This article is contributed by Michele Ferrario, Co-Founder and CEO at StashAway. It was first published on his LinkedIn.
In the last few months, I have had several conversations with senior business leaders in Singapore, with regards to the approach taken by companies in helping expat professionals fund their retirement plans. These conversations were triggered by StashAway‘s choice to offer to its Singapore-based expat team members a “CPF-for-expat” plan and our decision to make it a feature within StashAway Workplace, available to other companies as well.
I read an article on the Strait Times titled “Tech firms in Singapore respond to foreign talent crunch with higher salaries, attractive work culture”, and I thought that my personal experience on the topic of retirement plans for expat could be relevant for a few people. I therefore decided to share here a few thoughts on this topic. Please note that this short article looks at Singapore as an example, but similar issues are relevant in most markets.
Let me take a step back and look at where the issue starts.
The Singapore Government offers a great pension scheme (“CPF”) to Singaporeans and Permanent Residents (“PRs”), engineered to provide the foundation for their retirement plan. While for most people CPF is not enough to maintain the same lifestyle enjoyed during one’s working years, it is an important building block: as written in the CPF official website, “The Central Provident Fund (CPF) is a comprehensive social security savings plan that has provided many working Singaporeans with a sense of security and confidence for their retirement years”. The structure is simple: both the employee and the employer contribute to the employee’s CPF, on a monthly basis, and the funds are invested either by the government, which guarantees certain returns, or through a more flexible scheme called CPF-IS. Over time, Singaporeans and PRs are able to build a building block to fund their retirement, with annual contributions as high as SGD 37,740 (approx USD 30,000).
Like in most countries, this government-managed scheme is not open to “expats”, or everyone working in Singapore on a temporary work visa. This creates 2 potential issues:
- Disparity of treatment: where an expat and a Singaporean/PR doing the same work, with the same experience and having the same gross salary, have a different total cost to the company, with the Singaporean/PR costing up to additional SGD 1,020/month and 17% of the annual bonus.
- Lack of retirement planning for expats: as unfortunately not everyone has the foresight to allocate a portion of their cash salary to retirement savings, leading to expat families being in financial distress as they end up not being part of any government-sponsored pension scheme in any country.
Most companies in Singapore don’t do anything about it and live with the two highlighted issues. Others give “cash-in-lieu” to the expat, solving the first issue (equality) but not the second (this additional cash is often spent, rather than saved and invested).
As an entrepreneur and a manager, I have been looking at this issue for many years, first when I was at ZALORA, and for the last 5 years at StashAway. In neither of the two companies we were able to find a solution that we thought was good enough to solve the problem, and de facto we decided to do nothing, until recently. I think this has been an issue in attracting and retaining foreign talent.
In 2020, as we were building StashAway Workplace, a platform for companies to build retirement and incentive plans for employees, we came to the realization that the platform could also be used to create specific “Retirement Plans for Expats”, and we therefore decided to add enough flexibility to the platform to allow companies to use it to this end. The first client? StashAway! We now offer to our expat employees what we call “CPF for Expat”, a program that mirrors as much as possible the CPF logic:
- Employee contribution: (optional) and up to 20% of salary, up to SGD 1,200/month
- Employer’s contribution: matching $17 for every $20 of employee contribution (therefore up to SGD 1,020/month)
- Funds are invested in one of StashAway’s diversified portfolios, and cannot be liquidated for 10 years (here we copied SRS’ rules), with some exceptions (e.g., first-home mortgage, pursuing further education and more)
83% of StashAway’s SG-based expats have decided to participate and contribute to the program, and feedback has been very positive: our expat colleagues can now monitor their retirement funds grow month over month through the platform.
StashAway’s mission is to “empower people to build and protect their wealth for the long term”, and the decision to launch this program to our team members obviously fits very well with that. However, I do believe that both MNCs and SMEs employing expats should consider doing something similar as it will increase employees’ loyalty, reduce their money-related anxiety and, very simply, increase internal fairness; for companies that cannot afford to do a full “CPF-matching” from the beginning, I suggest to start small, and have a 2-3 years plan to get to parity of treatment.
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