It is being called a “demographic time bomb.”  The impact of a shrinking workforce coupled with a greying population will be among the toughest economic and social challenges Singapore faces in the decades ahead.

Already the oldest society in Southeast Asia measured by median age, the wealthy city-state is now seeking coping strategies for the economic and social impacts to come of a rapidly aging population.

While aging populations affect much of the Asia-Pacific, the expected decline in Singapore’s working-age population will be among the region’s most acute.

Indeed, this year marks the first time in modern Singapore’s history when the share of the population that is 65 years old and over will match that of those under 15 years old, according to a UOB report published last year.

UOB economist Francis Tan predicted in the research that demographic change will stall the city-state’s economic growth and raise substantially future healthcare costs.

Other data suggests that Singapore’s percentage of seniors will reach 27% by 2030, while the percentage of juniors under 15 will decrease to 10.8%, leading in a worst-case scenario to a nearly 1:1 dependency ratio, with one working-age adult supporting a child or elderly person.

Pedestrians cross a road in Singapore January 16, 2018.    Picture taken January 16, 2018.  REUTERS/Calvin Wong
Pedestrians cross a road in Singapore on January 16, 2018. Photo: Reuters/Calvin Wong

By 2050, almost half of Singapore’s total population will be aged 65 or older. Another study by the Institute of Policy Studies projected  a 1.5% reduction of per capita gross domestic product (GDP) growth every year until 2060 due to a shrinking labor supply and policies that limit immigration.

That demographic change will likely upset the city-state’s existing social compact, based traditionally on low taxation, individual responsibility, a limited social safety net and a filial presumption that families will handle the bulk of elderly caregiving.

The government has acknowledged that coping with an ageing population will require higher healthcare expenditure and spending on social needs. But despite a rise in state spending on healthcare in recent years, it’s unclear whether demographic change will drive the government to implement more robust welfare policies, even as taxes rise.

The long-ruling People’s Action Party (PAP) has historically been averse to welfare and prides itself on fiscal prudence and technocratic stewardship. It spends a relatively low proportion of GDP on healthcare, an approach that holds in recently articulated state healthcare spending targets for the next decade.

Finance Minister Heng Swee Keat, a key figure in Singapore’s s-called ‘fourth generation’ of political leaders and potential contender to succeed Prime Minister Lee Hsien Loong, unveiled this week a major tax hike that will take effect after the city-state’s next general election, widely expected in 2020.

Singapore Prime Minister Lee Hsien Loong. Photo: AFP/Brendan Smialowski
Singapore Prime Minister Lee Hsien Loong. Photo: AFP/Brendan Smialowski

Premier Lee, the son of deceased national founder Lee Kuan Yew, has said he intends to step down following the polls.

Billed as forward-planning measures to cope with demographic change and rising social expenditures, the goods and services tax (GST) will be raised from 7% to 9% under the plan. A new digital services tax will also collect revenue from consumer spending on e-commerce and streaming online entertainment, measures bound to be unpopular among the island nation’s younger set.

Heng also announced that the city-state’s average annual health care spending will rise from 2.2% of GDP today to almost 3% over the next decade, though both figures are lower than spending in recent years, including a 4.9% of GDP health expenditure in 2014. The figures were acknowledged as “conservative” by global standards in state media commentaries.

Though heavily regulated by the state, Singapore’s healthcare system is largely funded by mandatory private sector savings and state-run insurance schemes designed to cover long-term illnesses and prolonged hospitalizations rather than routine care. It utilizes a tiered-care system, where the lowest rungs are subsidized by up to 80%.

Despite low direct government spending and a dependency on market pricing that older, poorer Singaporeans are largely unable to afford without subsidies, the city-state’s health care system is widely lauded, ranking sixth on a World Health Organization (WHO) study on health care systems worldwide in 2000.

A man prepares vegetables at a market in Singapore January 29, 2018.      REUTERS/Soe Zeya Tun
A man prepares vegetables at a market in Singapore on January 29, 2018. Photo: Reuters/Soe Zeya Tun

More recently, the island nation ranked third in the world for average life expectancy at 83.1 years, lagging only Japan and Switzerland. It is also the second highest global spender on research and development (R&D) in health and medical sciences as a percentage of GDP trailing only South Korea.

While Singapore has made great strides in lengthening lifespans and minimizing the number of years the elderly suffer from ill health, the looming demographic shift could push the personal savings-financed model to its limits, particularly as health care privatization caters to rising demand and inevitably increases costs.

As the percentage of youth relative to the elderly declines, experts forecast unprecedented new pressures on “sandwiched” families – those bringing up children but also supporting their retired parents – that could give rise to higher levels of intergenerational inequity and wealth inequality.

“Lower-middle class and lower-income families face a myriad of insurmountable financial and psychological stresses. When it comes to care of the vulnerable elderly, families need more support than what they are getting now,” writes Kalyani Mehta, head of the gerontology graduate program at Singapore University of Social Sciences.

Moreover, disruptive technologies impact on employment continues to stir anxieties in the city-state. Experts believe a sharp rise in digital productivity may increase job insecurity and worsen income disparity, putting Singaporean families already coping with demographic challenges under further duress.

Singapore City, Singapore - February 1, 2015: A woman with bare feet transports folded cardboard boxes with an old bicycle. Singapore may be one of the wealthiest and most developed countries in the world, but many continue to earn their livelihood with menial jobs.
A Singaporean woman transports folded cardboard boxes with an old bicycle in a 2015 photo. Photo: iStock/Getty Images

A 2015 paper on elderly poverty in Singapore authored by Ng Kok Hoe, assistant professor at the Lee Kuan Yew School of Public Policy, offered a sobering assessment of the potential troubles ahead. The paper’s data showed that poverty rates among the working elderly increased dramatically from 13% in 1995 to 41% in 2011.

Despite a range of targeted government support schemes, the elderly in Singapore are often employed as manual laborers in low-paid unskilled jobs, such as clearing trays at food courts, to meet rising costs. The sight of frail seniors selling packs of tissues or collecting scraps of cardboard to sell to recyclers is increasingly commonplace in the wealthy island nation.

Rising elderly poverty rates and the growing number of seniors who are staying in the workforce indicates that more are working out of need than choice

While some choose to continue working to stay physically and mentally active, rising elderly poverty rates and the growing number of seniors who are staying in the workforce indicates that more are working out of need than choice. More than 40% of those aged 65 to 69 were still working in 2015 compared to just 24% in 2006, according to state statistics.

Elderly participation in the workforce beyond the official retirement age of 62 is actively supported by the government, which has bolstered a range of re-employment policies in recent years that enable companies to more affordably hire older workers.

Given curbs on foreign workers and projected tight job markets, the percentage of elderly Singaporeans in the workforce looks set to rise substantially in the years ahead. At the same time, rising taxes will inevitably prompt Singaporeans to demand a better, cheaper health care and a wider, deeper social safety net.

As the city-state heads towards a delicate political succession in 2020, the onus of tackling these demographic pressures will fall on Singapore’s ‘fourth generation’ political leaders. While Singapore’s celebrated health system has yielded both laudable and mixed results, prospects for a more generous social compact are still uncertain as the country grows older and more insecure.