a case study of fictional country

The Almost GradsAndrew Yin Ji Jian / Dang Thuy Linh / Nguyen Minh Trang

Case Analysis and Overview of Solutions

Solution

Benefits

Lack of Savings

No Compulsory Pension Scheme(only 22.3% have min. sum for post retirement life)

Illiquid Assets(citizens unable to sell off assets to get min. sum for retirement)

Rising Cost of Living(weak currency has caused high inflation of 6.2%)

Introduce a compulsory pension scheme:

Government Private Bank

Citizen

Set up joint fund initiative with a private bank, specifically for this savings scheme, Salusia Provident Fund (SPF)

1. Government will pass law to make it compulsory for individuals to save SPF2. Raise awareness of necessity of the Fund through Campaigns (see Lack of Awareness slide below)

1. Individuals would allocate a certain portion of their income to SPF, and bank in return, has to provide interest income from the monthly deposits made

Retain control of scheme but able to save costs as scheme is “outsourced” to private bank

Quell unease of citizens who might be hesitant to deposit money in corporate banks

Achieve post-retirement sustenance in the long run as the younger generation can fund their own retirement 1 2 3

Lack of Savings




Introduce an asset buy-back scheme:

A quick-win strategy to pre-empt the incoming silver-age tsunami in 5 years

Eligibility: Scheme is only eligible for those aged 58 and above, who live in urban areas and do not meet the minimum savings requirements of SL$250,000

Duration:Scheme will be phased out once the compulsory pension scheme has successfully implemented for some years

Solution

Implementation:• Retirees would be relocated to an

area which has a lower cost of living

• Educate citizens through campaigns regarding the benefits of this scheme

Urban areas have been targeted because:

Cost of living in urban areas are higher More cost-efficient to target urban areas as such

properties are more likely to be resold in the market Those living in rural areas would likely want to pass

on their assets (such as land and house) to their family members since agriculture is their main source of income

BenefitsThese assets can be sold off and part of the initial investment can be recovered

Targeted only to those who lack the retirement savings and will be most in need of government support1 2 3

Lack of Savings




Set up a range to ensure that exchange rate remains relatively stable (within that range) as adopted by Singapore

Prevent exchange rate from weakening too much such that it leads to inflationary pressures

Solution 1. Introduce floating exchange rate: 2. Peg compulsory pension scheme’s interest rates to inflation rate:

Monitor inflation rate and make adjustments to interest rates

Benefits Prevent high inflation rate from eroding future value of savings by pegging to inflation rate

Both of these schemes will ensure that citizens are able and willing to save more as a result 1 2 3

Objectives

Campaigns are simple to understand, creative, funOffer free health checkups and goodies especially in rural area

Health Promotion Fund to support: - Senior citizens - People below poverty line who

can’t afford the MMIC

Target Senior citizens

Urban AreasInternet, phone marketing

Talks in schools, universities and companies

Signboards on bus & trainsPosters at bus stops, stations

Use part of their personal savings to buy medical

insurance for themselves

Funding

Countrywide: Advertisements on TV, Radio, Internet, etc.

Rural AreasCampaigns at local clinics

Village leaders as role models

Roadshows, eventsVolunteers, counsellors

Young citizens

Use part of their salary to buy medical insurance for

themselves and their families

Health Promotion campaigns to raise awareness about: - Importance of medical insurance - Government initiatives to support citizens - Mandatory Medical Insurance Coverage (MMIC)

Millionaires, philanthropists, corporates, celebrities, etc.

Raise Funds for Health Promotion Fund& support Health Promotion campaigns

Methods

Philanthropy events National fund-raising events

Get celebrities to support TV/Internet campaigns or Volunteer programmes in

rural areas

Companies enjoy double tax deductions for donations

Mode of campaign

Incentives

Total budget: $30MSource of funding: Heath Promotion Fund, Government Funds

Actions

Lack of HealthcareLack of Awareness No Systematic Medical Insurance Scheme

Raise Awareness Raise Funds

Solution Health Promotion Committee (HPC)

Description & objective

Automatically deducted from employee’s income in SPF account

Target Senior citizens

Employer on behalf of HPC

Funding

Young citizens

MMIC: Cover basic healthcare services by public hospitals, compulsory for all citizens Young citizens are encouraged to buy joint insurance coverage to cover for their parents. Aim: All senior citizens and more young citizens to be medically insured with at least the Mandatory Medical Insurance Coverage.

Distributionchannel

Employed Informally/un employed

HPC Office and Affiliates

Paid by personal savings Paid by Medical saving account

Incentives to promote medical insurance

Buying thru employer, employees enjoy: - Premium discount- Tax deduction

Estimates: Population: 63.3 million Senior citizens: 8.3% of populationBelow min. saving sum (can’t afford healthcare) : 67.6% Below min. saving sum but above poverty line: 34%Below poverty line: 33.6%Estimated MMIC premium: $100/year

Medical saving account- For all senior citizens- Favourable return- Used for medical bills and insurance

Total budget: $265.8MSubsidy: $89.3MFree MMIC: $176.5MSource of funding: Health Promotion FundGovernment Fund

Lack of HealthcareLack of Awareness No systematic Medical Insurance Scheme

Solution Mandatory Medical Insurance Coverage Provider: Health Promotion Committee (HPC)

HPC Office and Affiliates

Subsidy - For elderly above poverty line but have below min. saving sum- 50% premium subsidy

Free MMIC- For elderly below poverty line- Proof needed (e.g. income statements)

Lack of Public FundingBudget Deficit Existing High Income Tax Rates

Solution Implementing GST @ 7%

Purposes of Fund

Decrease Budget Deficit/ Pay off National Debt

Fund Healthcare & Saving Initiatives

Long Term Development

Infrastructure to attract investments and create more jobs

Education Reach & Advancement

Healthcare Infrastructure

Invest on Tourism Industry

Amount of Fund

Consumption as Percentage of GDPConsumption = GDP – Investment (Domestic and Foreign)–

Government Spending- Net Export SL$GDP 100%Investment (SMEs contribution) (36.20%)FDI (net) (2.70%)Government spending (Average of Latin American Countries) (14.74%)Export (70.30%)Import 75.40%Consumption 51.46%

South American Country Government Spending*Argentina 15.50%Bolivia 13.90%Brazil 22.00%Colombia 16.70%Venezuela 12.20%Chile 12.40%Paraguay 12.10%Uruguay 13.80%Ecuador 14.10%Average 14.74%

Available Fund from GST on Consumption

SL$ billions

GDP 1523.3

Consumption (51.46% GDP) 783.82

Available Fund from GST (7% Consumption) 54.87

*Source: http://data.worldbank.org/indicator/NE.CON.GOVT.ZS

Source of Fund:

Consumption

GST Fund Distribution

SL$ billions

Available Fund from GST 54.87

Reduction of Budget Deficit 2.2%*GDP 33.51

Surplus from GST 21.36

GST Reimbursement for the lowest 30% 9.17

Budget for Healthcare Initiatives 0.3

Amount available 11.89

#Argentina’s lowest 30%’s share of income: 8.60% GDP.(Argentina’s Gini Index: 43.6, similar to Salusa’s 41.4)Source: http://cedlas.econo.unlp.edu.ar/eng/pantalla.php?seccion=special_studies&idP=134

(i) Decrease Budget Deficit

(iii) Healthcare Initiatives

(ii) Reimbursement for the poorest

30%

(v) Long Term Development

GST Reimbursement

Income shared by lowest 30% 8.6% GDP#

GDP SL$1523.3b

GST Rate 7%

Reimbursement for lowest 30% , assuming no saving

8.6%*1523.3b*7%

Budget for Healthcare Initiative (from aforementioned plans)

Campaign SL$0.03b

Subsidy + Free basic healthcare SL$0.27b

Fund Distribution

Budget Deficit

Current Budget Deficit 6.2% GDP

Aimed Budget Deficit by 2020 4% GDP

Reduction of Budget Deficit 2.2% GDP

(iv) Savings Initiatives

Timeline

2015 2016

SPF

Asset buyback

Floating Exchange

rate

Health Promotion Committee

MMIC

Implementation Expected outcomes

GST

Increase healthcare spending to 2% of GDPIncrease FDI inflow to 4% of GDPMaintain GDP growth at 4-5%Service-sector makes up 30% of economy

Increase number of people with min. saving sum by 10%Increase typical saving rate by 10%

20202017

Reduce number of people above 58 years old and have below min. saving sum by 75%

GST Fund comes in Reduce budget deficit to 4%Fund other initiatives

Reduce inflation to 5%

Successful campaigns nationwide Health Promotion Fund $5M

Percentage of senior citizens have MMIC: urban area (75%, rural area (50%)

2030

Increase savings per capita by 20%

75% of population have MMIC

funding

planning

planning