Anuuities - The Numbers Tell The Story

Source : TODAY, Thursday, October 4, 2007

Statistics show annuities’ risk-pooling model may disadvantage poor old-old

Letter from DR VINCENT CHIA WEI MENG

I REFER to the compulsory annuity scheme. I would like to point out that there is good statistical evidence to support a strong correlation between socio-economic status and life expectancy in developed countries. As such, the compulsory annuity scheme should take this fact into consideration.

It is well-known among sociologists and epidemiologists that social class or socioeconomic status is a prominent life expectancy indicator, and is assessed through occupation, income, housing or educational level.

We can begin by looking at epidemiological data from the United States. From the paper published last year by Gopal K Singh and Mohammad Siahpush in the International Journal of Epidemiology, entitled Widening Socioeconomic Inequalities in US Life Expectancy, 1980–2000, it is clear that life expectancy for less-deprived groups is notably higher than that for more-deprived groups.

An extract states: “Those in less-deprived groups experienced a longer life expectancy at each age than their counterparts in more-deprived groups. Between 1980 and 1982, the overall life expectancy at birth was 2.8 years longer for the least-deprived group than for the most-deprived group (75.8 years versus 73.0). By the 1998 to 2000 period, the absolute difference in life expectancy at birth increased to 4.5 years (79.2 years vs 74.7).”

Singh and Siahpush concluded that: “Between 1980 and 2000, those in higher socioeconomic groups experienced larger gains in life expectancy than those in more-deprived groups, contributing to the widening gap.”

Thus, there is not only a greater life expectancy for those with a higher socioeconomic status but the gap in life expectancy between the higher and lower socio-economic groups is progressively widening.

Not surprisingly, we see a similar trend in the United Kingdom. A paper by its Office for National Statistics (ONS) gives figures on trends in life expectancy by social class in England and Wales between 1972 and 2001.

The data shows that while life expectancy at birth for both the higher and lower social classes have improved, it is evident that life expectancy at birth for those from a higher social class is significantly better than those from the other end of the spectrum. There is likewise an increasing gap in life expectancy between the two classes.

Apart from life expectancy, it is interesting to note that socio-economic status is an important determinant of disability among older Asians. The effect of socio-economic characteristics is also strongest when predicting perceived health. According to the National University of Singapore’s Department of Sociology and the Asia Research Institute, sociologists have discovered that perception of income adequacy is the most important predictor of health.

Closer to home, The Old-Old in Singapore, a paper published by Ang Seow Long and Edmond Lee from the Singapore Department of Statistics, suggests a similar link between socio-economic status and life expectancy.

The old-old refers to those 85 years and above. If the home of an old-old Singaporean is any indication of his socio-economic status, then it is significant that in 1999, 43.5 per cent of the old-old live in HDB fourroom or larger flats. In comparison, 29.1 per cent of old-old Singaporeans live in HDB three-room flats, while the remaining 11 per cent live in HDB one- or two-room flats.

In other words, a large proportion of those who live to 85 years and beyond do not live in one- or two-room flats. Close to half of them, in fact, live in four-room or larger flats.

If it is true that a majority of the old-old are from higher socio-economic groups, there might be a weakness in the compulsory annuity scheme. As it works on the principle of risk pooling, CPF members who die early may not live to see the benefits of the scheme. In fact, their premiums may go towards paying the annuity payouts of other members.

We must ensure that lower socio-economic groups are not unduly burdened with the care of old-old from higher socio-economic sectors. Only then can the annuity scheme be of greater aid to those old-old Singaporeans who are truly in need of such payouts.