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IPS forum on CPF: Improving the CPF system.

Friday, July 25, 2014

The final speaker in the afternoon session's panel discussion was Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy. He tried to suggest ways in which the CPF could help to meet not only the basic retirement needs of Singaporeans but to maintain their current lifestyles at retirement.

Prof Hui said that in order for people to maintain their current lifestyles at retirement, they would have to have a retirement income that has an IRR (income replacement rate) of 60 to 80%. 

He shared that the CPF provides a higher IRR for lower income groups than it does for people who command higher salaries, typically, of more than $5000 a month due to a contribution cap set by the government. 

In his opinion, this cap should be raised and CPF members should be allowed to contribute more to their CPF accounts if they want to.

I feel that Prof Hui missed the point that the CPF is primarily meant to cater to the needs of lower income Singaporeans. This is the reason for the extra 1% of interest paid only on the first $20K in our CPF-OA and the first $40K in our CPF-SA. 

If we are financially more capable, we will have to find ways to make more money for our retirement years ourselves. We shouldn't burden the system.

I also wonder if there is a need to maintain pre-retirement lifestyle at retirement. Is an IRR of 60 to 80% really necessary? Could we not lead a simpler life during retirement? In my case, although  some would argue that I already have a simple life, I could give up my little car when I retire, for example.

With the purchase of housing, the IRR falls naturally.
I feel that monetisation is a solution in funding retirements for some.

It is difficult to have our cake and eat it too. Although Prof Hui does not seem to like the idea of monetisation of our homes as an option for retirement funding, we have to be pragmatic. 

Prof Cherian said that the Americans are quite pragmatic when it comes to downsizing their homes if there is a need and why shouldn't Singaporeans be pragmatic too?

Prof Hui made a point about raising the CPF withdrawal age for younger workers who are likely to live a longer life on average. I do agree with this as life expectancy increases some 2 to 3 years every decade. This helps to address the issue of increasing longevity and keeping CPF retirement payouts more sustainable.

See slides: here.

Related posts:
1. AK attended forum on CPF.
2. Young working Singaporeans, you are OK.
3. Why a wealthy nation cannot afford to retire?


pf said...

To be honest, it is the strong message from govt that flats can be monetized for old age and times of need that I would like to get a 4 room flat instead of 3 room.

If I invest in cpf, I get the message that most ppl lose money and I shld not becoz govt already giving good rate. I better be thankful to hv such.

And yet also other the message that cpf money is not enough for old age. Then lower income ppl can monetize their flat, etc. But flats r too expensive. We shld not over commit.

Frankly speaking, its back to square one isn't it? Self construct a maze.

How can we grow our retirement funds?

B4 there was any consideration, first thing said was that rates already very good. Hdb flats too expensive, then I hear that cannot allow flat prices to drop as ppl r monetizing their flats. Salaries hv to depend on own self to increase thru upgrading but cap at 5k contribution to cpf. And keep employers contribution low to avoid them stop investing in sg. Inflation increase but salaries not keeping up. No money don't invest and over commit. Then back to square 1. Not enough for retirement.

So how? This way cannot, that way also cannot. The system doesn't give too much choices after all these debate. End up pleasing nobody as well.

I think govt shld just stop helping ppl to think so much. End up ppl cannot think for themselves.

AK71 said...

Hi pf,

Quite depressing, isn't it? Haha. ;)

We cannot depend on the CPF alone in our retirement planning. It can only be a cornerstone. We should exploit it fully, definitely.

Retirement planning includes having the correct and adequate insurance coverage so as to prevent wealth destruction.

Retirement planning includes investing savings (not in the CPF account) for higher returns.

All of these need adequate financial education which is more than just going for some investment course and hoping to strike it rich. ;p

If the government leave all the thinking to the people, I wonder if it could do more harm than good. I really don't know.

Maybe Jack Neo would have fodder for a new move then titled: "MONEY ALL GONE". -.-"

AK71 said...

AK, thanks for being so generous with your advice. I am in a dilemma now. Appreciate if you can "talk to yourself". My income will mean a max CPF contribution of $37740. I am concerned if i hit FRS too early, i will miss out on the income tax relief of $7000. I am sure you are in a similar position. Can you share what did you do when your SA hit FRS?

Celebrate. ;)

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