A “cosmetic change” to “pander to popular demands.”
That was how economist and associate professor, Hui Weng Tat, described the change in the Central Provident Fund (CPF) scheme to allow partial, lump-sum withdrawal from the CPF Minimum Sum.
Prime Minister Lee Hsien Loong had announced in his National Day Rally speech on Sunday that the government will allow CPF members to withdraw “a part of” their CPF Minimum Sum at age 65.
This would be a departure from the current rules which do not allow such withdrawals.
The Minimum Sum itself can only be drawn out, in instalments, at the draw-down age of 63, which will be increased further to 64 next year, and 65 thereafter.
Now, members will be allowed to withdraw part of it in a lump sum – Mr Lee threw up a possible figure of 20 per cent of savings – on top of the monthly instalments.
However, Mr Lee also cautioned that withdrawing the lump sum would also mean less monthly withdrawals.
Mr Hui, writing for the Straits Times, slammed the change and said “allowing this may not be in the best interest of most CPF contributors.”
This, he said was because “any lump sum withdrawn means correspondingly lower amounts of retirement income for the individual.”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,” he said.
Mr Hui said the focus should be on the critical question of why Singaporeans do not have enough CPF savings for retirement in the first place, instead of what he called “piecemeal” measures to address the issue of retirement income.
“Attention has to be put on the savings accumulation stage, not just the withdrawal stage,” Mr Hui said.
The associate professor at the Lee Kuan Yew School of Public Policy also questioned the other measures announced, and said these “do not address the fundamental source of concerns about retirement adequacy.”
For example, on the extension of the Lease Buyback Scheme to owners of 4-room HDB flats, Mr Hui said “it is not clear if this will make any significant difference to the popularity of the scheme.”
The scheme allows flat owners to sell part of their remaining leases to the Government in return for a lump sum and a monthly payment.
They can continue to live in the flat in the meantime – but they cannot bequeath the flat to their children.
“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,” Mr Hui said.
He added that the motivation of families of larger sizes which live in 4-room flats to pass on their flats to their children “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.”
Indeed, experts say that the extended scheme “will likely appeal to only a small segment” of flat owners.
“PM Lee also seemed to adopt an overly-optimistic view of current retirement adequacy,” Mr Hui said.
He then questioned the example of a “Mr Tan” which Mr Lee had offered in his speech to show how Singaporeans can provide for themselves in retirement through various government schemes.
“Take the example of Mr Tan he cited whose monthly pay is S$4,500,” Mr Hui said.
He said Mr Tan’s income would place him in the 25th to 30th percentile of the Singapore household income ladder.
“The S$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,” Mr Hui explained.
“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,” Mr Hui said. “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.”
Turning to the CPF Life scheme, Mr Hui pointed out that members who meet the Minimum Sum in cash would receive a monthly payout of S$1,200 from age 65, for life.
However, Mr Hui said, 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),” he said.
“A monthly payment of $1,200 would be barely enough to offer households even subsistence level retirement living.”
He said it is thus urgent that CPF Life income be inflation-adjusted so that real purchasing power is maintained.
Mr Hui then wrote:
“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.”
Read also: “CPF partial withdrawal at age 65 – a populist compromise“.