Financing Social Security
in Singapore Through the
Central Provident Fund
Mukul G. Asher
Among the economies classified by the World Bank as high-income, Singapore, with a per capita GNP in 1991 of US$14,210 ( World Bank, 1993, Table 1, pp. 238-239), is, with the exception of Hong Kong, unique in using the mandatory national provident fund mechanism to finance social security (i.e., old-age income maintenance, alleviation of absolute poverty, and health care). Moreover, the government is determined to continue to use the present mechanism, supplemented by efforts of ethnic-based and other voluntary agencies, and an extremely limited public assistance program that is officially recognized as inadequate. Thus, Singapore's social security policy is based on individual or family responsibility. In contrast, other high-income countries use a combination of social insurance, social assistance, and social allowance in their social security arrangements. Singapore does have employer liability programs similar to those found in both high- as well as low-income countries. As a result, government expenditure on social security and welfare was 2.11 percent of total expenditure, or 0.46 percent of GDP, in 1990-1991; the corresponding proportions for health expenditures were 4.58 and 1.00 percent, respectively ( IMF, 1992, pp. 475-478). In contrast, the share of social security and welfare expenditure in total expenditure in high- income or industrial countries in 1990-1991 ranged from 25.6 percent in the United States to 1.5 percent in Sweden, and the share of health expenditures ranged from 0.9 percent in Sweden to 13.5 percent in the United States ( RAF, 1992, pp. 62, 65).
Not only is Singapore now an affluent society but the country has experienced a demographic transition toward a rapidly aging population