Low-income can replace 93% of their income when they retire?

By Leong Sze Hian

I refer to the report “Young working S'poreans will have enough CPF savings by retirement: MOM study”  (Channel NewsAsia, Sep 19).

It states that

“Young Singaporeans in the workforce today will have adequate savings in their Central Provident Fund (CPF) accounts by the time they retire, according to an independent study by the Ministry of Manpower”.


Independent study?

Since it was an independent study, can we know who the independent party that conducted the study was?

With regard to “Details of the study will be released in near future”, I find it somewhat strange to cite a study and be able to announce such significant findings, but then say that details (the full report?) will only be released in the near future.

In this connection, just like the independent actuarial study done on the CPF Life scheme, despite calls for the report to be made public, it is still not available after so many years.


Singaporeans 70% Income Replacement Rate?

In respect of

“Mr Tharman said the study aims to estimate a worker's income replacement rate (IRR) using the accumulated CPF.

Pension economists measure retirement adequacy by using an IRR, the ratio of retirement income to pre-retirement earnings.

The study found that the median male earner who enters workforce today will be able to achieve an IRR of over 70 per cent through his CPF savings.

For the female median earner, the equivalent IRR is 63 per cent.

These figures are similar to those of countries of the Organisation for Economic Co-operation and Development (OECD).

The IRR for the median OECD economies is 66 per cent.

The rate is significantly higher in Singapore when it takes into account the fact that Singaporeans have their own homes when they retire.

Cash is freed for other living expenses as they do not have to pay rental fees.

Once this is taken into account, the IRR of the male median earner will rise to 75 per cent”

The findings of the study seem to go against practically every other study that has been done on retirement adequacy in Singapore.


Singapore's net income replacement ‘particularly low’

For example, under the Adequacy of Retirement Income sub-index in the Mercer Pensions study 2011http://www.mercer.com/articles/global-pension-index, Singapore’s net income replacement rate is ‘particularly low’.

The retirement income replacement rate is a measure of a pension system’s effectiveness in providing income during retirement to replace earnings which were the main source of pre-retirement income.


Low-income 93% IRR?

As to

 “For lower-income workers, the IRR is higher – at about 81 per cent.

With Workfare, which supplements the wages of low-income workers, the IRR is even higher – at 93 per cent”

This seems to go against the latest statistics on the number of people being able to meet the CPF Minimum Sum (MS), which is currently $139,000.


How many can meet Minimum Sum?

As the percentage of active CPF members who meet their MS including the pledging of property at age 55, was 45 per cent in 2011, what is the percentage who were able to meet the MS in cash in their CPF, without the property pledge?


1 in 8 met MS?

From the CPF Trends: CPF Membership, June 2012 report, I calculated that there were 187,426 active CPF members aged 51 to 55 out of the total active CPF members of 1.74 million in 2011. There were 197,476 inactive CPF members aged 51 to 55.

As there are also 1.64 million inactive CPF members, what percentage of both active and inactive Singaporean CPF members who reach 55, were able to meet the MS?

I estimate this figure to be about 1 in 8, as an estimated 1 in 4 active CPF members were able to meet the MS in cash.

In this connection, how many Singaporeans who turn 55 are estimated to have a total of $177,500 (MS plus Medisave Minimum Sum (MMS)) or more in their CPF?