The PAP’s Retirement Nightmare: 2nd and 3rd Generation PAP policymakers to blame?

Imagine the scene 10 to 50 years from now. Singaporean men and women – confident their Central Provident Fund (CPF) Savings can see them through until they breathe their last – cleaning tables at hawker centres, selling all sorts of knick-knacks trying to make ends meet. And that’s not the bad news. There are countless other Singaporeans who cannot find a post-retirement job because foreign workers are just so much cheaper to employ.

For these jobless Singaporean elders, their CPF Ordinary Account – established by the first generation of PAP leaders to preserve a retirement nest egg for Singaporeans  – has long dried out, mainly because of the requirement to service 30-year, perhaps even 40-year Housing and Development Board (HDB) mortgages in their lifetimes.

Credit: http://blinkingbrink.wordpress.com

More worryingly, Medisave balances are precariously low, something old and infirm Singaporeans can ill-afford in their golden years, especially since average mortality rates hover around 90. The “lucky” few have already been sent to Johor Bahru to be put up in old-folk homes, since their children can afford these facilities and are too busy minding their careers. Others wonder if their retirement years could have been better planned for, and what being a Singaporean means, since they don’t even have the energy to play with their grandchildren after they return from work.

This fictitious scenario may not be too far in the future. Some Singaporeans would argue it is already here. Thanks to a number of PAP policies, Singapore’s low to middle income earners stand smack in the middle of a particularly precarious situation. Although they live in a first-world country, they draw third-world wages. In retirement, they struggle to make ends meet thanks to high transport costs and other basic commitments.

MM Lee’s incantations over the last few weeks, ordering Singaporeans not to retire at all was arguably a function of the scenario painted above. In a question and answer on the issue published in the Straits Times on 4 Sep 2010, MM Lee was his usual brusque self, devoid of empathy.

ST Reporter: Some Singaporeans disagree with your view that they should not retire but keep on working. They argue that the end of life is a happy retirement, not more work.

MM Lee: Those who want to engage in new pursuits and develop interests which they could not do so because of work, can do so. They will have no income and may run out of their savings and CPF monies earlier.”

Source: CPF Trends - June 2008 (F1)

Source: CPF Trends - Aug 2010 (F2)

What struck me was how the Minister Mentor used his paternalistic hard-heartedness as a foil to conceal the PAP’s apparent negligence in dropping the CPF ball as a source of retirement income for Singaporeans. A cursory glance at CPF data reveals an overwhelming amount of CPF money withdrawn to fund the purchase of a home for one’s family and dependents (See F1) . With approximately 80% of Singaporeans living in public housing, i.e. HDB flats, any rise in the price of public housing will have an adverse impact on Singaporeans’ retirement nest egg.

One of Singapore’s most astute political bloggers, Tattler, who blogs at singaporedesk.blogspot.com, using data sourced from the CPF board (see F2), revealed “that CPF withdrawals under the Public Housing Scheme (PHS) sucked up as much as $91b in 2009. Meaning more members are using more of their CPF Savings to service housing loans for their HDB flats, leaving little or nought for health or community participation issues.”

In a report published in the Straits Times in early April 2010, National Development Minister Mah Bow Tan very shrewdly, dismissed the argument that HDB resale prices had outstripped income growth. Taking 1999 as the base year, and with the Resale Price Index and Monthly Household Income in hand, Mah may have thought he had an unimpeachable case.

Enter Hazel Poa of one of the newest opposition parties in Singapore, the Reform Party, headed by Kenneth Jeyaratnam. In a superb piece of comparative analysis that reached out to the layman, Hazel debunked Mah’s argument and exposed his analysis as nothing more than intellectual duplicity.

If one moved the base year to 2006 (to compare against 2009), Hazel showed that resale prices increased by 45.6% while median household income rose 21.3% for the period in question, before sarcastically concluding, “choosing a suitable base year to support your conclusions is quite a useful trick that we should all learn.”

Hazel’s choice of 2001 and 2006 was a lot more persuasive than Mah’s. Those were election years, where the PAP government secured a mandate from the people of Singapore to govern for the next five years. It also put into distinct relief the answer to that age-old question the PAP puts out to voters – “Is your life better today than it was five years ago?”

Lucky Tan, another erudite observer of Singapore politics drove yet another nail into Mah’s disingenuous use of the base year by mimicking the Minister’s logic. Taking 1990 his base year of choice, Lucky’s chart (F3) speaks for itself.

Source: Lucky Tan's Blog (F3)

The HDB resale market is critical because the PAP uses resale prices to determine the price of new HDB flats. In doing so, the PAP insists that market forces determine resale prices and the government has little ability to dictate housing prices. This is a dubious claim.

As the former CEO of NTUC Income, Tan Kin Lian points out, market forces can be made responsible for fluctuations in price when there is elastic supply, elastic demand and market competition. In the case of HDB flats however, supply is firmly in the hands of the PAP government as it controls all the land banks in Singapore – a monopoly by any stretch of the imagination.

From 1996-2000, approximately 155,000 new HDB flats were built, and figure which fell dramatically to approximately 55,000 from 2001-2005, precisely at a time when the resident population size in Singapore was expanding thanks to a loose immigration policy. Even worse, between 2006 and 2008, only slightly more than 11,000 new flats were constructed. In 2008 alone, more than 90,000 PRs and 20,000 new citizens made Singapore home. Simple economics informs that prices were bound to shoot up unless the PAP built more flats. But it decided not to do so. Not only did it allow a property bubble to form, it possibly added fuel to fire by withholding supply.

In the meantime, Mah continued to insist, even as recently as April 2010, that HDB flats were affordable. Twenty years ago, a Singaporean would typically take out a 15 to 20-year mortgage on public housing, leaving enough time for a CPF retirement nest egg to build up again. Today, 30-year mortgages are the norm, and if prices continue to follow an upward trajectory, longer mortgage repayment periods cannot be ruled out. Minister Mah would probably be the first to agree that affordability is a question of perspective.

Thanks to a confluence of factors, including loose immigration policies and the pro-active decision to drastically reduce the supply of public housing, amongst others, the PAP now comes out to say, through the Minister Mentor no less, that people should reconsider conventional definitions of retirement. The irony could not have been more apparent especially since the PAP’s housing policies have been singularly responsible for the contraction of CPF funds set aside for retirement.

The first generation of PAP leaders saw the CPF scheme as a central pillar contributing to the retirement income of all Singaporeans while making allowances for Singaporeans to purchase property for residential use.

Like many third-generation family-run businesses, which fritter away the hard-earned wealth and ride roughshod over the fiscal prudence of the first generation, one would not be totally remiss in questioning the governing philosophy of the current generation of PAP Ministers in regard to CPF and HDB policies.

I for one truly wonder how Hon Sui Sen, Goh Keng Swee and S. Rajaratnam would have reacted at the PAP’s complicity in manipulating HDB property prices to the detriment of Singaporeans.

In a pre-election report published in the Straits Times on 3 Sep 2010 (On the ground in East Coast GRC – Bracing itself for a battle replay), that covered a prospective battle between the Workers’ Party team led by Party Treasurer Eric Tan against PAP incumbent S. Jayakumar, Straits Times journalists Zakir Hussain, Teo Wan Gek and Chong Zi Liang ended their article as follows:

“Both sides are hunkering down for an electoral fight in the GRC. Residents are expecting one.

How many will stay with an experienced PAP team who have given constituents a better quality of life through upgrading projects? How many will take chances with the WP team?”

If “upgrading projects” represent the choice residents of East Coast will have to make between the PAP and the Workers’ Party, then the PAP should consider doing away with elections completely, and just dish out upgrading projects every now and then to all Singaporeans.

In light of MM Lee’s retirement bombshell and the PAP’s CPF and HDB policies over the last 5 years in particular, the relevant question residents of every constituency where the opposition will contest is a tad more nuanced. For Singaporeans who have already decided to vote PAP, the question they should ruminate over before polling day is this:

Photo Credit: The Straits Times

Is the PAP of today the same one that pulled an entire generation out of poverty in the 1960s and 1970s, introduced sensible policies and kept political salaries within a prudent range – or is today’s PAP one that pays itself millions of dollars, while coasting along on autopilot and shrewdly making use of statistics to justify its policies, with a view to keep itself in power?

Finally, in response to the raft of measures announced earlier this week to deflate the property bubble, Mah was quoted as saying: “If you ask me whether it has got anything to do with the elections, the answer is ‘yes’. Everything has got to do with the elections.” In an uncanny moment of frankness, Mah revealed the overarching governing ethic of the PAP of today. Improving the lives of Singaporeans has got to do with votes. The sacred duty of looking after Singaporeans does not figure as prominently as the first-generation of PAP would have liked it seems.

Useful Links

Lucky Tan: Mah Bow Tan – We don’t fudge the numbers Part 2 – http://singaporemind.blogspot.com/2010/04/mah-bow-tan-we-dont-fudge-numbers-part.html

Hazel Poa: Housing Prices vs. Household Income – Alternative ways of viewing the statistics – http://hazelpoa.blogspot.com/2010/04/housing-prices-vs-household-income.html

Tan Kin Lian: A New Pricing formula for HDB flats – http://tankinlian.blogspot.com/2010/01/new-pricing-formula-for-hdb-flats.html

Temasek Review: 8,967 applications for 1,429 flats at Punggol Emerald and Punggol Waves –http://www.temasekreview.com/2010/05/04/8967-applications-for-1429-flats-at-punggol-emerald-and-punggold-waves/

AsiaOne: New flats still affordable – Mah –http://www.asiaone.com/Business/My%2BMoney/Property/Story/A1Story20100427-212663.html

Singapore Desk: No Golden Years for the Elderly – http://singaporedesk.blogspot.com/2010/08/no-golden-years-for-elderly.html

Today Online: Rules tightening to return sanity to HDB resale market –http://www.todayonline.com/Business/Property/EDC100903-0000046/Rules-tightening-to-return-sanity-to-HDB-resale-market