Are there systemic problems in our CPF system?

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By Leong Sze Hian

I refer to the article "Flexible, basic and cheap annuity scheme" (Today, Aug 27).

Instead of spending the $750 million a year to pay the additional 1 per cent interest on the first $20,000 of the CPF Ordinary Account, and $40,000 of the Special, Medisave and Retirement accounts, growing these sums at say 5 per cent interest will accumulate to $67.7 billion in 2042 (the first year that the compulsory annuity will start at age 85, for those who are below 50 years old now).

This amount can at 5 per cent interest provide $300 a month from age 85 to 100, for 1.79 million Singaporeans.

By age 100, about 99.9 per cent would have died.

In fact, as many will die as they grow older, beyond age 85, more than 1.79 million people can receive the $300 life annuity.

Even if the resident population grows at 3 per cent per annum for the next 35 years, will there be 1.79 million or more Singaporeans over age 85 in 2042?

According to the Cremation Association of North America (link), the life expectancy for "White (race) Both Sexes", at birth, age 55, 65 and 85, is 77.7, 26.2, 18.2 and 6.4 years, respectively.

In other words, the 50 per cent survival probability for someone at birth is 77.7 years, and someone who is age 85 has a 50 per cent chance to be alive at age 91.4.

Therefore, under the proposed deduction of the compulsory annuity premiums at age 55, the percentage still living at age 85 may be less than the stated 50 per cent, because the 50 per cent probability would have been reached at age 81.2 for this cohort.

Only the age 70 cohort has an almost 50 per cent probability level of survival of 14.7 year, at age 84.5.

It was reported in Parliament on 27 August (“Minimum Sum : Figures show many don’t meet the mark”, Straits Times, 28 August), that :

“Only one-third of CPF members who turned 62 last year met their Minimum Sum (MS) requirement when they reached the age of 55 in 1999. Manpower Minister Ng Eng Han said that of the 22,600 CPF members who turned 62, 7,600 - or 34 per cent - were able to meet their MS, which in 1999 was set at $ 60,000. The remaining 15,000 members who did not meet the MS had a median shortfall of $ 49,300”.

Does this mean that despite the 4 per cent accumulation, and new CPF contributions for those who were working beyond age 55, 66 per cent could not meet the $ 60,000 MS, and 33 per cent had less than $ 10,700 at age 62 ?

“He (Manpower Minister) noted that one important reason why many members fell short of the MS is the current rule letting them withdraw half of their CPF savings at age 55”.

Phasing out “the current rule letting them withdraw half of their CPF savings at age 55”, delaying the MS monthly payouts to 65, and the compulsory deferred to age 85 life annuity purchase, may just be reactive ad-hoc measures, to address a fundamental core problem.

Are there systemic problems in our CPF system ?

Are HDB flats priced such that they are eating up too much of the average Singaporean’s CPF ?

Are there too many Singaporeans who lose their CPF life savings, when their HDB flats are foreclosed ?

Are we paying too low an interest rate on CPF ?

Why is it that according to the AXA Global Retirement Study, Singaporeans are the highest savers in the world, but have the lowest income in retirement ?