Low interest rates endanger retirement security, says DPM Tharman

Over-reliance on monetary policy has had downsides, he said.

The challenge of societies getting older and living for longer has been aggravated by an environment of low interest rates, opines Singapore deputy prime minister Tharman Shanmugaratnam.

In a speech at the International Insurance Society Global Insurance Forum last 13 June, Tharman said the problems arising from the global financial crisis has had downsides for long term finance, particularly pension funds and insurance funds.

“The costs and benefits of low or negligible interest rates are being debated, but there is no doubt about the increasing burden they pose for pension and insurance funds,” he said.

However, the problem does not lie in monetary policies and are not cyclical, Tharman said, and conceded that low real interest rates are here to stay.

“It will pose a challenge for retirement security, and especially for pension funds and insurance funds. As you know, it hits you on both your assets and your liabilities,” Tharman explained.

He added that it is not a temporary challenge, but a challenge for the long term.

“Therefore, we need fundamental reforms. We can’t fix the problem through investment strategies, certainly can’t fix it by monetary policies. It needs fundamental reforms,” he said.

“We have to enable people to work for long than they used to, in virtually every society that’s getting older, and make it attractive for older people to work. Fortunately, each new generation of people entering their senior years is also healthier. But in a situation where we are going to have much longer lives, it is critical that we have the ability to earn a living and to save money over more years, so as to provide security and assurance through our retirement years,” he added.