Adding a first pillar to old-age income support
By Christopher Gee And Yap Mui Teng, Published The Straits Times, 19 Aug 2014
By Christopher Gee And Yap Mui Teng, Published The Straits Times, 19 Aug 2014
The first is a basic tax-financed, means-tested or flat pension provided by the state to reduce old-age poverty; the second is a fully funded, forced-savings pillar that provides benefits to those who contribute; and a third pillar consists of voluntary occupational or personal savings plans to provide additional protection for people who want more income and security in their old age.
Prime Minister Lee Hsien Loong's announcement of a Silver Support scheme in his National Day Rally speech is a step towards the introduction of a basic, first pillar to complement Singapore's well-established "second pillar" system of the Central Provident Fund (CPF).
While further details of the scheme would be provided in the Budget speech next February, PM Lee did indicate that this scheme would pay an amount yearly to eligible low-income elderly Singaporeans aged from 65 years to help them with their living expenses.
Several participants at the Institute of Policy Studies'Forum on CPF and Retirement Adequacy, held on July 22, raised the issue of specific groups that were not well-served by the CPF system. These were groups with limited, irregular or no income during their lifetimes, in particular non-working women and the disabled.
Hong Kong's Old-Age Living Allowance (OALA, or colloquially "fruit money") was brought up as an example of what could help such groups. This scheme pays a monthly payment of HK$2,285 (about S$367 at today's exchange rates) to elderly Hong Kong residents aged 65 years and older who are in need of financial support. Income and asset tests limit OALA payouts to those households with income less than half the current median household income in Hong Kong.
Several participants at the Institute of Policy Studies'Forum on CPF and Retirement Adequacy, held on July 22, raised the issue of specific groups that were not well-served by the CPF system. These were groups with limited, irregular or no income during their lifetimes, in particular non-working women and the disabled.
Hong Kong's Old-Age Living Allowance (OALA, or colloquially "fruit money") was brought up as an example of what could help such groups. This scheme pays a monthly payment of HK$2,285 (about S$367 at today's exchange rates) to elderly Hong Kong residents aged 65 years and older who are in need of financial support. Income and asset tests limit OALA payouts to those households with income less than half the current median household income in Hong Kong.
The National Survey of Senior Citizens 2011 showed that 40 per cent of Singaporean residents aged 65 to 74 had monthly income of less than $1,000, derived mainly from transfers from children and their own personal savings (outside of the CPF).
This is significantly less than the $2,000 post-retirement monthly income that the majority of the audience at Sunday's National Day Rally believed would be required by the hypothetical Mr and Mrs Tan in the PM's financial planning case study in his speech.
It's also lower than the $1,601 average monthly expenditure of households where the main income earner was above 65 years in the Household Expenditure Survey 2007/08.
The Silver Support scheme can, thus, play a role in bridging the gap between income and expenditure for the over-65s.
The scheme should also be well within the country's fiscal means. As an illustration only, if the Silver Support scheme payout was $4,800 a year to each eligible senior, the total cost of such a scheme to an eligible cohort of 162,000 (40 per cent of Singaporean residents aged 65 and above last year) would amount to $778 million annually.
While this number could rise substantially in the future as the population ages, even a quadrupling would still put the cost of providing for the Silver Support scheme at less than half of the cost of this year's Pioneer Generation Package.
Great care should be taken in establishing the appropriate level for the Silver Support payout so as not to increase moral hazard or dissuade family members from assisting in the financial support of their elderly parents.
But the sheer fact that the Government is embarking on this Silver Support plan - which forms the "first pillar" in old-age income support - represents a most welcome strengthening of the country's social safety net.
Mr Christopher Gee is a research fellow and Dr Yap Mui Teng is a senior research fellow at the Institute of Policy Studies, National University of Singapore. Their research focuses on issues related to demography and the family.
'Widen net of support scheme for seniors'
Academics, social workers say many in need still fall through the cracks
By Amelia Tan, The Straits Times, 20 Aug 2014
Academics, social workers say many in need still fall through the cracks
By Amelia Tan, The Straits Times, 20 Aug 2014
This is because many older Singaporeans still fall through the cracks despite the number of social policies around, said social workers and academics.
This group would include low-wage workers, housewives, singles and widows, they said.
On Sunday, in his National Day Rally speech, Prime Minister Lee Hsien Loong introduced a new Silver Support scheme for needy Singaporeans when they turn 65.
He said the money will benefit the 10 per cent to 20 per cent of Singaporeans who have not saved up enough in their Central Provident Fund (CPF) accounts, do not own flats and are without family support.
The annual bonus is meant to supplement the payouts from the needy old folk's CPF accounts.
Mr Lee said details will be revealed in the Budget next year but social workers and academics are hoping that the scheme will be an inclusive one.
Dr Kang Soon Hock, head of the social science core at SIM University, said it was clear that the Government is aiming to help a large group of people.
"Ten to 20 per cent is not a small number. It is a clear indication that the Government is casting the net wider to beyond those under public assistance," he said.
There are around 3,000 people who receive public assistance. A single-person household gets up to $450 a month.
Still, there are many thousands of Singaporeans who do not get public assistance but continue to be in dire need of support, said social workers.
Mr Wee Lin, chairman of Sunlove Abode, a non-governmental organisation that takes care of needy Singaporeans, said the scheme should be extended to all elderly people living in rental flats.
"I know some families who cook a can of sardines and eat it for lunch and dinner. Sometimes they don't turn on the electricity to save money. That is how poor they are," he said.
Another group deserving of help are elderly low-wage workers, said Dr Lily Neo, a Member of Parliament for Tanjong Pagar GRC.
"These aunties and uncles earn around $1,000 for jobs such as cleaners or by working in coffee shops. They do not have much savings," she said.
Similarly, Dr Kang hopes to see the scheme extended to women in their sixties and older.
These women do not have much personal or CPF savings because they stayed at home for many years to raise families.
Dr Kanwaljit Soin, a former Nominated Member of Parliament, went one step further and said the Government should introduce a pension for all Singaporeans above a certain age, instead of limiting it to a specific group.
Her suggestion is to give all Singaporeans above 80 years old $200 a month.
This could set the Government back around $200 million a year.
But Dr Soin said: "That is not a lot of money for a rich country like Singapore. The fact is these old people will spend the money on food, transport or on their grandchildren."
At least I can relax a bit with extra cash: stroke victim
By Joanna Seow, The Straits Times, 20 Aug 2014
By Joanna Seow, The Straits Times, 20 Aug 2014
She gets $449 a month from Central Provident Fund payouts, but the money is barely enough for her.
After paying $33 for rent, $19.50 for conservancy charges, and $110 for utilities, the bulk of the money goes to buying her meals and essential items.
These consist mainly of noodles, vegetables and eggs. She also uses the money for sundries such as soap, detergent and cat food for her feline companion of 14 years.
"At the end of the month, if there is some money left, I can buy meat or fish for soup," she said. "Sometimes, I buy roast duck and share it with the elderly residents downstairs."
The 61-year-old divorcee, who lives in a one-room rental flat in Jalan Kukoh, had to stop working since a stroke 14 years ago left her with limited mobility in the left side of her body. Her last job was as a restaurant supervisor.
"If there's not enough money, (then I) also cannot help it," she said in Mandarin. "Who will hire me?"
But while she has struggled to find employment, the stroke has not stopped Madam Chau from continuing to help those less fortunate than her.
As part of the Caring Assistance from Neighbours scheme, she visits her elderly neighbours three times a day to make sure they take their medication.
"It's only me at home, so instead of doing nothing, it's better for me to go help others. They treat me like a daughter and I treat them like a mother or father," she said.
She rarely sees her own son and daughter, although her daughter gives her money if she needs to see the doctor for her high blood pressure.
When asked if she was happy that the Government would give her extra cash through the proposed Silver Support scheme, she smiled.
"$200 would be enough. At least I can relax a bit," she said.
First-hand know-how versus book smarts
By Tan Chin Hwee, Published The Straits Times, 19 Aug 2014
By Tan Chin Hwee, Published The Straits Times, 19 Aug 2014
I HAD the great privilege of sitting in the front row at the National Day Rally. From there, I could feel the emotional connection and sincerity conveyed in the Prime Minister's speech.
Making Singapore more inclusive, and more open to non-graduates to succeed in the workplace, will be a pivotal shift.
PM Lee Hsien Loong shared stories of staff at Keppel Offshore and Marine who started with low-level qualifications but worked their way up to the top. I can vouch for Keppel's approach of giving the underdog a chance.
It was Keppel CEO Choo Chiau Beng and team who interviewed me in 1991 and gave me the first Chua Chor Teck Scholarship despite my not being an engineering student and not having terrific A-level scores. I went on to study accountancy at the Nanyang Technological University.
As the case of Keppel shows, the tone has to be set right from the top. It's great that PM Lee said the civil service will merge some graduate and non-graduate career schemes and promote good-performing non-graduates into roles normally reserved for graduates.
But even with the PM's sincere and visible support, bureaucrats themselves need to embrace this new vision, and have a change of mindset and give non-graduates a chance.
Many of the administrators won scholarships to the best universities in the world.
When you award a 19-year-old a scholarship and tell him that he is the best in the world, he will start thinking and acting as such soon enough.
Don't get me wrong: I am the last one to demean scholarship students and their very important administrative work functions as I have enjoyed three sponsorships that changed my life and allowed me educational stints at two Ivy League colleges.
But while book smarts are good, the key is the motto of Japanese car maker Honda: "sangen shugi", which means knowledge has to be acquired first-hand.
On-the-job training is more important than being book smart and having a good degree, even in the finance industry, where human capital is over-touted.
At the end of the day, the simple objective yardstick for any parent or employer is what kind of good jobs can people in our society reach for, especially if they are not university graduates?
My parents were trail-blazers in this regard. Although we lived in a one-bedroom flat, they encouraged my sister, brother and me to pursue our interests. I went into finance, my sister chose a career in the arts, while my brother studied and pursued a career in music. My parents did not worry about what jobs their children would do. Instead, they encouraged us to pursue our passion and to develop deep skills in our areas of interest.
The answer to whether workers of all levels of education have good jobs has to come not just from the Government, but from employers, parents and society.
When we accept and reward people for their skills and performance, not paper qualifications, then we would have created many pathways to success.
The writer is a professional fund manager who sits on the boards of several non-profits including Lien AID.
The writer is a professional fund manager who sits on the boards of several non-profits including Lien AID.
Making vocational ladder on par with the academic
By Gillian Koh, Published The Straits Times, 20 Aug 2014
By Gillian Koh, Published The Straits Times, 20 Aug 2014
THE Prime Minister's National Day Rally speech on Sunday was not an annual report delivered by the chief executive officer of some commercial entity.
It was full of heart and soul, undergirded by a sense of informed realism about what it will take for Singaporeans to see their lives improve and the nation prosper.
Stories of three Keppel Offshore and Marine employees anchored the idea of hope.
Mr Lee Hsien Loong said Singapore should be a place where an individual's merit - or lack thereof - at ages 16, 18 or 25 will not prejudice his or her chance of progress in later life.
Mr Lee pledged that his Government would ensure that performance and contribution would draw their own rewards.
Deputy Prime Minister Tharman Shanmugaratnam had coined the term "continuous meritocracy" to refer to a system where a worker can progress on merit, regardless of his initial qualification. When increasing numbers of Singaporeans find that this is true, the common criticism that "meritocracy" is really only a fig leaf for "elitism" in Singapore will be debunked.
The desire to provide hope that "anyone can improve his life if he works hard" and that opportunities to upgrade will remain open throughout one's career is reflected in the Government's effort to level up the vocational education track from being a poorer cousin to the academic one, to one that is on par with it.
The Government is about to give greater traction to this commitment. Mr Lee said that Mr Tharman, a former education minister, is to head the effort to implement the recommendations of the Applied Study in Polytechnics and ITE (ASPIRE) committee, tasked to review tertiary technical education.
At a seminar held by the Institute of Policy Studies (IPS) with Swiss think-tank Avenir Suisse in October last year, participants learnt that the education and training system in Switzerland is guided by the principle of "permeability".
Swiss youth and workers - recognised for making up a world- class workforce known for its productivity, innovation and creativity - are able to toggle between three different paths through their lifetimes.
These paths are the baccalaureate system that leads to university; the upper secondary specialised school system that leads to training for specific professions like teaching; and the vocational education and training track that incorporates career-shaping apprenticeship programmes.
People on the third track are not severely disadvantaged by way of pay or career progression compared to the others. They also enjoy as much high standing in the sectors they are found in as the people who have taken the other two tracks.
One Singaporean commentator, ITE College principal Ang Kiam Wee, said that the three "Ps" - pay, progression and pride - had to be addressed to make a system like the Swiss one a reality in Singapore.
Perfect parity between the vocational and academic tracks may be difficult to attain. But with the blurring of lines through the mainstreaming of practice-oriented degree studies in our universities on the upside, and sadly, the degree inflation that is taking place in the more "popular" academic courses globally on the downside, trends in the world of work may close that gap.
What must also change is the Singaporean practice of human resource management or talent management. The practice of performance appraisal, the development of all manpower as talent, and the ability to integrate talent from all backgrounds - vocational, academic, degree holders and non-degree holders - must also be sharpened.
At an IPS Corporate Associates meeting last month, a leading human resource practitioner, Ms Karen Cariss, explained that the old Western talent management rule of 70/20/10, in which 70 per cent of skills development comes from on-the-job experience, 20 per cent from feedback and 10 per cent from formal training, should be replaced. In younger, dynamic Asian settings, the emphasis should be 50 per cent from skills development expected from on-the-job training, 30 per cent from feedback and 20 per cent from formal training.
Past surveys suggest that human resource and management practices can be very different between multinational companies and those based in Singapore.
Improvements should be made in the areas of structured programmes to ensure that on-the-job learning is effective, and that mentoring provides precious guidance for career development and effective integration of one's workforce as mentioned above.
This will give meat to the "cultural change" that allows Singapore to transcend the mind-forged manacles that hold other societies back.
This will give meat to the "cultural change" that allows Singapore to transcend the mind-forged manacles that hold other societies back.
There is no right caste, class or race that you have to be born into to succeed in Singapore; nor might past infirmities or disability stop you.
Dr Gillian Koh is a senior research fellow at the Institute of Policy Studies researching politics and governance in Singapore.
Dr Gillian Koh is a senior research fellow at the Institute of Policy Studies researching politics and governance in Singapore.
PM's account not overly rosy
THE commentary ("CPF changes do not go far enough"; Tuesday) misunderstood Prime Minister Lee Hsien Loong's comments on retirement adequacy at Sunday's National Day Rally.
The worked example of the hypothetical Tan family was not meant to show that $2,000 per month will definitely be sufficient for retirement - $2,000 was the majority view of the audience, but for each individual, the actual figure would come down to a matter of personal needs.
Far from painting too rosy a picture, PM Lee emphasised the need to recognise trade-offs in planning for retirement. For example, when explaining the option of increasing CPF Life payouts to keep up with the cost of living, PM Lee cautioned that this would come at the cost of lower payouts in the early years.
As he pointed out, CPF and home ownership work hand-in-hand to provide for Singaporeans in retirement. The Government helps citizens to own their homes, and pay for them using their retirement savings in the CPF, so that the home can be a nest egg for them to draw upon in old age.
This is why we have to see the property as both a home and an asset.
Having reached the end of their working lives and with their children having formed families of their own, our seniors' needs will tilt away from housing towards retirement. At this point, options to unlock the value in their homes become valuable.
By extending the Lease Buyback Scheme to four-room flats, the Government seeks to provide an additional option to more Singaporeans. This effort should not be dismissed offhandedly based on current take-up rates.
We do not expect all eligible Singaporeans to take up the Lease Buyback Scheme. Those who wish to bequeath their homes are free to do so, especially if their children support them or they have other sources of retirement income.
The fact that most eligible home owners have not taken up the Lease Buyback Scheme may well be a positive sign that most seniors do in fact have other support, and are adequately provided for in retirement.
Chong Wan Yieng (Ms)
Press Secretary to the
Minister for Manpower
ST Forum, 21 Aug 2014
Chong Wan Yieng (Ms)
Press Secretary to the
Minister for Manpower
ST Forum, 21 Aug 2014
CPF changes do not go far enough
By Hui Weng Tat, Published The Straits Times, 19 Aug 2014
By Hui Weng Tat, Published The Straits Times, 19 Aug 2014
THOSE Singaporeans who have been anticipating announcements of significant changes to the Central Provident Fund system to improve retirement financing may be forgiven for feeling disappointed by Prime Minister Lee Hsien Loong's National Day Rally on Sunday.
While the Silver Support bonus payment for poor elderly is to be applauded, the other announced changes do not address the fundamental source of concerns about retirement adequacy.
The extension of the Lease Buyback Scheme to four-room Housing Board dwellings would increase the number of households which are eligible by another 363,000. This compares with the approximately 230,000 three- room and two-room HDB dwellings currently eligible for this scheme.
However, it is not clear if this will make any significant difference to the popularity of the scheme. The low take-up of the current Enhanced Lease Buyback Scheme already provides strong hints that the typical Singapore family would prefer to have the option of bequeathing their property to the next generation.
Under the Lease Buyback Scheme, they sell back to the Government the last decades of the flat's 99-year lease in return for a lump sum and monthly payment. They can continue to live in the flat but can't bequeath it to their children.
For four-room HDB families with a larger family size, such bequest intentions would be even stronger. The continuing high property price, which reduces the affordability of housing purchase of the next generation, would only further strengthen such bequest motives.
PM Lee also seemed to adopt an overly-optimistic view of current retirement adequacy.
Take the example he cited, of a Mr Tan, whose monthly pay is $4,500. Mr Tan's current working income would place him around the 25th to 30th percentile of the Singapore household income ladder. According to the Department of Statistics (DOS), in 2013, the average monthly household income among resident employed households for the lowest 10 per cent of resident households was $1,711.
The $2,000 retirement income projected for Mr Tan, if paid out today, would therefore put him in this group of households with an income considered to be enough for basic or subsistence living.
The $2,000 retirement income projected for Mr Tan, if paid out today, would therefore put him in this group of households with an income considered to be enough for basic or subsistence living.
The prospect of such retired households being forced down to the lowest decile on retirement certainly does not paint a very optimistic view of adequate retirement living in Singapore. And with inflation, the real value of the $2,000 Mr Tan is due to get in 10 years' time would be even more paltry.
The announcements in the Rally also did not deal with the major issue of protecting CPF Life retirement income from inflation. CPF Life is a national annuity scheme available to CPF members when they turn 55, which promises a monthly payout of about $1,200 from age 65 for life, for those who meet the current Minimum Sum in cash.
Latest available DOS data indicate that the average household expenditure of the lowest 20 per cent of households in 2007/08 is around $2,130 in current dollars. This will certainly be much higher 10 years from now, at between $2,600 and $2,850 (if inflation rate is between 2 per cent and 3 per cent).
A monthly payment of $1,200 would be barely enough to offer households even subsistence level retirement living. Hence the urgent need to keep CPF Life income inflation-adjusted so that real purchasing power is maintained.
More fundamentally, the critical issue of Mr Tan not having enough retirement savings was also not addressed. In the case cited, Mr Tan did not have the Minimum Sum of $155,000 in his CPF account. Pledging his property in lieu of half the Minimum Sum would give Mr Tan a CPF Life income of $600 per month when he reaches 65 years of age.
The Lease Buyback arrangement would add an additional $900 a month, giving a total of $1,500 a month which will be below current subsistence living level.
The critical question really is: Why did Mr Tan not even have $155,000 in his account? Has he used up too much of his CPF savings for housing?
If the withdrawals for housing are too high, is it not prudent and necessary to institute policy measures to tackle the problem of insufficient savings comprehensively at its source? That makes more sense than dealing piecemeal with post- haste measures of trying to augment retirement income through unlocking the value of property.
What of the increased flexibility of allowing lump sum withdrawals of the Minimum Sum at age over 65 years? To my mind, that is merely a cosmetic change that seems to pander to popular demands. Allowing this may not be in the best interest of most CPF contributors as any lump sum withdrawn means correspondingly lower amounts of retirement income for the individual.
It does not address the fundamental issue of the retiree not having enough in CPF savings.
PM Lee announced that an advisory panel will be set up to study CPF changes. Its priority should be changes to ensure that savings are sufficient for retirement. Attention has to be put on the savings accumulation stage, not just the withdrawal stage.
Singaporeans want the assurance that they can retire in their existing homes without downgrading or being deprived of the ability to bequeath wealth to the next generation. The current younger generation of CPF contributors must also have greater confidence that CPF savings will be enough for retirement.
The writer is an associate professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.
The writer is an associate professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.
Experts worried about retirees squandering CPF monies
By Xue Jian Yue, TODAY, 20 Aug 2014
By Xue Jian Yue, TODAY, 20 Aug 2014
While they acknowledged the need to provide flexibility in Central Provident Fund (CPF) withdrawals, especially for those who need cash for necessities, experts cautioned that allowing lump-sum withdrawals — albeit with limits — could lead to members squandering their retirement savings.
This concern was echoed by several Members of Parliament (MPs), although they said, given the desire for greater control over their CPF monies, the Government must trust CPF members to use their savings wisely.
To mitigate the risk of squandered monies, they suggested that withdrawals be limited to specific groups, allowed only on a case-by-case basis, be subject to caps and permitted only after counselling.
On Sunday, Prime Minister Lee Hsien Loong announced at the National Day Rally that CPF members would be allowed to withdraw part of their CPF savings in a lump sum when they need to, subject to limits and only during retirement.
On Sunday, Prime Minister Lee Hsien Loong announced at the National Day Rally that CPF members would be allowed to withdraw part of their CPF savings in a lump sum when they need to, subject to limits and only during retirement.
Mr Alfred Chia, chief executive officer of financial advisory firm SingCapital, said the withdrawals could be done on a case-by-case basis.
“Before they do the withdrawal, the CPF Board can actually consider (doing) counselling, to understand what they need the funds for, and remind them of the importance of retirement funding,” he said, adding that applicants could be assessed based on their household income.
Mr Christopher Tan, CEO of financial advisory firm Providend, was “not very comfortable” with allowing lump-sum withdrawals, arguing that it would result in smaller payouts thereafter. “I let you take out, for example, S$10,000, S$20,000, and you are left with only a bit, (then) the CPF LIFE annuity (scheme) doesn’t make sense any more,” he said.
For those in dire need of money, he suggested there be guidelines to regulate such withdrawals, taking into account the minimum amount needed to provide for basic needs and the circumstances for withdrawal.
“If you really have no choice, and you are going to die without withdrawing, then we have no choice but to give it to them,” said Mr Tan, adding that this group is likely to depend on government welfare once the lump sum runs out.
MPs TODAY spoke to noted that CPF members have been asking to be given greater control over their CPF savings. The Government has to find a “judicious balance” between ensuring sufficient funds for members’ retirement and allowing them to enjoy the fruits of their labour, said Mr Zainudin Nordin, an MP for Bishan-Toa Payoh, who also chairs the Government Parliamentary Committee for Manpower.
The move is a major shift in CPF policy, but such a shift cannot be taken to the extreme, he added. In giving members greater control, he pointed out, more efforts need to be made to educate Singaporeans and help them become more financially-savvy — a view also held by other MPs and experts.
Ms Foo Mee Har, an MP for West Coast, said the Government’s decision to respond to public calls reflects a maturing society.
She felt the option should be given to all retiring CPF members, not only those in need. There could be members who want to fulfil personal goals or invest the sum withdrawn for potentially higher returns, she said.
The Government, she added, could encourage saving by allowing members the option to top-up beyond the Minimum Sum, increasing their CPF Life payouts.
Lump-sum CPF withdrawal, lease buyback change hailed
Observers glad for options for accessing CPF funds, but warn against blowing away retirement kitty
By Kenneth Lim, The Business Times, 19 Aug 2014
Observers glad for options for accessing CPF funds, but warn against blowing away retirement kitty
By Kenneth Lim, The Business Times, 19 Aug 2014
The Central Provident Fund (CPF) should discourage Singaporeans from frivolously taking lump-sum withdrawals from their retirement savings, even though the government's granting the option gives valuable flexibility, observers have said.
They were reacting to Prime Minister Lee Hsien Loong's announcement in his National Day Rally speech on Sunday that retired CPF members will be allowed to take out part of their CPF savings in a lump sum, subject to limits; the amount that can be withdrawn will be capped, and details are being worked out.
Academics and financial advisers who spoke to The Business Times also welcomed the other major announcement - the expansion of the lease buyback scheme for Housing Development Board (HDB) flats to four-room flats, instead of having it capped at three-room flats as is the case now.
With the HDB buying back all but 30 years of the remaining lease of a flat, retired flat owners will be able to monetise some of their real estate in their later years, they said.
On the change to the CPF lump sum rule, Eddy Cheong, the head of financial planning at advisory firm Providend, said of the opening up of options: "I think there are some people who work very hard, and they just want to enjoy a little bit; they want to have some enjoyment at 65, so I think, in general, it's a good idea.
"You want to feel like you have tasted the fruit of your labour."
Observers also tempered their positive reaction with a note of caution that retirement savings could be insufficient.
Brian Tan, associate director of private wealth management at Financial Alliance, said: "People should be incentivised not to take it out willy nilly."
Newly-selected Nominated Member of Parliament and Associate Professor Randolph Tan of SIM University suggested that the government withhold certain amounts of top-ups or grants, depending on a member's CPF balance.
"People don't seem to realise the future value of money of their CPF savings... And the government should let them reconsider if they realise they made a bad choice in two years' time."
Nanyang Technologicial University Assistant Professor said the already-announced CPF Life annuity payouts could offset some of the risks of allowing lump-sum withdrawals. But he said investors hoping to outperform CPF's returns by investing their lump-sum withdrawal elsewhere might want to think twice.
"Generally speaking, we would expect that people will not be able to purchase an annuity on the same terms as they can get from CPF Life," he said.
Professor Benedict Koh of the Singapore Management University called on CPF to step up its education efforts: "CPF ought to give advice... What does it mean to take out that 20 per cent? I would expect CPF to be a bit more proactive in coming out to meet people; instead of just communicating by letters, they probably need more face-to-face meetings."
Although the expanded lease buyback scheme also drew praise, those interviewed said they hoped that HDB would also address concerns of homeowners about outliving the remainder of their lease.
Prof Koh said: "They could have gone a step further... Usually with the lease buyback, there's some concern by owners about tail-end risk. What happens if you live longer than 30 years? To encourage a strong take-up rate, they should assure homeowners that should that happen, HDB will come in and take that risk."
He noted that PM Lee had not mentioned CPF Life, though the scheme had drawn questions about whether its annuity payments can be indexed to inflation.
Also on Prof Koh's unfulfilled wish list for the rally speech was the subject of private pension schemes, which he said could offer even more options to CPF members: "Now you have only two extreme options - those who don't know how to invest leave all their money with CPF, while those who do know invest on their own - but those who don't know how to invest and want to take a bit more risk don't really have an option."
Also on Prof Koh's unfulfilled wish list for the rally speech was the subject of private pension schemes, which he said could offer even more options to CPF members: "Now you have only two extreme options - those who don't know how to invest leave all their money with CPF, while those who do know invest on their own - but those who don't know how to invest and want to take a bit more risk don't really have an option."
Lease Buyback: 'Better, but limited take-up expected'
Experts say extended scheme will likely appeal to only a small segment
By Janice Heng, The Straits Times, 19 Aug 2014
Experts say extended scheme will likely appeal to only a small segment
By Janice Heng, The Straits Times, 19 Aug 2014
WHILE letting owners of four-room Housing Board flats sell part of their lease back to the Government is a good move, it will probably appeal to only a small section of the population, said property experts and academics.
They do not expect a spike in applications in response to this extension of the Lease Buyback Scheme, which was previously for three-room and smaller flats. Rather, the scheme will continue to have a limited appeal, they said - to low-income households who are short of retirement funds on the one hand, and savvier owners on the other.
Under the scheme, flat owners sell part of their flats' lease back to the HDB. The proceeds from selling the lease are used to top up owners' Central Provident Fund (CPF) Retirement Accounts, for larger monthly payouts under the CPF Life scheme.
The required top-up level is the Minimum Sum for those aged 70 and younger, and slightly less for older flat owners. The owners will receive the funds in excess of this as cash.
Response has been lukewarm since the scheme's launch in 2009. As of last month, just under 800 households have benefited.
"There is likely to be a better take-up than the current state of things, but we do not expect a surge," said ERA Realty key executive officer Eugene Lim.
One obstacle to a wider take-up is the fear of outliving one's lease. Under the scheme, flat owners keep the next 30 years of their lease and sell the rest back to the HDB.
The HDB has said that "no elderly flat owner will be left homeless" and that "appropriate housing arrangements" will be provided for flat owners who cannot pay for a lease extension.
But it is unclear what this means and the big fear is that the flat owner will get chased out of his home, said experts.
Another obstacle is cultural. Many Singaporeans wish to keep their flats so they can leave them for their children.
"This bequest motive is a very strong motivation," said National University of Singapore Associate Professor Chia Ngee Choon.
It is thus the "more open-minded, more educated or investment-savvy" home owners who may be comfortable with this option, said R'ST Research director Ong Kah Seng.
But investment-minded owners have other reasons to be reluctant. Flats under the scheme cannot be wholly sublet or resold, thus limiting their options, noted OrangeTee head of research Christine Li.
"Subletting out the entire flat for rental income would probably derive greater returns compared to payouts by CPF Life," she added.
The median rent for a flat was $2,300 last month.
About one in 10 flat owners above 55 either sublets a room or the entire flat for income, said the HDB.
It added that the scheme is aimed at low-income owners with limited monetisation options, which is why it was not previously open to larger flats.
It added that the scheme is aimed at low-income owners with limited monetisation options, which is why it was not previously open to larger flats.
Civil servant Lim Swee Leong, 59, owns a four-room flat and could qualify for the scheme when he retires. But he, too, sees it as being chiefly for the lower income.
"For me, it's quite different because I don't need the money," said Mr Lim.
There is the off chance that the scheme will generate a lot of demand, which would mean that the Government has to buy back many leases, which will cost it a tidy sum.
But NUS Associate Professor Albert Tsui noted that the Government is buying an asset which it can resell or use as rental housing.
"You can see it as just a transaction. It should not be a big problem," said Prof Tsui.
Related
