Singapore may have Asia’s best retirement system, according to Mercer’s latest annual rankings, but it still faces major challenges as its population ages that tinkering around the scheme's edges won't easily resolve without greater education of its citizens.
The latest tweaks to the mandatory Central Provident Fund (CPF) will see an increase in payouts for people currently on the CPF Retirement Sum Scheme, come into effect from January 1. The trade-off, though, is that these payouts will only last up to age 90 instead of the previously stipulated 95.
The minimum sum members have to leave in place in their CPF accounts, before they are eligible for retirement payouts from age 65, will likely increase in future as well. Members turning 55 in 2020, and therefore able to withdraw any excess cash, have to leave at least S$181,000 ($133,529) in their pension accounts and there is speculation that this figure could yet rise to S$280,000 in 20 years’ time.
But for the citizens of Southeast Asia’s fast-ageing country to retire comfortably or even accumulate that minimum sum, more education over how they can best use their retirement funds is key.
“The savings and retirement schemes are all there; it's for the participants to decide how they want to make full use of it,” David Ng, Singapore Consultancy’s principal consultant, said. “Thus, the issue may lie with educating the public not just about how it works but also what approach and strategy to adopt that suits their needs.”
Close to 27% of Singapore's current population of 5.6 million are projected to be older than 65 in 2035, according to Statista.
LACK OF FINANCIAL KNOWLEDGE
CPF’s several retirement saving accounts – including its Ordinary Account, Special Account, MediSave Account – offer interest rates ranging from 3.5% to 5% per annum. But these funds can also be used to pay off housing mortgages, leaving less of a retirement pot.
Many CPF participants can also hobble their retirement savings due to a lack of “financial knowledge or proper advice, along with high transaction fees,” Ng said.
“In Singapore and Asia, many people are just not interested or not well-informed about investments. Thus they may not invest at all, and run the risk of the value of their funds being eroded because of asset inflation and higher costs of living over time.”
“It’s a pity because the account is meant for savings for retirement … CPF monies can also be lost in purchasing property when one sells at a loss,” Ng added.
Current CPF rules are also restrictive.
CPF participants need to have more than S$20,000 in their Ordinary Accounts or more than S$40,000 in their Special Accounts to be able to invest. They are allowed to invest in stocks, bonds and gold but savings from the Special Account can only access products with lower risks. Property funds and corporate bonds, for example, are not available for investing with savings from participants’ Special Accounts.
“In the end, it's really about how the public perceives and interact with the various retirement saving schemes and how or whether they participate in it and are able to maximise value for themselves,” Ng said.
“They therefore have to constantly educate themselves on the workings of the schemes and to receive good and proper advice on setting retirement goals and planning to achieve it,” he added. “This gap needs to be bridged for a happy outcome.”
Employee CPF contributions start at 20% up to age 55 and gradually decrease to 5% for participants aged 65 or above, while employer CPF contributions begin at 17% up to age of 55 and decrease to 7.5% for those aged 65 and above.