Is it CPF-only for retirement?

I was a bit disappointed to read the terms of reference for the panel to review CPF. It seems to me so itsy-bitsy. I guess that’s the point. The Prime Minister has made clear the CPF isn’t in need of an overhaul but some tweaks. So the panel now has to think about what sort of minimum sum would be needed in future, after next year’s $161,000 for those who turn 55. The PM has promised a moratorium of sorts on the rise so I guess it will be for the panel to decide how much, and when.

Then the other terms of reference are what the PM has already let fall in his National Day rally speech, on the possibility of lump sum withdrawal, allowing some people to get higher returns on their CPF and a graduated re-payment scheme (small to bigger returns over the years).

ST was predictable in getting the panel members to talk about their role. TODAY went further to ask non-panel members what they thought of the terms of reference. I agree with those interviewed that they do seem narrow.

TODAY reported NUS economics lecturer Chan Kok Hoe saying that the CPF’s adequacy as a retirement vehicle depends mainly on two factors: How much funds people are able to accumulate for retirement and what returns they can obtain relative to inflation.

It reported:

The terms of reference do not include looking into the first factor, which would involve the allocation of funds between housing and retirement as well as overall CPF contribution rates, he said. On the second factor, the panel is tasked to study how to adjust CPF payouts to increase nominally over time, but not to examine whether CPF funds should be invested in special inflation-indexed government securities, he said.

I agree. If the issue is retirement adequacy, shouldn’t we go further than examining what sort of  minimum sum would be able to give a regular payout till day of death? Like looking at the ratio between setting aside cash in the CPF and putting money into housing? Or have we settled that retirement adequacy includes assets such as housing? Well, there needs to be a big mindset change over “unlocking’’ the value of housing if so. And shouldn’t we also be looking at CPF contribution rates now set for employee and employer?

But I could be wrong. These could well be questions subsumed under the Minimum Sum scheme re-look.  

Then again, there is the big explosive question on withdrawal age. So it’s still 55 at the first key unlocking CPF and later, at 65, you start getting payouts? Or should be 60, and then 65 given the rise in retirement age? It will be immensely unpopular to raise if you think back to the days of the Howe Yoon Chong report. I really think that is a question the panel could pursue and give all the numbers that go with its recommendation. It doesn’t mean that the G would have to adopt whatever the panel  proposes – it will be a political decision outside the panel’s ken – but it would be a good education for all concerned, especially who want their CPF, like, now.

ST has an interesting piece by academic Donald Low commenting on another aspect of retirement adequacy outside of the CPF scheme, the Supplementary Retirement Scheme which gives tax savings if you put aside a certain sum in a bank every year contingent on withdrawal at age 65. It’s not a very well-known scheme and taken up mainly by the higher income. Mr Low talks about making it compulsory or at least an “opt-out’’.

I suppose if the panel had to look at so many different aspects, like what sort of interest the CPF should make or what the money should be invested in (inflation-indexed securities?), it would take more than its allotted one year time frame.

But I also wonder if we should move away from looking at CPF (cash and home) as the people’s sole retirement income. Mr Low’s SRS option is one. Maybe other groups should be working in parallel with the panel, to study the amount of insurance among various groups of people, for example, as well as what sort of family financial support is now given to the elderly. Just like parents give pocket money to their children, I am sure adult children do the same for the elderly. Or has this gone out of fashion and the elderly are now supposed to fend for themselves?  

This is just my one cent worth. Not accounting for inflation, of course.