CPF – simple answers for a simple reform?

By Howard Lee
Sometimes, judging from our politicians’ response to issues to the Central Provident Fund, you begin to wonder if the government either firmly believes that it already has all the right answers to citizens’ concerns about the CPF, or if it is desperately reciting from a worn and tattered script.
In fact, an event like the Forum on CPF and Retirement Adequacy, organised yesterday by the Institute of Policy Studies, saw many concerned individuals taking to the discussion with gusto, as they identified problem after problem for where the CPF is actually not addressing our retirement needs.
However, the responses from Manpower Minister Tan Chuan-Jin and Finance Minister Tharman Shanmugaratnam, who each led a panel discussion for the event, seems to suggest that they already have a pre-conceived plan for how the take the thorny CPF issue – which has attracted thousands to Hong Lim Park protests – forward: Keep a system that ensures a basic level of savings for retirement, keep it “sustainable”, keep it flexible for other uses such as housing and healthcare, maybe open up more options for CPF members to invest for higher returns, and government will bear the risks of GIC’s total investment.
Indeed, the reports by media seemed to have focused so exclusively on the assurance of the two Ministers, that scant attention seems to have been paid to the points raised by other learned members of the panel discussion.
Points such as those made by Associate Professor Tan Ern Ser from the National University of Singapore, who noted in his studies that the high percentage of elderly who are working as cleaners in their sunset years indicated that Singaporeans are still using paid employment to supplement their retirement savings.
Or remarks made by Associate Professor Lum Sau Kim, also from NUS, who noted that the greatest proportion of CPF withdrawal went into housing mortgages, where the strong home-ownership bias since the 1968 has led to an almost unfettered use of funds for housing finance. Prof Lum noted that people were essentially using housing as their pension fund, yet were not able to fully monetise their houses through the various options offered by the government, because of factors like leasehold value decay (houses are worth less as the approach the end of their 99-year lease) and the volatility of rent.
Or the points made by Donald Low, Associate Dean and Senior Fellow at the Lee Kuan Yew School of Public Policy. Mr Low readily identified that the CPF system was fiscally sustainable, encourages work and personal responsibility, and allows people to own homes. But he also indicated that the CPF scheme suffers from the wrong assumption that the large majority of the population can save for their own retirement, the system implies a need to continually raise the minimum sum in order to meet these needs, and that home ownership may not be an advantage for an aging pop. He also said that the government’s continual emphasis that the CPF “is still your money” might “constrain the government’s ability to undertake unpopular reforms”, such as raising the retirement age beyond 55 years-old.
The panel speakers were not the only one. Another set of concerns were raised by Dr Paul Tambyah from NUS during the question and answer session with Minister Tan. He rebutted Mr Tan when he said that people should continue to work longer as life expectancy is growing, saying it is not logical to expect, say, truck drivers and brain surgeons to keep working until 75 year old. Dr Tambyah, a medical professional who is also a Professor at NUS, also noted that the current CPF system is indeed passing on the bill to the next generation, because a significant portion of Medisave for the elderly is paid for by their children’s contributions.
Other participants from the floor cited more issues – the CPF is an employment-based retirement fund, which disadvantages those who leave the workplace but are still contributing to the economy, such as women who become housewives; the disabled are further impaired as they do not have the means to earn a large income; the difficulties of meeting the minimum sum without a corresponding increase in wages.
What was Minister Tan’s response? Indeed, at his opening speech for the panel discussion, he said, “I was quite tempted to re-read my last speech in Parliament again.”
Maybe he should have. What Mr Tan delivered at the forum was essentially this: There is a need to balance current and future needs and wants, but because people don’t think long-term about their retirement, there is a need for the government to step in to provide a basic level of assurance, which must be done using a system that is sustainable so that we do not burden future generations. He noted unhappiness about the CPF system and the minimum sum, but insisted that it is not the goal posts that have changed, but because life expectancy has gone up, the “entire game has changed”.
Unfortunately, such a position hardly addresses some of the very real concerns that the forum participants have brought up.
Mr Tan said that to ensure that people continue working, the government will help to re-role and re-skill workers, although it might mean that they may not be able to continue working in the same sector. He forgot to mention that many of those who are re-skilled might risk receiving a much lower pay, which might not help towards building up their retirement funds.
For those who are providing medical support for their parents, he proposed that there are various schemes that they can apply to, while still accumulating medical reserves for themselves. He forgot to mention that such support schemes are often subject to means testing.
Mr Tan also mentioned CPF is supported with different subsidies and transfers, including from workers to their aged parents’ CPF accounts for tax benefits. On the point on over-consumption on housing, Mr Tan cited efforts by the government to put a cap on how much people can draw down from their CPF for housing. Perhaps when Mr Tan spoke about the sustainability of CPF, it was only in the context of the fiscal sustainability for the CPF fund managers rather than CPF members, because it would be a stretch to believe that a system that has to depend on other supporting structures and policies can be anywhere near sustainable.
And we have yet to touch on the most topical issue: That a pension fund where only half of its members are able to meet requirements for the fund to be useful to them, can be considered working, much less successful.
To this, Mr Tan reiterated that going forward, more people will be able to meet the minimum sum, and of those who are not able to, some might be adequately provided for, such as by their spouses or housing. But again, how does that make the system sustainable for citizens? And again, why are we further entrenching the viability of pension funds to housing? And yet again, with the foreign labour market suppressing wages and growing income inequality, why would we even believe that those who have difficulty meeting the minimum sum due to low wages would be able to do better?
Perhaps the most laughable moment of the discussion with the Manpower Minister was when a participant raised concerns that because the minimum sum was pegged to inflation, which includes rental costs, CPF members who cannot meet the minimum sum are indirectly penalised by home-owners who can afford to rent out their properties. Without a hint of irony, Mr Tan responded: That it is actually good, because it leads to higher pay-outs for members in retirement.
Granted, it is a fairly complex problem of a pension fund mixed with housing and healthcare needs, inter-weaved with a messy web of buffer and assistance schemes. There is a desperate need to review the system in a holistic way to account for these complexities, as the participants of TOC’s Policy Exchange on CPF have observed. What, then, is the government’s response?
Sadly, the reading from both Ministers at the IPS forum suggests no consideration for such complexities, if not to confound them further.
The silver bullet: Keep CPF as it is, together with an ever-increasing minimum sum, and open up the funds for other investment opportunities, such that those with a greater risk appetite would be able to grow their fund to meet the minimum sum mark. There is a hint by the Finance Minister on tweaking CPF Life to keep pace with inflation, but that still sounds like we are working within the same paradigm.
One wonders how this can be done effectively. Mr Tan has already said that people do not generally think long-term about their retirement, so why would such a scheme appeal? Furthermore, those who have greater risk appetite might likely have sufficient funds to invest with outside of CPF, which makes the minimum sum irrelevant to them. Which leaves those who are struggling with moderate to low wages in a desperate need to gamble bigger to take advantage of such a scheme. Is this prudent? Is this responsible of the government to propose?
Leaving the forum left me no more confident that the government is taking a well-considered approach to the issue. At most, it feels like an effort to “tahan” the catastrophe of slipping pension funds, without considering that our internationally-vaunted system might be broken, and might no longer be able to serve citizens in their sunset years.
I only hope to be proven wrong, for the benefit of the people.

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