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77ECONOMIC SCIENCES
THE STRUCTURAL ANALYSIS OF SINGAPOREAN PENSION SYSTEM
Bilyy D.
KNEU named after Vadym Hetman, Kyiv, Ukraine ORCID: https://orcid.org/0000-0002-4187-1246 DOI: 10.5281/zenodo.6884412
ABSTRACT
The structural features and transformational changes of the Singapore pension system are studied in the article. This small country is a market economy leader in the Asian region with a growing population. The author examines the socio-economic preconditions for the development of the country's pension system. The paper analyzes the effectiveness of this system. The results of the study will be presented to the Ministry of Social Policy of Ukraine as a practical example of possible options for building a domestic pension system.
Keywords: pension system, social protection, market economy, savings, transformation.
Introduction
The social function of the state is one of the main. Its nature lies in the provision of people with education, employment, decent wages, and meeting the basic list of needs while achieving disability by age. This article focuses on the last aspect. The country's pension provision is a fractal of the social protection system, which aims to achieve the optimal level of maintaining the quality of life of the citizens after reaching retirement age.
Obstacles achieving this goal are challenges of demographic, social, economic, and political nature. To overcome these challenges, it is necessary to study the experience of other countries that have faced similar problems and have experience in solving them.
The aim of this article is to conduct a structural analysis of the functioning of the pension system of Singapore, as a representative of a fast-growing country in economic terms, which during the formation of its pension system has solved a number of pressing problems. The results of this research are a practically significant basis for similar structural changes in the pension systems of developing countries. Such countries just start to face challenges that Singapore has already overcome.
Literature Review
A number of scientific researches have been devoted to the issue of pension provision in the Asian region. In particular, Joelle H. Fong [5] in the study attributed to the variability of pension instruments in Singapore raises the question of different ways to save financial resources for retirement. Benedict S. K. Koh [7] describes the general structure of Singapore's pension system with details of its sources of funding and the definition of mechanisms for the distribution of accumulated finances. Edward Ng [8] develops in detail the process of formation of the pension system of Singapore with the analysis of transformations and their results.
Despite the significant scientific achievements of the described topic, the issue of analyzing the effectiveness of the reform of Singapore's pension system with the identification of problem areas in need of improvement still remains unresolved.
Main Body
The application of a systematic approach and dialectical methods of assessing pension systems cannot be realized without a detailed analysis of such a specific region as the Asian macro-region. This region is radically different from the monolithic European region and the established US model. In fact, Asian countries are not in favor of building integration comparing the EU, but there is a group of countries, each of which seeks leadership in the region. The closest cooperation between the countries of the region is realized through ASEAN, as an organization that conducts rather weak and slow informal integration processes, avoiding insti-tutionalization.
The main socio-economic characteristics of the countries in the Asian region:
• a significant number of countries that represent different national and economic models;
• there is no normalization of socio-economic relations at the regional level;
• low level of development of social protection systems with a trend towards self-sufficiency of citizens in the absence of appropriate financial instruments;
• a large number of people with a trend of accelerating aging;
• conservative views of the population on savings tools;
• lack of attraction to regional unification of pension systems;
• underdevelopment of the voluntary pension system.
To minimize the impact of the above factors, many countries in the region resort to the building of their own pension systems. One such system of pension provision in the Asian region is an individual system of pension savings. For empirical analysis of this system, the author decides to turn to one of the most economically developed countries in Asia - Singapore. The leadership of this country in the context of the development of the pension system is confirmed by the authoritative Global Pension Index by The Mercer Institute [1].
As for the basic information about the country under study, it is well known that Singapore is one of the
world's fastest aging countries. Life expectancy in the country is 84 years at the end of 2020, which is 6 years more than in 2000. The fertility rate in Singapore at the end of 2020 is one of the lowest among the Asian countries - 1.1 (China - 1.3; Japan - 1.26). This figure has
Information in Figure 1 gives us an opportunity to conclude not only about the growing population of the country for decades but also about the steady flow of foreigners to the country, which is provoked by the dynamic development of the economy. The ethnic structure of Singapore's population remains unchanged during 2011-2021 - 74% Chinese; 14% Malaysians; 9% Indians; 3% others [3].
Such population growth and aging require the country's governors to ensure the adequate functioning of the pension system. If you analyze in detail the pension system of Singapore, it turns out that it is as simple as possible in its structure and market-oriented. This system was introduced during the British control of the country in 1955. It was this year that the Central Provident Fund («CPF») was established. It became the basis of Singapore's pension provision. This fund is a kind of mandatory pension plan, which has evolved into a large-scale system of not only pension but also social security since its inception.
In 1986, the management of the Central Provident Fund created a special pension scheme "The Approved Investment Scheme (AIS)", which was designed to meet the needs of employees in the reinvestment of savings from an ordinary account. Such reinvestment is possible if the accumulated funds are above the minimum level set by the CPF. The funds accumulated under this scheme are placed in shares, units of investment
point higher than in 2000. This parameter shows the share of people under 16 and over 65 in relation to the economically active population [2].
Singapore's population is 5.5 million at the end of 2021, 1.5 million more than at the end of 2000 (Figure
funds, and other instruments traded at the Singapore Stock Exchange. In 1993, AIS was divided into two programs: basic and advanced. The difference between the two programs is the degree of risk of the financial instruments that can be used by the participants in these programs. In 2001 these two programs were consolidated in "CPF Investment Scheme" or "CPFIS". This transformation allows increasing the investment limit of surplus savings to 100% of the established minimum savings of 20 thousand Singapore dollars in the ordinary account and 40 thousand Singapore dollars in the special account. In addition, excessively accumulated funds of participants who did not want to participate in the "CPFIS" are placed in low-risk assets with a return rate of 2.5% -5% at the discretion of the Central Provident Fund [5].
It should be noted that the funds in the Central Provident Fund are accumulated in the individual accounts of participants. Each investor has an opportunity to allocate these financial resources at its own discretion in the instruments determined by the fund's management. Participants are responsible for the placement of their pension savings [7, 8].
To assess the effectiveness of Singapore's pension system, attention should be paid to the dynamic of its membership. The increase in the participants of the Central Provident Fund is shown in Figure 2.
decreased by 0.5 points since 2000. Singapore's elderly 1). dependency rate is 35% at the end of2020, 1 percentage
^^ Residents síííí Non-residents -Total population
Fig. 1. Population in Singapore during 1970-2021, million people [3]
2,5
# # ^ ^ ^ ^ ^ ^ ^ >
\
Total participants, mln people (left scale) -Share of active participants,% (right scale)
56% 54% 52% 50% 48% 46% 44% 42%
Fig. 2. Total number of participants and share of active CPFparticipants during 2006-2022 [4]
It should be noted that active participants (Fig. 2) according to the methodology of CPF are persons, who during the last three months before the reporting date made transfers to the Fund. The fact is that in addition to the steady growth of CPF members, which correlates with the overall population growth in the country, the share of active members varies in the narrow range of 47% -51%. This constant share of active participants allows obtaining a positive effect on the economy through the infusion of long-term financial resources.
Speaking about the structure of the CPF, it should be noted that from the moment of its establishment until now, the Central Provident Fund offers standard plans with certain contributions, which are financed by mandatory deductions from employees' salaries. The amount of contributions to the plan varies depending on age. Currently, workers under the age of 55 pay 37% of their salaries up to CPF (one of the highest rates among OECD countries). Of this sum, 17% is paid by the employee and 20% - by the employer. If the employee is 55-60 years old, the deduction rate is reduced to 26%, 60-65 years - to 16.5%, and over 65 years - 12.5%. It should be noted that the employee makes deductions if the salary exceeds 750 Singapore dollars per month. If the salary is lower than the specified threshold, contributions are made only by the employer [5].
All contributions are divided into three accounts: an ordinary account, a special account, and a MediSave account. Funds from an ordinary account can be withdrawn before retirement age to cover the cost of real estate, insurance premiums, and educational expenses. Savings from a special account are available only when you reach retirement age.
That's clear that the distribution of finances among these accounts is not proportional and varies depending on the age of the participant. For example, an
employee aged 35-45 saves 21% to an ordinary account, 7% to a special account, and 9% to a MediSave account. For an employee aged 45-50, this distribution is reflected in the proportion of 19%; 8%; 10% respectively. That is why, with age, more money goes to pension savings and medical care.
Some studies bypass another type of account, which is part of the structure of CPF - the pension account itself. Its functional significance is not the accumulation of savings, but their distribution. Upon reaching the age of 55, each participant transfers his savings from ordinary and special accounts to a pension account. In the future, you can choose how payments will be made (their size and frequency of payments). The so-called "CPF LIFE" program operates on the pension account [5].
In general, such trust in the participants of the pension system in the form of giving them independence in choosing the objects of savings is a clear manifestation of the development of the market economy in the country. This fact is confirmed by a study by a group of scientists led by Joelle H. Fong. Part of the study is focused on the behavioral characteristics of the Singaporean population in terms of savings. The study sample includes people aged 50-70 years with confirmed savings of more than 1 thousand Singapore dollars. The results show that 42% of the sample keep shares and units of investment funds in their personal investment portfolio for the last 2 years. While 58% do not invest in these assets during the same period. Moreover, 88% of those who buy shares and units of investment funds invest in individual shares. About 26% of investors in stocks do their investments at the expense of pension funds. The study also shows that more educated people predominate among investors in stocks [9].
In order to deepen the analysis, it should be investigated investigate whether it is so effective to provide such independence to participants in the choice of objects of placement of pension funds and the ability to withdraw funds from pension savings for a certain list of current expenses. Analysts at Schroder Investment Management Limited have assessed the ability of Sin-
Analysts point out that Figure 3 does not take into account the savings of Singaporeans on rental housing. After all, the majority of the population uses part of their pension savings over a lifetime to pay mortgages for their own homes. The percentage of households with their own housing in Singapore is one of the highest in the world (90%). If we add savings on rental costs, the replacement rate will be 45%, which is close to the norm of the study [10].
We should not forget that there is a so-called extended pension, which allows you to save more money in the pension account. In 2022, the amount of such pension amounted to 288 thousand Singapore dollars. It means that with the maximum retention of funds in the pension account you can save an extended pension, which will sufficiently cover the needs of the participant in the pension system [11].
However, it is necessary to highlight such an aspect of Singapore's pension system as the lack of a basic social protection system in the form of the classic first level of the pension system. On the one hand, this is a deviation from the standards of building a three-tier pension system, and on the other hand, it removes the question of the possible shortage of funds at the first level of the pension system faced by the vast majority of countries.
According to researchers from The Mercer Institute, Singapore's pension system can be improved by taking the following measures:
• removing obstacles to establishing tax-approved group corporate retirement plans;
• opening access to CPF for non-residents, who make up a significant part of the workforce;
• increasing the age at which individuals can use their retirement savings that are set aside for retirement, as life expectancies rise;
gapore's pension system to meet the needs of participants. According to the study criteria, a replacement factor of 50% is sufficient. It means that retirement income must be at least half the income of the employee. Analysts have determined that the base amount of pension savings and the full pension are not able to cover 50% of the average salary of the employee at the time of the study (Fig. 3).
• increasing the level of communication between the participants of the CPF and the management of the fund [1].
Conclusion
Concluding on the transformation processes and structural features of Singapore's pension system, we can distinguish its uniqueness from other pension structures of other countries. An insignificant (in comparison with other developed countries) population has allowed introducing one of the most market-oriented pension system in the world. Thanks to its British heritage, Singapore has organized a simple system that addresses a wide range of issues of social protection. This complexity allows (in addition to saving money and providing cash flows in the future) employees to pay for medical care, get an education, buy housing, and more.
You will not see the usual three levels in the structure of Singapore's pension system. The design of this pension system is a monolith branching into 3 accounts, each of which carries its own unique semantic load. Thanks to the opportunity to invest in financial instruments, the country's economy receives an incredible boost to development through the inflow of long-term financial resources.
If Singapore's government continues to transform and increase the availability of a pension system for non-residents in the coming years, it will only increase the country's attractiveness as an employer, which will trigger further productivity growth.
References
1. Mercer CFA Institute Global Pension Index, Mercer, Melbourne - https://www.mercer.com/our-thinking/global-pension-index-2021. html.
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
50%
the base amount of the full pension pension
50% coverage
60% 50% 40% 30% 20% 10% 0%
Fig. 3. The size of various types ofpensions in Singapore (Singapore dollars) and their ratio to the average
wage in 2014 [10]
2. Official web-site of The World Bank -https ://www.worldbank. org/en/home.
3. Population trends 2021. Department of Statistics, Ministry of Trade & Industry, Republic of Singapore - https://www.singstat.gov.sg/-/media/files/publi-cations/population/population2021.ashx.
4. Official web-site of the Central Provident Fund - https://www.cpf.gov.sg/member/infohub/re-ports-and-statistics.
5. Joelle H. Fong. Taking control: Active investment choice in Singapore's national defined contribution scheme / The Journal of the Economics of Ageing
https://www.sciencedirect.com/science/article/pii/S22 12828X20300141?pes=vor.
6. Saving the CPF: Restoring public trust in Singapore's retirement savings system / The Lee Kuan Yew School of Public Policy at the National University of Singapore - https://lkyspp.nus.edu.sg/docs/default-source/case-studies/cpf-
case_final_feb2015 .pdf?sfvrsn=eac0960b_2.
7. Benedict S. K. Koh. Singapore's Social Security Savings System: A Review and Some Lessons for the United States/ Pension Research Council -https://pensionresearchcouncil.wharton.upenn.edu/wp-content/uploads/2015/09/WP2014- 18-Koh.pdf
8. Edward Ng. Central Provident Fund in Singapore A Capital Market Boost or a Drag? / A STUDY OF FINANCIAL MARKETS -https://aric.adb.org/pdf/aem/external/financial_mar-ket/Sound_Practices/sing_cpf.pdf.
9. Joelle H. Fong. Financial literacy and financial decision-making at older ages/ Pacific-Basin Finance Journal -https://reader.elsevier.com/reader/sd/pii/S0927538X20 306934?token=0C54C464A9E4CB255FABBCE39B9 7405F28F9A40F64DB36995F8F2F4817D1EB9CD11 8CD9C044E397D12D9C33A806FE77B&originRegio n=eu-west-1&originCreation=20220511145219.
10. Feast or famine: where are Singaporeans headed for in retirement? / Schroder Investment Management Limited -https://www.schroders.com/globalassets/staticfiles/ca mpaigns/Singapore/retiresmart/pdf/Schroders_Retirem ent_Paper_1.pdf.
11. Timothy Goh. Budget 2022: CPF Basic Retirement Sum to be raised by 3.5% per year from 2023 to 2027 / THE STRAITS TIMES -https://www.straitstimes.com/singapore/budget-2022-cpf-basic-retirement-sum-to-be-raised-by-35-per-year-from-2023-to-2027.
IMPROVING THE METHODOLOGY OF MEASURING SOCIAL CAPITAL IN INTERNATIONAL
COMPANIES
Shengelia T.,
Doctor of Economic Science, Full Professor at Ivane Javakhishvili Tbilisi State University, Georgia
Berishvili Kh.,
PHD in Economics, Associated Professor at Ivane Javakhishvili Tbilisi State University
Jganjgava K.
Doctor of Business Administration Science Invited Professor at Ivane Javakhishvili Tbilisi State University, Georgia
DOI: 10.5281/zenodo.6884424
ABSTRACT
The article discusses the analytical approaches and capabilities of empirical measurement of social capital.. It presents a new understanding of the concept of social capital, an original methodology of measurement that allows us to assess the level of social capital in an international company. Based on the empirical data obtained from the research, it is possible to diagnose and monitor social capital.
Keywords: Social Capital, Trust, Social Networks, Organizational Culture, Social Capital Configuration, Measurement Methodology.
Introduction
Social capital is a complex of human relationships that undergoes conversion into other forms of capital. The existence of such capital in an international company helps to increase the efficiency of its activities. Similar processes take place at the social level - in society itself. A society that has a stock of social capital is more successful in economic development, while people are healthier and happier [Almedom, 2005]. Social capital meets the characteristics of economic capital, such as: limitation, ability to accumulate, liquidity, conversion and ability of transfer. The ability to accumulate social capital is not an individual characteristic, but rather the specificity of the network in which individuals are involved [Shengelia, 2017]. Nowadays, the impact of social capital on the economy has been
proven in a number of studies [Shengelia, 2017] They usually establish the connection between social capital (primarily trust) and economic indicators. This reveals the high role of the confidence factor in economic development, but does not fully explain the impact of social capital on business relationships. Cross-cultural comparisons of social capital have become an important factor in business development [Fukuyama, 1999].
It is clear that the mechanism of impact of social capital on the business is impossible without perfecting its research methods. A special place in the study of social capital is occupied by transnational companies (TNCs), which are distinguished by their specifics and features. In this context, it is important to improve the
