When UK voters chose to leave the European Union, British citizens working in Singapore found themselves in a contrasting situation. Those who had plans to go home are now looking to extend their stay as they await clarity on the political and economic implications of Brexit.
As a result, fewer British citizens want to return home in the next 12 to 24 months and are instead looking to stay in Singapore for the next 3 to 5 years. While the dip in the British pound makes this appear like a pragmatic course of action, what is the price of choosing to remain in Singapore?
Singapore citizens and Permanent Residents contribute up to 20% of their monthly income to the Central Provident Fund (CPF), while employers are required to top up an additional 17%. The CPF was initially established as a mandatory retirement savings plan; however, it has evolved to also be a source of financial support for health care, home ownership and higher education. However, the same benefit is not provided to foreign employees—and in Aon’s 2015 Retirement and Financial Wellness Survey for Singapore Employers, we found that 3 out of 4 employers don’t offer any retirement benefit to foreigners.
Let’s break this down: Based on the limits set by the Central Provident Fund Board, a Singaporean or Permanent Resident employee receives a CPF contribution of up to SGD 38,000 a year. As foreign employees are not eligible for CPF contribution, this missed opportunity translates to a ‘CPF gap’. The long-term financial impact isn’t dire for those looking to remain in Singapore for just one or two years, but with Britons looking to extend stays to three or five years, the CPF gap expands exponentially as compound interest becomes a factor.
If you’ve decided to remain in Singapore, there are two things you can do immediately.
1) Get informed. If you’re choosing to stay longer than your company had provisioned for, you may be at risk of being asked to switch your mobility contract to a local one—which could result in a loss of allowances. At the same time, your family’s needs are also likely to change with an extended stay; for instance, your children’s education needs. Have an open conversation with your company on how they can support you during this transition. There may be schemes available that you won’t know about if you don’t ask.
2) Change your habits. You may have been saving enough before, but are you saving enough now to make up for the ever-expanding CPF gap? Think about the lifestyle changes you’ll have to make now, so that your change of plans don’t have an adverse impact on your financial future.
If neither of these is feasible, you can still secure your future by reviewing your current finances and other investments. Ask yourself:
• What do you already have in place? This could be property, cash savings, insurance plans, or other forms of investments.
• In view of your increasing CPF gap over the next few years, how can you get the most out of your current financial assets?
• What does the weakened the British pound mean for your savings back home, and what can you do about it?
In the aftermath of the Brexit vote, and as a result, your ever-expanding CPF gap, the easy decision to stay in Singapore for longer doesn’t come with easy outcomes. And while these are difficult questions to contemplate, the good news is, you don’t have to do it alone.
Start a conversation with us
If you need help with reviewing your financial goals to enjoy your extra years in Singapore all the way to your retirement, get in touch with Francis Ball.
If you need help with reviewing your company's retirement programmes for foreign employees, get in touch with Dimitris Efthyvoulou.