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CPF Discussion Points: Longevity, Adequacy, Housing and Withdrawal Age

The government’s PR machine is on an overdrive regarding this CPF debate. A few bloggers were invited to listen to it and write about it. I wasn’t there. In the Straits Times this morning, some experts share their views on how to restructure the CPF for the sake of a better retirement for all.

Let me pick out the salient points:

  • There are folks who raised to make the system more flexible so that they have a chance to earn a higher rate of return (Kyith: isn’t the current system already facilitating that)
  • There are folks who felt the CPF board should tweak the amount given back
  • Mr Tharman surprised the participants by saying, to allow for a private pension plan, first discussed by the government in 2007 may still be an option
  • Professor Cherian from Singapore Business School likes a private pension plan. This should not touch the current CPF (meaning keep CPF Life Annuity). Only have 3 options based on risk appetite, conservative, moderate and aggressive (Kyith: he is right that currently too many options, the majority are not well versed to pick them and they serves more to confuse and the ones who reaps the most are the fund companies not the investors.)
  • Wong Su Yen, chairman of Marsh & McLennan Companies, thinks the current system has not so much diversification
        • Wong Su Yen suggest start investing the CPF before hitting the minimum earlier and lowering the administrative cost. She cites research from a subsidiary of her firm Mercer, which advise the original CPF IS that this could boost values by 16%
        • Donald Low, LKY School of Public Policy: There is no distinction between the 25 year old adult and the 65 year old one
        • Stats have shown that almost 50% of those invested between 2004 to 2013 incurred losses. Only 18% managed to beat 2.5% returns
        • People compare the CPF to the Malaysia EPF which yields higher returns at 6.35% last year
        • A.Prof Hui Weng Tat, LKY School of Public Policy: The official statements may paint an overly optimistic picture, causing under saving and disappointments in the future
        • A.Prof Hui: Official statements state that Income replacement rate(IRR) of 60% should be enough for retirement. He thinks this is unrealistic that the same person who starts working and end working would have the same income distribution. If you start working as a grad with $3k you should end up with a much higher salary. Prof Hui computes that for a $3k salary the IRR is at most 50%. If you use CPF for housing, it drops further to 30%. These people may not save enough because they trust the official statements and think they have saved enough
        • Prof Hui thinks that for the lower income, the CPF is enough, and may even be more than enough to replace 70% of last drawn pay (Kyith: that is if they can meet the minimum sum)
        • Prof Hui thinks that if the government is worried about this group, they should remove the salary cap (currently $5k) so as to save more
        • Prof Hui also proposed giving folks the option to put more money in to meet the minimum sum
        • Raising the minimum sum is the end result of not raising the withdrawal age
        • Withdrawal age is determined by life expectancy, which is increasing
        • They are proposing for the withdrawal age of 55 years old to be raised. It has to be done gradually because it will not go down well with the people
        • Prof Hui says why not raised the withdrawal age by 2 years only for those just entering the workforce.It doesn’t matter to them because it is 40 years away!
        • The major flaw of the CPF system is that you need to contribute to benefit. Women who leave the workforce, the disabled who aren’t able to work are the ones who fall through the crack
        • Most of the experts have no solution to this. Mr Low cite to provide top up for those who don’t meet the minimum sum, but to give them the incentive to work, only top up at the age of 75
        • Singaporeans have put too much of their savings in housing, which is illiquid and hard to extract cash out of
        • Donald Low of LKY School of public policy and real estate expert wants to lower the cap that can be used for housing
        • Augustine Tan: Asset appreciation is going to be problematic in an aging population. Who is going to buy your flat?
        • Prof Lum: People spend 30-40 years to build up for it, and they have a problem extracting cash out of it
        • The people are sitting on a gold mine, but they have an emotional attachment to it
        • Monetization means are also weak
        • Lease Buyback Scheme (LBS): Lease back to housing board, continue to live in it for 30 more years. But May reintroduce reverse-mortgages which was removed due to low take upwhat if the person lives until 95 which is more than the 30 years?
        • They also say if you don’t want future generations from facing this risk, maybe you should let them take up at all

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Tuesday 29th of July 2014

If they kill the property market, this glorious and prosperous city will go to the dump. Well, who is responsible for SIN city?


Thursday 31st of July 2014

hi there, that view is not going to happen. if you are a policy maker, you wont create a political and moral suicide like that.

always think what is the moderate way to control this. they have a plan. can you articulate it...


Monday 28th of July 2014

Hi Kyith

Thanks for sharing the CPR discussion points, got me thinking that the government is painting too optimistic a perspective of our current retirement situation. If the older generation has sunk too much of their money on their housing (which was much cheaper in the past) that they do not have enough for retirement, what does it say about our current generation who are struggling with affording housing?

I think this is a worrying point. 30 years down the road, it would be harder for us to meet the minimum sum.


Thursday 31st of July 2014

hi jomel, good thoughts as always. the 50% pledge is not helping. but really its the narrative that the policies bring across. that is the most important. you can use whatever propanganda but it will not speak as loud as the policy. if you deep 150k min sum to be good enough, people will take it as good enough! which is not!

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