In order to keep up with the standard of living in Singapore many elderly people still need to work even after their prime age from Shutterstock.com

Not surprising that most Singaporeans will not be able to afford a comfortable retirement with just CPF savings

by Goh Meng Seng

People’s Action Party (PAP) had made use of CPF-HDB financing to boost its own political capital. Let me explain this in simple terms.

Let’s say someone forces you to put one-third of your salary into his safe keeping with the promise of a miserable 2.5% per annum return. He then tells you that you could use a big bulk of it to purchase only a precious stone from him; this precious stone will increase in value forever by multiple times.

If you choose not to purchase this stone, you would have to wait until you turn 55 years of age before you can take back your money. Later on, he says that you cannot take out the whole sum but only bit by bit as each month goes by.

What would you do? Most people would use whatever amount of money they have with him to buy this supposed precious stone!

After that, he inflates the price of this precious stone artificially because he is the sole supplier of these stones, under the slogan of “enhancing the value of the stones”. In fact, he made you pay money to ‘upgrade’ the stone with beautiful boxes.

Despite his actions, this guy knows from the start that these stones could only last 99 years. After the lifespan of the stone, the value would drop to zero and he could take the stones back from you.

Anyone with a good mind would conclude that this is a scam.

The contract drafted by that guy has specifically said that the stones will expire and have to be returned to him but yet, he is telling everyone that it is an asset to them and it will rise in value forever!

Now, this is just the beginning of the problem. 

If it is just a bit of money lost to a scam, that’s not a big issue. But in this case, a few generations of Singaporeans’ retirement financing is at stake! The PAP has encroached into the core CPF funds meant for Singaporeans’ retirement.

A prudent financial plan for retirement would require a person to save at least 20% of his or her income for retirement. With prudent investment return about 5% to 8% (or at least above the inflation rate), it would provide a decent retirement for everyone.

A balanced financial plan would mean that a person should only spend 20% of his or her income on housing. This would mean that 40% of his or her income would be set aside for retirement as well as housing. 60% would be available for daily consumption.

However, PAP has screwed it up with its manipulation of the CPF which supposedly acts as a function of retirement saving but they have mixed it up with housing financing, apart from other usages.

Only 11% of a person’s salary is kept as fixed savings for retirement, including of Medisave for healthcare. To make it worse, the returns for this 11% of savings is just 4%.

Thus, it is not surprising at all that most Singaporeans will not be able to afford a comfortable retirement just depending on the CPF savings.

The “solution” that PAP gave initially, is that HDB is an “asset” which Singaporeans could “monetize” for retirement. But now that it does not work, this comes at the cost of Singaporeans’ retirement financial adequacy and the housing needs of future generations of Singaporeans.

It is a foregone conclusion that most Singaporeans who have paid inflated prices for their HDB flats will suffer when they eventually find that there are insufficient funds in CPF for their retirement. You will see more elderly people pushing carts, washing dishes and cleaning tables in the years to come.

Mr Goh is the Secretary-General of People’s Power Party