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Keynote Address By Deputy Prime Minister Tharman Shanmugaratnam & Minister For Finance At Singapore Human Capital Summit 2012

19 Sep 2012

My colleagues, Mr Tan Chuan Jin and Dr Amy Khor,
Distinguished speakers and guests,

1. A very good morning and a warm welcome to friends and business leaders from Singapore and those who have come from abroad. I am very pleased to be here this morning for the fifth Singapore Human Capital Summit. It is a good opportunity for us to take stock of what is happening in the world around us, what the changes are, what we need to respond to, and to formulate strategies not just for individual firms but collectively for our society.

Complexities and Changes in the Global Economy
2. Four years after the financial crisis, the global economy is still being held back by uncertainty. It has seen a series of starts and stops since 2008. What's equally important is not just the immediate twists and turns of economic fortunes, or the fallouts from global financial crisis of 2008 and 2009. Beneath the immediate changes that we have seen, there is a set of fundamental changes that are reshaping the global economy and they imply a different world in the future, from what we see today.

3.  Many developed countries have exhausted the limits to which benefits for today’s generation and can be funded by future generations. They are now confronted with the need for major adjustments in fiscal and economic strategies, to restore equity between generations. Making these adjustments, in a way that both allows their economies to grow and enables them to retain social compacts within today’s generation, is a major challenge that they will be grappling with for some years to come. That’s one fundamental change.

4.   Second, China together with several other emerging markets have become the primary engine of global growth. This is not just the consequence of the global economic crisis that has affected Europe and the United States, it is a more fundamental change. China and the emerging markets have their own risks and challenges. But collectively, they are still the site of the largest new opportunities for firms and economies all around the world. Firms are seeking to take advantage of this opportunity. Talent too is taking advantage of this opportunity. Talent is also flowing in more directions than it used to, no longer just moving from the developing world to the most developed for the best careers, but in all directions.
5.    Third, technology continues to transform industries. The computer and IT revolution, though not new, continues to transform how global economic activities are distributed geographically. But new technologies do not always work against the most developed countries. Some like advanced sensor technologies and robotics are giving new advantage to manufacturing in the US, for example.

6. A fourth trend is that crises themselves now occur more frequently. It is part and parcel of the new normal in the global economy. Economic cycles have become shorter. Crises have become less predictable, and simply happen more often. Dealing with crises, and seeking advantage when they occur, is now a capability in itself and a competitive strategy for firms as well as economies.

7. How these changes converge, and how they create risks and opportunities, cannot be laid out with any certainty. But we have to navigate these changes with confidence, manage complexity and transform them into opportunities.

8. Strong human capital management is critical to doing so. We have to nurture and develop people who feel comfortable working in multiple countries and cultures. We have to develop future leaders who can respond quickly to crises, draw lessons and communicate effectively in crises clearly.

9. We must develop people who are open and empathetic, both to those within their own corporate workforce and others in society. Managing companies responsibly is not just a matter of what you do within your own company, it is also about engaging with society and ensuring benefits are shared and perceived within a broader society. That, too, is part of sustainable growth.

10. Firms all over the world face these challenges. Let me talk now about two of our major priorities in Singapore - 

- First, that of ensuring that we have a strong Singapore core at the heart of a globally competitive workforce;
- Second, the challenge of harnessing a more mature workforce through good human capital practices, and ensuring that all our people have adequate retirement provisions as they live longer.

Developing a Strong Singapore Core in a Globally Competitive Workforce

11. We have to ensure that we retain a capable and confident Singaporean core in our workforce, even as we remain a city which gets distinct advantage in being open to global skills and expertise. Firms have to get that balance right, just as we have to do for our economy as a whole.

12.  We have to remain diverse and open to talent. It is how we attract the best companies from around the world. Global businesses are increasingly using Singapore as a base to manage their Asian operations. It is also how we enable Singapore firms themselves to grow and thrive. Every entrepreneur will tell us that. There is a real and compelling advantage that Singapore gets in being open to talent and expertise from around the world.

13.  But the benefits of this openness are not just for companies, or for the economy. By growing competitive businesses in Singapore, we create good jobs for Singaporeans. That is and must remain our most important economic policy objective. We must enable Singaporeans to be part of globally competitive teams, and create the best possible environment for them to keep learning and progressing in their careers.

14.  However, an effective human capital strategy is not merely about remaining open to talent wherever it comes from. It has to be first and foremost about proactive development of the citizens who are at the core of our workforce. Every firm must give thought to this, and work out ways to give Singaporeans opportunities and exposure to nurture their skills, build up experience locally, regionally and globally, and take on larger responsibilities. This proactive development of the Singaporean core of companies’ teams has to be central to  sustaining competitiveness.

15.  We must build a strong pipeline of potential leaders and specialised talent amongst Singaporeans, complemented by talent from elsewhere, to form teams that can compete with the best internationally. All of you in this room – being employers and HR practitioners – have a critical role to play here.

16. To support employers and HR practitioners, we have been putting great effort into creating a strong and vibrant ecosystem for the development of human capital.

17.  There are many parts to this human capital ecosystem. Players such as the Human Capital Leadership Institute (HCLI), which is organising this Summit, also delivers up-to-date executive development programs and fosters networks between leaders in business, government, academia and consultancies. Top HR consultancies and research centres are themselves also expanding in Asia through Singapore. An example is RBL Asia, headed by human capital thought leader Professor Dave Ulrich and the Chartered Institute of Personnel and Development (CIPD).

18.  Five years ago, we started the Singapore Human Capital Summit, and with it, the Asian Human Capital Award that celebrates innovative and impactful people practices by Asian-based companies.

19.  Another important part of the ecosystem is the training hubs that have been formed by global companies in Singapore. Training hubs conduct their flagship training and leadership development programmes and especially to enhance their executives’ knowledge of Asia. Amongst the examples is Sony, which earlier this year announced that it will establish its first corporate university outside of Japan in Singapore, to train its next generation leaders. Unilever will set up the Unilever Four Acres Singapore by 2013, as a home of leadership development for its senior leaders, with a focus on Asia.

20. We are also helping companies and individuals develop their HR capabilities. HR is a critical skillset for any growing company today. The Singapore Workforce Development Agency (WDA) launched the Human Resources Workforce Skills Qualifications (HR WSQ) frameworks in 2008. It has been four years running now and since then more than 5,000 individuals have upgraded their skills through the WSQ framework with more than 500 of them becoming Certified HR professionals. We are going to expand this, to better cater to the continuous training of the HR industry in Singapore. 28 more HR WSQ Programmes will be launched over the next year, bringing the total number to over 80. Training capacity will also be increased to more than 6,000 training places.

21. Small and Medium Enterprises (or SMEs) in Singapore, like in many Asian countries, are the backbone of our economy. They employ the most number of people, and they support the upstream and downstream activities of our large businesses. Catering to the HR needs of our SMEs is an important part.

22. We have a coordinated, multi-agency approach in Singapore to support this important segment.

23. The Ministry of Manpower (MOM) and SPRING Singapore have partnered SMEs in grooming young HR and business talent through the MOM National HR scholarships and SPRING Singapore’s Spring Enterprise Internship programme. SME business leaders can turn to a whole set of schemes that SPRING is offering, such as SPRING Singapore’s Management Development Programme, Business Advisors Programme, and other initiatives.

24. We are also extending our assistance to companies through SPRING’s HR capability toolkit. There has been good feedback on this HR capability tool kit and we will be expanding the scope of the toolkit to cater to cover new areas.

25. WDA is launching a practice-oriented HR Master Class Series with the CIPD and Roffey Park in Q1 2013. These Masterclasses for HR practitioners/business leaders will focus on building HR Capability in SMEs, Organisational Development and HR Analytics for Businesses respectively 1 .  In addition, the CIPD is also exploring conducting a SME HR research in Singapore, which will be an extension to their recently completed research in the UK.

Harnessing a Mature Workforce

26.  Let me now talk about a second major challenge for companies and for countries like Singapore – that of a progressively older population and workforce.

27.  The shifts are unmistakeable. People are fortunately living longer. They are working longer as well. The retirement age has been raised in several developed countries, and is expected to go up further. Of all the advanced economies, Japan, with one of the fastest ageing populations, has the highest employment rate for workers aged between 55 and 64.

28. What does a progressively mature workforce mean? It means having to redesign jobs, adapt workplace practices and upgrade skillsets throughout a person’s career, to enable older workers to remain productive and have fulfilling lives.

29. Our local labour market will remain tight. Companies must therefore develop their mature workforce, and re-orient their practices so that they can make the most of the skills and experience of older workers. We have put in place the Retirement and Re-employment Act this year, which enables older workers to work beyond the current minimum statutory retirement age of 62, up to age 65.

30. But legislation alone is not enough. Companies have a critical role in helping older workers stay employed. They must redesign jobs to ensure that tasks and work processes are adapted to the needs of the mature workforce. Many businesses in Scandinavia, Germany and other countries have shifted their attitudes towards older workers. They have realised that early concerns over the productivity of older workers were misplaced. There were indeed concerns that productivity would be lowered. But they have found that by evolving managerial practices, reorienting workflow and adapting the workplace, older workers can be productive and equally valuable members of the workforce.

31. Companies must do the same in Singapore to remain viable and competitive. They should take full advantage of Government schemes like the ADVANTAGE!, which provides funding support to help companies redesign their jobs to better fit older workers.

Retirement Adequacy a Key Priority

32.  Retirement adequacy and achieving sustainable social security systems is now a key priority all over the world.

33. As Singaporeans live longer and live healthier, people will stay in their jobs for longer. At the same time, working longer means saving up more for retirement.

34. Our CPF system has been geared to help Singaporeans save enough for their retirement years. Compared to other social security schemes, the CPF has some unique features. In particular, the CPF has helped Singaporeans own their homes, and contributed to making home ownership a key pillar of our social security system. That’s a unique feature of our social security system  in Singapore – it is not just about worker’s financial savings in the CPF but the fact that the CPF system plus housing grants give the average and lower income worker an asset. Even amongst the bottom 20% of households by income in Singapore, over four-fifths own their homes. That’s unique.

35. This also means that the vast majority of our working population has shared in the rewards of economic development through the increased value of their homes over the course of their working lives. We have avoided the trends seen in many other countries, where asset ownership and its benefits are largely confined to the upper half of the population.   

36. Because we have designed the CPF system as what is called a ‘defined contribution’ rather than ‘defined benefits’ system, we also do not have the problem of unfunded pension liabilities that many developed  countries now confront. The CPF is fully funded.

37. However, because the CPF pays out to members only what they have contributed over their lifetimes, the challenge is in ensuring that CPF savings are able to deliver payouts that are adequate for each individual’s retirement needs. This is especially a priority for those who are in the lower-end of the income spectrum, who are unlikely to have private savings apart from their homes.

38. This is an important issue, and is why we review the adequacy of the CPF system from time to time. Let me provide a preview of the findings of an independent study by two NUS professors, Chia Ngee Choon and Albert Tsui, which was commissioned by the Ministry of Manpower and will be finalised and released soon.

39. The study found, taking all the features of the CPF system today, that young Singaporeans joining the workforce will have accumulated savings that provide a comfortable level of income in retirement, a level equal to a large part of their pre-retirement income.

40. Economists measure retirement adequacy of social security systems by using what we call an Income Replacement Rate or IRR for short. The IRR is defined as a ratio of retirement income to pre-retirement earnings.

41. The study’s aim was to estimate the IRR using all CPF savings accumulated by a member up to age 65, including savings above the Minimum Sum which the member has the option to withdraw.

42. The study found that before taking into account the benefits that Singaporeans get from owning a home, i.e. if we just look at cash savings in the CPF, the median male earner entering the workforce today will be able to achieve an IRR of over 70% (71%) through his CPF savings. For a female median earner, the IRR is 63%.  

43. These IRRs are within the recommended range by the World Bank, which is between 53% and 78% 2 . They are also comparable to those seen in pension systems in many developed countries. The equivalent IRR in the median OECD country is 66%; the average amongst OECD countries is 72%. However, the IRR is even higher in Singapore when we take into account the fact that most Singaporeans would own homes that are fully-paid for by the time they retire. By not having to pay for rent, cash is freed up for other living expenses in their old age. Further, if a member so chooses, he could also monetise the value of his home, for example by moving to a smaller home. The IRR then rises to well above the 71% figure that reflects only his savings accumulated in CPF.

44. For higher-middle earners, the study found that the IRR attained was lower. This is to be expected as the CPF system was designed with the retirement needs of the middle and lower income earner in mind, and high income earners have private savings.

45. For lower income earners, the IRR attained was higher at about 81%. In fact through Workfare, which supplements the wages of our lower income earners, the IRR is boosted even further – from 81% of pre-retirement wages to 93%. This is above what we see in many developed economies.

46. The results of the study are an important validation of the CPF system. The refinements we have made to the CPF over the years have ensured that the vast majority of young Singaporeans will receive adequate payouts in retirement. 

47. However, we have to keep our eyes on the needs of today’s older generation of Singaporeans. Many of them have low CPF balances and are unable to attain the IRRs estimated in the study. Their wages were much lower in the past, and they were required to set aside less in their CPF Retirement Account. They were allowed to use much of their CPF savings for housing.

48. Therefore, low CPF balances are a reality for many in the current generation of older Singaporeans. However, most of them, including those with lower and middle income backgrounds, have also experienced substantial appreciation in value of the homes that they own, made possible by Government housing subsidies, their earlier withdrawals of CPF savings, and economic growth. Our strategy is to help them monetise the values of their homes in retirement, if they wish to.

49. This is why we introduced the Silver Housing Bonus, to help older Singaporeans monetise the values of their homes that they have and to supplement their retirement income. Besides these financial schemes, we are also building many more studio apartments, high quality, so that retired couples can do so and live comfortably. 

50. We are also helping today’s older generation in other ways. Those who opt into CPF LIFE get a LIFE bonus. To ease concerns over medical costs, we are giving them top-ups into their Medisave accounts. We have also increased the amount of our subsidies for Community Hospitals, nursing homes, day-care and rehabilitation facilities, as well as for home-based care packages. Coverage and payouts under MediShield have also been enhanced, with a one-time Medisave top-up to defray the cost of premium increases.

51. But no matter how well designed the CPF system is, retirement adequacy is still premised on individuals taking responsibility to work and save, and employers taking the responsibility to provide good jobs, share productivity gains fairly and keep older workers employed.

52. Here is where we return to the role that corporate leaders and HR practitioners play. You play an important role that goes beyond contributing to your company, a role that serves the larger purpose of helping all members of our society lead fulfilling lives.


53.  I am optimistic about the future. Singapore has managed the economic ups and downs relatively well. We invest heavily in our people. We have to continue managing the external challenges as well as the domestic challenges that we face as a maturing society. It will require creativity, learning from others, and inevitably, some trial and error in the process. As businesses and HR leaders, you share in this responsibility.

54. I hope that discussion at this summit will yield useful insights for all of us.

1. Please refer to WDA’s factsheet here.
2. The 53% IRR figure corresponds to using the net final year wage as the denominator. The 78% IRR figure corresponds to using the net average lifetime wage as the denominator.