a community of singaporeans

Are there systemic problems in our CPF system?

Posted by theonlinecitizen on August 29, 2007

By Leong Sze Hian

I refer to the article “Flexible, basic and cheap annuity scheme” (Today, Aug 27).

Instead of spending the $750 million a year to pay the additional 1 per cent interest on the first $20,000 of the CPF Ordinary Account, and $40,000 of the Special, Medisave and Retirement accounts, growing these sums at say 5 per cent interest will accumulate to $67.7 billion in 2042 (the first year that the compulsory annuity will start at age 85, for those who are below 50 years old now).

This amount can at 5 per cent interest provide $300 a month from age 85 to 100, for 1.79 million Singaporeans.

By age 100, about 99.9 per cent would have died.

In fact, as many will die as they grow older, beyond age 85, more than 1.79 million people can receive the $300 life annuity.

Even if the resident population grows at 3 per cent per annum for the next 35 years, will there be 1.79 million or more Singaporeans over age 85 in 2042?

According to the Cremation Association of North America (link), the life expectancy for “White (race) Both Sexes”, at birth, age 55, 65 and 85, is 77.7, 26.2, 18.2 and 6.4 years, respectively.

In other words, the 50 per cent survival probability for someone at birth is 77.7 years, and someone who is age 85 has a 50 per cent chance to be alive at age 91.4.

Therefore, under the proposed deduction of the compulsory annuity premiums at age 55, the percentage still living at age 85 may be less than the stated 50 per cent, because the 50 per cent probability would have been reached at age 81.2 for this cohort.

Only the age 70 cohort has an almost 50 per cent probability level of survival of 14.7 year, at age 84.5.

It was reported in Parliament on 27 August (“Minimum Sum : Figures show many don’t meet the mark”, Straits Times, 28 August), that :

“Only one-third of CPF members who turned 62 last year met their Minimum Sum (MS) requirement when they reached the age of 55 in 1999. Manpower Minister Ng Eng Han said that of the 22,600 CPF members who turned 62, 7,600 – or 34 per cent – were able to meet their MS, which in 1999 was set at $ 60,000. The remaining 15,000 members who did not meet the MS had a median shortfall of $ 49,300”.

Does this mean that despite the 4 per cent accumulation, and new CPF contributions for those who were working beyond age 55, 66 per cent could not meet the $ 60,000 MS, and 33 per cent had less than $ 10,700 at age 62 ?

“He (Manpower Minister) noted that one important reason why many members fell short of the MS is the current rule letting them withdraw half of their CPF savings at age 55”.

Phasing out “the current rule letting them withdraw half of their CPF savings at age 55”, delaying the MS monthly payouts to 65, and the compulsory deferred to age 85 life annuity purchase, may just be reactive ad-hoc measures, to address a fundamental core problem.

Are there systemic problems in our CPF system ?

Are HDB flats priced such that they are eating up too much of the average Singaporean’s CPF ?

Are there too many Singaporeans who lose their CPF life savings, when their HDB flats are foreclosed ?

Are we paying too low an interest rate on CPF ?

Why is it that according to the AXA Global Retirement Study, Singaporeans are the highest savers in the world, but have the lowest income in retirement ?


9 Responses to “Are there systemic problems in our CPF system?”

  1. asoka said

    if i don’t remember wrongly some years ago a varsity prof had warned that there were some problems with our cpf system that need to be tweaked. one of the problems was the very low interest rate paid.

  2. Hanz said

    Singapore beat Switzerland as a country with national savings at 50% of GDP, in 2000. We are still no where near them at all in terms of welfare. There has got to be something wrong somewhere.

    I think the necessity of a national pension for the really old is inevitable. Setting the pension age at 85 is ludicrous. If the government is sincere about a pension, it should ensure that a portion of employer CPF contributions go towards setting up a pension fund and match it. Employers contribute to the CPF not for Singaporeans to buy a house, mind you. If employers wish to give employees more money for their performance or to get loyalty, it should not be contributed to the CPF.

    I expect more from ministers that earn lifetime monetary incomes that exceed 10 million dollars, before the inclusion of other financial assets.

  3. Hanz said

    His name is Mukul Asher. Given his credentials, how he has written on the issue is not reflective of his actual academic abilities.

  4. Ranquist said

    According to an article in Today, written by Prof. Saw Swee Hock on 23 Mar 2007, the idealized resident population up till 2050 is 3.64 million. If LSH’s 1.79 million figure is used in relation to the 3.64 million, that is 49.18% of the resident population receiving pension annuities. If that ever happens, either the world life expectancy has changed or Singapore should be peddling the elixir of life to the rest of the world.

  5. Systemic problem? Yes it is a major policy or system failure when major promises made to the people cannot be fulfilled as planned.

    42 years ago, the government started the CPF to provide for people’s retirement.

    So people worked towards CPF saving for their retirement making sacrifices etc in recession to forgo wage increases or taking cuts on CPF.

    Now 42 years later government said CPF scheme is no longer enough to provide for retirement obviously because it cannot provide the same interest as previously to support people’s retirement.

    So it said that it is now time to postpone retirement or it is planning to take away whatever CPF people have and give them to the banks to earn more profits for themselves and return miserable paltry annuities when by that time many people would have died and missed their retirements.

    What is this kind of government is this ? Has it fulfilled its promise to provide people with a means to retire (since it does not provide welfare or medical assistance)?

    Is it a government which has been honorable in fulfilling a major promise made to the people?

    Or is it becoming dishonourable now by changing the retirement game plan midstream and says that because people are living longer so there is not enough monies for retirements.

    So now it wants to confound the problem by taking away citizens’ CPF at 55 and later and stash them to grow again for retirements while keeping all the people’s taxes and surpluses for hatching against huge losses incurred by the government due to extravagant spending on their own salaries etc and investments fiasco by Temasek or GIC.

    Which is the case now ? Please tell people the truth whether taking CPF away from people at 55 was to help them again or to take their monies to hatch against their own extravagance or reckless investments overseas.

  6. If you are the government and you cannot govern with good decisiveness and objectivity and given way to greed and allowed their cpf eventually to be depleted, due to liberalizing on their playing cpf with shares and property speculation, are you a good government and have you really succeeded on the original intention of making cpf people’s retirement nestegg.

    Let’s just admit it, it is a failure this cpf retirement scheme because of government lack of insight and foresight over the way it has been put to use for various speculations.

    Now it is too late as most people have lost their retirements on mortgaging their retirements on HDB purchases, share purchases and other speculation which government should have been wise to avoid.

    Another mistake is now to be made because of top-down autocracy again this time – postpone receipt of their final CPF balance (at 55 they already deferred their collection) – depriving citizens of their wish to use their balance for whatever they need for retirement which they know best.

    The few thousands of people who live beyond 85 should not result in a punishment on all the rest to give up receiving their final balance at a younger than dying time.

    That is the proper meaning of retirement which PM Lee has failed to understand !!!

    If there is a election now, PAP will lose 5 seats.

  7. The problem with the CPF is too much manipulation by the government, maybe to achieve its own agenda.
    The primary goal of CPF is for old age, but rules were included to add housing, health care, insurance etc etc.
    The more the government dabble in CPF, thinking they are good for the citizens, the worst it will be. The reason is the more they do, the more demanding Singaporeans will become.
    They try to solve it technically. The real problem is moral.
    Just like a rich couple neglecting their sons by giving them material gifts but not moral love to be at their side when needed.

    And why CPF cannot get into equity investment ? Malaysian EDF invested in equity.

  8. Chao Fan said

    This was not unexpected, any person who has given some thought to the CPF system should have known that this chain of events is inevitable. Withdrawal age will only increase and minimum sum will only increase. It will never be the other way round, the money has to keep circulating. The upper limit will ultimately be such a low payout that you will never see bulk of $ which are the fruits of your labor. Factors that accelerate the degradation of the CPF system : 1)Insufficient population mass to sustain the money machine, I wonder why? Oh social pressure and the stop at 2 campaign. 2)Quitters-nice label, I wonder where is the daughter of the politician who coined this term 3) Dismal failures in the overseas ventures time and again, so much for the lauded risk taking. Isn’t it fair that CSJ should ask that question: Where is the $? 4)Flats hit $750000 and there was no control.This has happened not once but twice in my lifetime. Nothing was done. Only HDB was smiling to the bank. Awesome….

    If this isn’t a good indication that Singapore has been putting too much faith in the meritocracy system then I don’t know what is. If generals can turn investment banker maybe I can become a lawyer after reading Law for Dummies. Perhaps one day Wee Shu Min might become the chair at Temasek because she is certainly the type to take risks . I never got to vote but I cast my vote now. A vote of no confidence.

  9. Jack said

    Sorry I cannot help but disagree. CPF is a good system. THe problem is that most singaporeans are too spendthrift and spend most of the money away. The savings rate is considerably low (because of this forced saving scheme?) Most Singaporeans are also too picky about flats. They choose to upgrade and downgrade according to market conditions and are stuck in a debt trap.

    Last time the CPF don’t allow housing etc. People complain. Now also people complain.

    Please look at market conditions before we comment on how low the interest rates are.

    We could always put more money in the CPF for tax exemptions and better retirement needs you know?

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