Singapore's lower-income group still bears brunt of wage, savings deterioration: DBS report

WHILE economic recovery from the Covid-19 crisis is gradually taking hold in Singapore, the lower-income group continues to fare poorly, both in terms of their earnings and savings, compared with other segments of society, showed a new report from Singapore's largest bank DBS.

The report also flagged that the uptick in unemployment among middle-aged workers could reflect issues such as bias, or a sign of them seeking permanent positions.

An analysis of data from DBS's 1.2 million customers shows that those earning S$2,999 or less still account for about half of the customers who are experiencing income deterioration.

The bank's latest research report released on Tuesday, shows that overall financial wellness has improved by December, amid falling unemployment as the labour market bottomed out. The share of customers who saw their incomes shaved over 10 per cent has fallen to 19.4 per cent, down from a monthly average of 28.8 per cent from June to November last year.

Some 49 per cent of them, or about 113,900 customers hurt by the income squeeze, earn S$2,999 or less. And 42 per cent of this sub-group, or 48,000 customers, continued to experience "massive income loss" in December - down from 51 per cent in May. The researchers identified these individuals as those whose incomes were halved or further contracted.

"We are definitely seeing light at the end of the tunnel, but the situation is not exactly hunky-dory yet. There are still people who are struggling with financial stress," said DBS senior economist Irvin Seah, who was presenting the findings to reporters over a media conference.

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"We are seeing improvements, but there is still a large number of customers that have experienced income deterioration as of December last year, and this is even with the 13-month bonus payout."

This is the second in a series of DBS's reports based on an aggregated and anonymised database of 1.2 million of the bank's non-wealth customers.

The first report, based on data from March to May last year, was made public in August. It pointed to a widening income gap and diverging fortunes in various segments of society, brought on by the pandemic.

This second report looked at fresh data, up to December last year.

Mr Seah noted that the December wages and other factors analysed in the report could be buoyed partly by the 13th month bonus many employers in Singapore pay out at the end of the year.

To account for this seasonal effect, his team made a comparison with the same period in the previous year. In December 2019, about 19 per cent of DBS customers experienced income deterioration, a similar proportion to the 19.4 per cent last year.

As at December 2020, the low-income group was also the hardest hit where savings are concerned. Among those who suffered income deterioration, the lack of sufficient savings appears to be more pronounced in the group earning S$2,999 and below.

About 51 per cent had less than a month of emergency funds in December, compared with 45 per cent in May 2020. In terms of absolute numbers, however, this works out to be about 59,000 customers in December, down from 70,000 in May - taking into account a higher base number of customers who suffered income deterioration. (see amendment note)

Overall, there was a build-up of emergency cash in the first half of 2020, amid concerns about job and wage cuts, as well as other potential financial pressures, the researchers noted. This period also coincided with a two-month partial lockdown in Singapore, where stores were shut and spending subdued.

Emergency funds accumulated by most groups came down gradually from June to November last year, as restrictions were eased, which also in turn restored confidence for some.

From an age standpoint, middle-aged workers still account for the highest proportion of those who experienced income deterioration. As at December, about three in four who suffered at least a 10 per cent decline in income are below the age of 55. One in four are aged 35 to 44.

Figures from the Ministry of Manpower cohere, showing that resident workers aged between 40 and 49 saw the sharpest pickup in unemployment among all age groups, from 3 per cent in the second quarter, to 4.3 per cent in the third quarter last year.

The DBS researchers noted that policies introduced to help middle-aged workers secure jobs or develop skills to boost their employability have been promising. But the uptick in unemployment among this group could point to other challenges, like biases against hiring middle-aged workers, or the workers themselves being more selective, such as preferring more permanent job arrangements.

The report also sounded risks that younger workers, too, could face further wage cuts in coming months, particularly if those who are currently undergoing traineeships fail to secure permanent positions. There will also be increased competition from a fresh batch of graduates this year.

Finally, the researchers allayed earlier concerns of a "cliff effect" resulting from the mortgage deferment scheme, a scenario where many, especially the most vulnerable, may not be financially prepared to make payments when moratoriums are promptly rolled back.

DBS's numbers point to a better-than-expected cash-flow situation among households. Just 8 per cent of residential mortgages that were under the deferment scheme had to be extended into January 2021.

That said, the researchers noted that continued and increased support for the vulnerable remains crucial, especially for those that have permanently lost their jobs and thus their main sources of mortgage finance in the form of cash and Central Provident Fund savings.

The researchers also suggested a "more stringent set of criteria" be used to grant deferment if such schemes arise in future crises, as they noted that some customers who have substantial emergency funds have nonetheless taken advantage of mortgage deferments for financially strategic reasons.

The ability to do so again highlights the divergent impact of the pandemic on various segments of society.

"While some segments of our society may struggle with potential job losses and many, particularly the lower-income group, are suffering from a severe drop in income, there are some who have managed to find opportunities amid the market chaos to enhance their financial wellness," they noted.

Amendment note: The article has been amended to reflect accurate computation of actual numbers.