Population Ageing, Old Age Labour and Financial Decisions in Singapore

Singapore’s population is ageing as a result of increased life expectancy and declining fertility. Similar to other developed countries. Singapore’s labour force participation rate of elderly men declined slightly in the 1980s and 1990s. Whether or not Singapore can successfully overcome these challenges would, in part, depend on an understanding of household financial decisions concerning retirement.  

This project capitalises on the introduction of the Central Provident Fund Lifelong Income for the Elderly (CPF LIFE) plan in 2013 to study the different aspects of household saving decisions – first, the existence of and reasons behind bequest motives and the determinants of bequest; second, the availability of annuities on people’s saving decisions; and third, the availability of annuities on the labour force participation rate of the elderly.

The project findings would provide useful insights to facilitate further refinement of existing CPF policies so that the elderly population of the future can enjoy better financial security in the later stages of their lives.

Broad Findings

The survey results show that most people know that the CPF LIFE Standard Plan provides a higher monthly payout than the Basic Plan, while the latter offers a larger amount of bequests. The survey also shows that people generally underestimate their life expectancy. For instance, while more than 60 per cent of 55-year-olds will still be alive 20 years later, the average survey respondents believed that their chances of being alive at 85 were only 37 per cent.

The evidence from the survey suggests that people made informed decisions when picking their CPF LIFE policies and strongly supported the argument that people leave bequests intentionally. Unsurprisingly, the study also finds that people with children have a stronger motivation to leave bequests. Because people generally underestimate their life expectancy, the evidence also indicates that the CPF LIFE considerably reduces people’s probability of outliving their savings.

People leave bequests mostly because they enjoy doing it or care about their children’s welfare, rather than use the bequests as a means to induce their children to provide them more generous support. The study also finds that people with intentional bequest motives leave about 8.3 per cent more bequests than others. The difference depends on the tradeoff between bequests and monthly payout regulated by the CPF LIFE policy. This finding suggests that the government can use the CPF LIFE policy to influence people’s saving decisions.