Wednesday, March 21, 2012

No Money, No Retirement

Author of more then 30+ academic papers, on retirement and other issues, Assoc Prof Hui at NUS should know his subject well. His latest study predicts that the present lot of tertiary educated Singaporeans with starting pay of $2,560 will only have one-third of what is required to maintain their lifestyle prior to retirement, after coughing up $560,000 for a Government 5-room flat.

His premise is that an income replacement rate of 66 percent is the international benchmark of retirement adequacy for homeowners. While some will quibble whether this is too much or too little, it should be safe to assume that at age 65, all major financial obligations on house, car and tertiary education outlays for their own children should have been met during the productive years. What's leftover in the piggy bank is meant for a comfortable subsistence, unless you still plan to zip around in a Ferrari California or ski at the Alpine slopes.

When the British colonial authority in Singapore introduced the CPF in 1955, it was a compulsory savings scheme to set aside money for the retirement years, since not all were entitled to the alternative pension fund. The contribution rate was calibrated for such intent, and should suffice for said needs. Until somebody upstairs decided housing could tap on the retirement funds, and while they are it, make the workers pay for health care out of same. Piggy started to slim down and has never been the same since.

Only 45 percent for CPF members have enough for the minimum sum last year - and the payouts based on that number probably won't be anywhere near the 66 percent income replacement rate quoted by the academic. Worse, some are pledging up to 50 percent of their properties to meet the minimum sum requirement. Meaning, cash wise, piggy is even skinnier - a large chunk of pork belly has been carved out by "affordable housing".

That political lure of "asset enhancement" has turned into an I.E.D. - improvised economic disaster. Add the expectation of home-owners seeking to make handsome profits from selling their homes and, Prof Hui said "the future of our next generation will be in jeopardy as it will not be sustainable." He proposed shorter leases to tame the obscene housing prices, and expects the outcry of existing HDB owners when numbers start to tumble. It will be like a recession, he said, the paper value goes down, but the roof is still there. No need on camp out at Changi Beach, yet. Unfortunately the bunch of guys currently in charge don't have the political will to do the necessary. They won't even tell us the true cost of construction.


  1. I'm sure our leaders have read and understood Assoc Prof Hui.

    That's why our far sighted supreme leader engineered an ambitious salary scheme to ensure that our elites will have sufficient money when they retire.

    Danke schön mein Führer

    The lightning logo in 1932

  2. Being unemployed doesn't make you a failure, but if companies are discriminatory in their hiring practices, then they have failed you.

    Being diagnosed with cancer doesn't make you a failure, but if you lived in a city where affordable healthcare is beyond your reach to get treatment, then the healthcare provider has failed you.

    Being poor with no sufficient funds for retirements doesn't make you a failure, but if you have enforced savings imposed by a CPF Body that don't optimize investments that matches inflation rate, then it has failed you.

    Being any of the above three doesn't make you a failure. But if your government does nothing about it, then it has failed you.

    If you are aware of these problems, and do nothing to hold your Government or Party accountable, then you have failed yourself in not exercising your right in active citizenry.

  3. //...Worse, some are pledging up to 50 percent of their properties to meet the minimum sum requirement"

    Whenever we ask the govt to do more either in healthcare or retirement, there are many who are quick to say we are borrowing from our children's future to spend it now. So it was instead ok for the adult to borrow now and spend it for their children's future (& they have nothing left for themselves) - which is the case we are facing here.

  4. shorter lease will make things worse. the pricing mechanism needs to change.

  5. First of all, let me say I love the 'IED' part ! Thanks for letting those too young to know how and why the orginal CPF came about
    . The PAP believe that they did us a big favour manipulating the scheme along the years
    How sad.

  6. If you google the 2011 Mercer Pension Plan comparison, Singapore is nowhere close to first world retirement status - pretty low in our adequacy provision. Yet, today our HDB & GIC & CPF are all still opaque.

  7. //Singapore’s ruling party of course does nothing to discourage the myth. The People’s Action Party (PAP) is anxious to take as much credit as it can for Singapore’s undoubted success....Singapore’s post-independence politicians can take enormous credit for steering their little island-nation to its present heights, but they did not inherit a Timor-Leste or Rwanda.//

    They never did, and never will know how to do it. Thus all that constitutional laws to ban dissents in any shape or form. Yet they deserve the highest salary unlike what other world leaders have to deal with, amidst serious economic planning, disasters and oppositional spars. World class heh..

  8. LKY will say over my dead body. No way PAP will do anything to allow HDB prices to fall even 15%, let alone a recession-level drop of 30%-40%. Property has become a bomb in S'pore with the trigger already pressed down by both PAP and daft Sinkies. If anyone releases the trigger, prepare to be blown to bits. And the first casualty will be PAP to be voted out.

    Secondly, a big drop in property will affect a big part of S'pore economy. Thanks to PAP, many companies and industries are actually dependant on the property market, whether directly or indirectly. Especially the banks and finance industry. During a property-drop recession, there will definitely be people losing their homes, and forced sales by banks and forced confiscation by HDB. Just like the last property recession during 1998-2004.

    So conclusion is that PAP will continue more or less like today. At most build more HDB so that prices don't go up so fast. If you want S'pore property to collapse, you must pray for massive global market crash, or a war breaks out involving S'pore and the ocean surrounding us.

  9. According to Thomas Stanley from the million next door, guide to ensure we have enough for retirement, one should not purchase a house that is more than 3 times ones annual income. Base on our mean wage of 2.5k, our public housing should price around 97.5 k. This is assuming one has 13 month bonus.

    Base on this simple estimation, we can conclude most of us are not able to retire.
    even if u buy the bto 2 room flat, it's about 100 k ?

    In between, just receive a flyer for housing agent, a 3 room flat costs about 380k while a 4 room flat is selling at about 530k. Lol , these flat are close to 30 years old !

    What is happening to out public housing, it does not make sense any more !

  10. "What is happening to out public housing, it does not make sense any more !"
    ANON: Mar 21, 2012 06:48 AM

    If you change your paradigm.
    Public housing is NOT to help the public.
    Public housing is NOT about the greater good.
    Then it will start to make more sense.

    Just follow the money trail.
    Who benefits the most in this current situation.
    Then it will all start to make sense.

  11. shorter lease will drive prices of longer lease flats higher.

  12. If CPF is to stick to its original goal of retirement savings, they must stop funding housing and health care spending with CPF.

    When that happens, you will see the true price of "public" housing. It's simple economics.

    As it stands today, property prices are artificially propped up by CPF funds, lengthening of mortgage terms, low mortgage rates, and unsustainable population "growth." Changes in any of these factors will deflate the bubble and bring prices down (and potentially the governing Party with it.)

  13. Those facing retirement in 10-20years time probably can look forward to the JB-Iskandar project. It will be like the shenzen of hkg where most people go there to retire because is cheaper..that's what your govt has in mind. Those KPKB high cost of living - the train aren't going to stop for you. It will move with or without you..natural darwinism. All in good plans by the PAP.

  14. The government totally understand the high cost of housing. That why they keep fighting for multi million pay for ministers.As for the ordinary citizens, you die your own business.


  16. What I am not happy is that whenever someone raise the health cost issue, government always say after minus your medisave, you only need to cough out so much more. Hello, is medisave fund also our money? So the cost of medical should be the sum paid out from medisave and cash. Think we are stupid?

    1. Really show them you are not stupid.
      Get your friends & family to vote Opposition in GE 2016.

  17. Isn't it a joke that after saving almost 30~40% of our pay monthly for the most part of our early working lives, there are still so many people out there who can't even meet the minimum sum requirement for retirement ?

    What the fuck is the CPF Board doing & whose interests are they serving ? We CPF contributors doesn't seem to have any rights as far as the CPF Board is concerned as changes are frequently made unilaterally without seeking our prior consent.

    And why does the Board allow Temasek or GIC to shortchange contributors by allowing these national investment to retain huge profits at the expense of CPF contributors? And if they are allowed to keep the differential profits for themselves, what difference are they from unscrupulous fund managers?

    1. The difference between them and unscrupulous fund managers is you can stop investing with unscrupulous fund managers. You can't stop contributing to CPF. They can take your money and keep changing the rules and you can do shit about it. Eventually, if they decide to do a Bernie Madoff still we'll just have to grin and bear it.

  18. "They won't even tell us the true cost of construction."

    That's not very difficult to arrive at.

    The cost is around 120K per flat.

  19. Actually that cost is assuming mere breakeven. If we assume that the builder is making at least 10% profit on the whole deal, the price comes down even more (about 107K).

  20. Before: As a mandatory savings scheme to avoid the tax burdens of pensions for retirement - it worked.

    Later: As the scheme expanded to include paying for public housing (and later hospital bills) it could have worked, if housing prices were kept low.

    Today: Privatisation and a hands-off approach of medical industry, high medical fees. Housing mortgages to be paid in 30 years in order to stil be 'affordable' even though home prioes have skyrocketed to goodness know how much.

    CPF for retirement? Hmm.