The Shape Of Retirement

Source : The Straits Times, Wed, Sep 19, 2007

THE changes proposed to the Central Provident Fund will determine the shape of individuals' retirement planning for years to come. That absolves no one, including younger people still riding the career curve, of the need to study the implications and offer their perspectives. Some provisions are controversial in the risk-sharing asked of CPF contributors, notably with the longevity annuity plan. Not all of the features of the various refinements will be universally popular. The Government should be ready to reconsider alternatives if it is persuaded by the logic of public opinion.

The delayed withdrawal of the Minimum Sum is the most 'tactile' of the proposals as its impact will be felt shortly. Conceptually the deferred enjoyment is tied to the need for Singaporeans to work longer so as to save more. But the law mandating continued employment after the present retirement age of 62 is targeted for enactment in 2012. People will feel better, seeing proof of policy intent, if the employment law is brought forward, say two years before the first deferred withdrawal takes effect in 2012. Employers will have time to adjust to workplace management, and older workers due for the extension will get a measure of how it will affect them. They would want a sense of security, an assurance of the law's workings. This is because economic conditions alone will determine the extent of gainful re-employment, not so much what the law says. In a recession, must a company lay off younger workers to accommodate the over-62s?

Of a different nature is the change in the interest rate regime. Pegging the bulk of one's CPF balance, beyond the Ordinary Account, to the 10-year government bond yield, plus one percentage point, is a variable many people may be uncomfortable with. This is in spite of the extra one percentage point that will be paid on the first $60,000. Fluctuating yields make one feel powerless, unsure if the accumulated assets may not be eroded over time. Members, for sure, prefer to have greater certainty over how their own money is managed and the appreciation it would enjoy over the years.

But the most controversial is the compulsory annuity scheme. It has been suggested that the Government contribute to the pool so as to lower the cost of premiums. Second Finance Minister Tharman Shanmugaratnam yesterday gave a robust response why this wasn't a fiscally responsible idea. The scheme has been referred to a committee to take public soundings. It should consult widely as the notion is revolutionary, quite alien to a good many people.