The problem with trying to please people is that you end up pleasing no one at all. And so the CPF review panel is finding itself in this conundrum almost immediately after its proposed changes were made public. How come?
- People had expected some changes to the rate of interest, which is now at 4 per cent for Special Account. Hey, the fund manager, GIC, sometimes makes more than this so how come it’s not higher?
- People thought that when there was talk about a lump sum withdrawal, it would be at age 55, not 65. After all, it wasn’t not too long ago that people can withdraw as much as half, instead of the measly $5,000 if you don’t have enough in the Minimum Sum.
- People thought that the draw-down age was set at 62, which is the retirement age. Sure, there are the re-hiring laws but it’s no guarantee that you would be re-hired right?
- People thought that more will be done for those with low balances but there’s nothing in the proposals about helping those with less than the minimum sum raise the amount. Nothing new at least.
- People thought that they could make a property pledge to make up half of the minimum sum. But it seems the property pledge which had people worried about having their homes taken away from them isn’t a big deal at all. It’s unnecessary. That’s good news but sheesh…why even have it in the first place?
Notice I use the word “people’’ – so yes, I’m generalizing here. “People’’ were expecting some massive changes to the CPF system but it looks like tweaks here and there. That’s because “people’’ forgot about the parameters that had been set for the review panel.
To recap: The panel was supposed to see
- How the Minimum Sum should be adjusted beyond 2015, in order to meet the objective of delivering a basic monthly retirement payout for life;
(So it depends on what you mean by “adjust’’. Looks like there is no way the sum can be lowered unless we experience deflation. The panel hence came up with a three-tier Minimum Sum, now to be called Retirement Sum. And a 3 per cent increase – it’s $161,000 now- until 2020)
- How to enable CPF members to withdraw more as a lump sum upon retirement, and the circumstances for their doing so, taking into consideration the impact on retirement adequacy for different groups;
(It doesn’t say at what withdrawal age, whether at 55 or 62 or 65. The panel decided on 65 so I think we can presume that the retirement age will go up to that in the near future….Also, we can withdraw 20 per cent of whatever is in our retirement account in 10 years time. If we don’t, we could have bigger monthly payouts.)
So the panel’s proposals revolved on those two parameters. To come are its recommendations to do with:
- How to provide an option for members who prefer CPF payouts that are initially lower but rise with time to help with increases in the cost of living; and
- How to provide more flexibility for members who wish to
i. Seek higher returns while balancing the higher investment risks involved, through private investment plans;
ii. Invest in private annuities when they retire as an alternative to CPF LIFE
I know I sound like the panel’s mouthpiece but seriously, there is little it can do when the parameters set by the Prime Minister are so tight. In fact, that was the grouse when PM Lee Hsien Loong first announced the panel’s formation and its work. It means that we won’t be looking at the CPF system as a whole, such as whether housing is playing too big a role. The CPF system, the G maintains, is fundamentally sound. Providing for housing is good as it is an asset that can be monetized for retirement needs – although it would take quite a mindset change on the part of CPF members for that to happen. With such a narrow focus, the panel would be hard put to assure ” retirement adequacy’’ for CPF members. For that, you need a jump in CPF contributions in some way, or higher interest rates paid out to Ordinary and Special accounts.
The panel did say something about making the CPF pot bigger, framing them as suggestions that the G might want to take up.
There were two ideas that could fit the “financial adequacy’’ portion.
- The proposal to equalize the CPF contributions of those aged between 50 and 55 to the same level as younger workers.
Now, I have to declare my interest in this. I was flummoxed to find that my take home pay had gone up, until I realised that my CPF contribution rate had been lowered, from 37 per cent to 35 per cent. So I’m getting one per cent of my money back to spend and my employer saves on the other one percent. I know employers will grumble about having to pay the extra money if the rate goes up. They will say it will make it less attractive to hire older workers. But with the retirement age at 62, those aged 50 aren’t exactly THAT old. Also, if the rates are equalized, I too will miss that one per cent spending money. I don’t suppose there’s any way to just have the employer’s 1 per cent go into the CPF without touching the worker’s pay? Like I said, I have an interest in this.
2. Raise the salary ceiling for CPF contributions now set at $5,000. The NTUC wants it to go up to $5,500 and later, $6,000. I rather wonder about this because those at the top of the salary ceiling will probably have more than the minimum sum already by the time they hit 55. I guess the idea is to increase the collective pool to raise payouts further. Could some kind of transfer be effected at this stage to help those with low balances?
And there was one idea to ensure more people are covered
- Allow spouses to top up or set up CPF LIFE accounts for their non-working partners. The worry is that women outlive men and not all women work. And there may not be any money in the spouse’s account by the time he leaves the world. This will probably be the case if his balances were low in the first place. o while he gets a payout until he dies – which might be even more than he had initially in his account like any annuity– there’s just no money leftover for his dependents.
What, however, to make of the panel’s recommendations? Take your pick.
- It is caving in to populist pressure, yet not quite. Those who want all their money at 55 will still be unhappy. There will still be charges of a “nanny state’’ seeking to control the money of its citizens or worse, allegations of some mischief by the G in retaining the CPF money.
- It is making the prudent worry that most people will withdraw that 20 per cent, and end up with less money for their old age never mind how carefully the sums are calculated now. Are we able to say” You reap what you sow’’? Or will there be pressure for yet more support structures for them?
- It is likely that those who can’t afford it are those who will withdraw the money, leaving them with even smaller payouts – so how is this serving the neediest group? The answer: plenty of financial counselling – and some as-yet-to-announced incentives.
The thing is, the CPF system has been deemed a sacred cow. It can’t be slaughtered although we can tweak its innards. We’ll have to live it. Going by the systems in other countries, ours doesn’t look bad at all. In fact, I am inclined to leave my money in it because the interest rate is simply un-beatable – and I am not sure I can do better.
The trouble is this magic number: 55. Several cohorts and generations have passed and it’s still age 55 that we cling to. It’s even more deep-rooted than another number, 6.9 million. To accept the CPF system is to accept a new number: 65. Howe Yoon Chong tried and failed some years ago to shift this number; I guess he was way ahead of his time. We have got to start thinking about the meaning of retirement – at a later age. We have to accept that most of us will live way longer than 55, or even 65.
Like previous generations who looked forward to hitting 55, we should think about hitting 65 and then kaboom! Money! Yeah!
Unless future cohorts live to be 100-plus years old. But that’s not our problem….right?