CPF and retirement – are you ready?


The article below is contributed by an individual who wishes to remain anonymous:


        •  Are Singaporeans properly prepared for retirement?
        • Is CPF alone enough for retirement?
        • How would low-wage earners cope?

It is an undeniable fact that Singaporeans save more than our peers in other countries. With more than 30% CPF contribution from both employer and employee, how do we fare in retirement? This remains the most critical concerns in an aging Singapore going through a period of low economic growth as predicted by the Ministry of Trade and Industry.

Younger Singaporeans below the age of 45 year old continue to support their aged parents, children and their retirement plans. With HDB flats reaching a potential S$150,000 COV in the resale market, one may question how sustainable the life of an ordinary Singaporean. In addition to that, the price of a personal vehicle, commonly regarded as a necessity for an aging society, soars to historical heights.


How employers behave

The Department of Statistics’ year book in 2012 indicated that CPF Contributors in Labour Force has been declining ever year from 57% in 2007 to about 54% in 2011. Does this have anything to do with the hiring of non Singaporeans, allowing foreigners to save 17% on employer CPF contribution? Singaporeans will have to consider these trade offs and work hand in hand with established feedback loop on how to craft future policies. If locals cost more than foreigners, I’m sure businesses will continue to hire foreigners, unless we increase the hurdle for hiring non locals. There seem to be serious implications on wage levels and unemployment levels.


Landscape of wage earners 

Talking about wage levels, did you know that there were 294,300 active CPF members whose monthly wage levels were less than $1000? (Source: Department of Statistics) Altogether, more than 450,000 members earned less than $1500. Simple math will tell us if a person earning less than $1000 can survive with dignity in Singapore. For the poor, tuition, assessment books, health checks are luxury goods. Arguably, they may be stuck in the poverty cycle. We understand that schools continue to provide help and subsidies. However, it may be clear that the most direct way of extending help is to increase their wages by at least 20%. Recently, notable economists and former public servants like Lim Chong Yah and Ngiam Tong Dow have expressed alternative views on wages. We believe that Singaporeans could benefit from such a review. To reflect the increasing wage concerns, the number of people seeking financial assistance at family service centres has increased from 20,483 in 2007 to about 26,386 in 2011.(Editor: For contrast, have a look at opinions voiced on this site here, here and here)


Is CPF enough?

With these as background, can Singaporeans retire with enough CPF savings? We don’t think so with the current inflation at about 5% and the ever increasing minimum sum for CPF at $139,000. Singaporeans should beware that the risk of longevity (living beyond retirement funds) is real as aging becomes a reality. Couple with slow wage growth and high inflation, we believe that many Singaporeans may retire without sufficient funds.

Lastly, what about those Singaporeans that work as freelancers and do not get CPF contributions? We need to understand that people who really suffer from poverty may not be working in a decent position in a first place. Similarly, a large number of middle to lower income Singaporeans drive taxis. Their CPF contribution may not be accurately captured in statistics.

Summarily, Singaporeans experience high inflation living conditions and low wage growth due to job competition and easy alternatives. Policy makers have increased the hurdles to encourage employment for locals, but it will take a while before the effect is felt. At the same time, Singaporeans need to rethink their ability to retirement and commit more funds to prudent investments.

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