruption that we are beginning to see a lot more of in the economy, and continue to find good jobs.
Ensuring Social Mobility
55. Ensuring social mobility is a critical objective of our social policies and social security system. This remains a challenge for many developed countries today.
56. Figures in 2015 show that 14% of those with lower-income parents in Singapore end up in the top 20% of income.
57. This is especially so for the older generation. I serve in a constituency that largely consists of blue collar workers who live very humbly. They are often couples who worked in very difficult jobs when they were younger and often in their living rooms, you will see a family portrait. In that portrait, you will see a couple, surrounded by children who have graduated from university.
58. I also met an elderly Indian couple whose son is a CEO of a port overseas sent by Singapore. Another was a lawyer and another, a business man. They were a couple of very humble means but their children were very distinguished and I think that is a very good picture of social mobility.
59. Although Singapore has been doing relatively ok for now, ensuring social mobility will continue to get more difficult with time, and we need to actively ensure that those from lower-income families do not get left behind as society progresses. If we leave things be, it is natural for society to stratify and for social mobility to slow down. Social mobility purrs on like an engine through active intervention.
60. How do we help children from low-income families overcome or at least mitigate the adverse effects of family dysfunction and poverty? How do we ensure a good start for every child, so that they can grow up to be healthy, productive and contributing adult members of society?
61. Research has shown that experiences in a child’s early years can significantly influence his or her physical, cognitive, health and social-emotional development. Hence, the Singapore government made a deliberate policy move to intervene at an earlier stage, to better support children from low-income households, and on a broader level, to enhance social mobility.
62. We started the KidSTART pilot in 2016 to build a strong ecosystem of support for children from these families. One key component of the pilot is a Home Visitation programme. Trained professionals conduct regular home visits to check on the child’s development and well-being, from antenatal stage until the child is three years old. Parents also receive skills and practical knowledge in child development, health and nutrition as well as parent-child bonding. This support continues when the child is enrolled into a pre-school centre.
63. While KidSTART is still in its pilot phase, early feedback is positive.
64. As social issues continue to become more complex, we need to constantly innovate so that our social policies remain relevant and impactful. Innovation is not an end in itself, but a means of ensuring that the needs of our people are served.
65. I hope the broad sketch I have given gives you a good foundation for fruitful discussions later and you will gain many useful insights from our distinguished guests that you will use to further enhance the existing social policies in Singapore.