Editor's note: This piece originally appeared on New America's Weekly Wonk as part of the series, Globalization’s Canary: Singapore at 50. In the half-century since its independence, the strategically located city-state has leveraged its access to the global economy, and a number of innovative policies on issues ranging from housing to savings and social cohesion, to become one of the world’s most affluent societies. As they prepare to celebrate their milestone, Singaporeans are in a reflective mood, taking stock of what’s been accomplished, while also expressing some unease about the sustainability of their current model going forward. In that same spirit, New America Asset Building Program Director Reid Cramer explores whether Singapore’s innovative savings system could work in the United States.
In recent years, policymakers around the world have begun exploring the potential of asset-based welfare policy. There is a growing recognition that while income facilitates immediate consumption, people move up the economic ladder and become economically secure when they are able to build up a pool of assets that they can deploy productively. The experience of Singapore and their Central Provident Fund (CPF) provides an instructive case study for the potential of this approach. Although it was initially designed as a mandatory savings scheme to facilitate retirement security while minimizing welfare payments, it has evolved into a comprehensive social security savings plan with various pre-retirement uses such as financing healthcare, child development, post-secondary education, home ownership, and asset building.
As an account-based social policy system, the CPF offers instructive lessons for any country, particularly when we begin to break down why it has worked so well. One feature that makes it particularly effective is that everybody is automatically enrolled – so taking initiative or having special knowledge of investments and savings isn’t required. Contributions to the fund are not optional, but the resources that accrue can eventually be accessed by the account holder. And there are incentives to increase participation among those with lower incomes, introducing a degree of progressivity to the program.