Singapore’s Saving System

By Chuck Bentley

Forbes Magazine columnist John Goodman had a lot of high praise for the nation of Singapore’s alternative to the American welfare system. He said:

Singapore has built an alternative to the European style welfare state. Think of all the reasons why people turn to government in other developed countries: retirement income, housing, education, medical care, etc. In Singapore, people are required to save to take care of these needs themselves.

Singapore's saving system

At times, the forced saving rate has been as high as 50% of income. Today, employees under 50 years of age must set aside 20% of their wages and employers must contribute another 16%. These funds go into accounts where they grow through time until specific needs arise. For example, one of the uses for these savings is housing. About 90% of Singapore households are homeowners—the highest rate of home ownership in the world.

In healthcare, Singapore started an extensive system of “Medisave Accounts” in 1984. Today, 7 percentage points of Singapore’s 36% required savings rate is for healthcare and is deposited in a separate Medisave account for each employee. Individuals are also automatically enrolled in catastrophic health insurance, although they can opt out.

For American workers the Social Security tax rate is 6.2% on income under $118,500 through the end of 2015. Further, our national savings rate is around 4%, which means by comparison, we are saving a total of 10% of our income. Singaporeans save a total of 36% of their income. This is similar to our Social Security system; however, their money is invested for them in a private account which allows for some access by the saver. For instance, a Singaporean can borrow from his or her own account for a down payment to purchase a house to avoid living in government housing.

I like it. We can learn from a system that works.

Originally posted 4/16/2015.