The other day someone asked me what I thought of CPF Life. The person is a graduate but can't figure out which is the best option in the scheme and what is needed for retirement. I jokingly told him that the best retirement plan is to have filial children and if they are not filial there is something known as the Maintence of Parents Act which forces children to take care of their parents. The govt has spared no effort to move the burden of retirement to individuals and their families. However, do all these result in an improved quality of life for retirees? The govt makes all these moves to shift the burden of retirement to the citizens but it refuses to do 2 important things that will significantly improve the financial situation of retirees. The 1st is providing affordable public housing - today Singapore's public housing, the most expensive in the world, causes individuals to be burdened with housing debt that takes 25-30 years to pay up limiting their ability to save for retirement. High cost of public housing has the the subject of much discussion on the Internet and newspaper forum - the govt has decided to little about it except to blame Singaporeans for being choosy and having unreality expectations when it comes to public housing. There has been enough talk about the cost of public housing so there is no need to discuss this further.
Singaporeans are uncertain if CPF Life is enough for retirement because they don't guarantee the payout and it is not clear what the inflation rate is going to be like in the coming years - it does not ensure that the payouts are sufficient if one takes into account inflation. The PAP govt locks up our CPF money giving us a fixed rate of 2.5%. We are told that this is risk free. This is not true. Money loses its value due to inflation and locking it up at a fixed rate means that your retirement is vulnerable to inflation. Based on figures from the World Bank, between 1961 and 1995, real compounded returns for Singapore's pension fund were 1.5 per cent a year, compared with South Korea's 5.4 per cent and Malaysia's 3.2 per cent. Based on those returns over the period 1 pension dollar in Singapore grew to $1.6 compared with $2.6 in Malaysia and $5.9 in S.Korea. In other words, the portion for their income Singaporeans have to set aside for retirement is roughly double that of Malaysians and about 4 times what the Koreans put aside. Returns on funds is more important that % of income put aside for retirement. Locking Singaporeans' retirement funds in low fixed return scheme puts Singaporeans at risk of inadequacy and a degraded the quality of retirement. Why can't the govt puts our CPF money in the hands of the best managers who can give higher returns as in other countries? A large number Singaporeans have low income and depend on CPF for retirement. They are now told to work longer and postpone their retirement (until after they die?) ...Singaporeans already live in a society with the largest income gap among developed countries and the CPF perpetuates this inequality through the retirement years by pushing responsibility onto the those who have the least ability to shoulder it. Where does the 2.5% return come from? The GIC borrows our CPF funds the low interest rate and uses it for its investments - the GIC claims it makes a long term average return of roughly 6% most of which it keeps as reserves.
Is CPF Life sufficient? It is just another tweak to a scheme with fundamental flaws.