A Good Plan To Retire On

Source : The Straits Times, Feb 13, 2008

THE Government-initiated insurance plan for retirees, released yesterday, has been retooled to gain broad acceptance. Two aspects of the original formulation which drew the loudest objections - capital sums to lapse upon a CPF member's death and the late access age for payouts - have been confirmed amended in the report of the Lim Pin committee. First, the amounts remaining will revert to members' heirs. It should have been proposed at the start to avoid muddying the waters, as annuities are not a concept readily understood here. Second, a range of starting ages is offered for members to choose from, as to when they wish to begin receiving the money. This concession does not invalidate the statistical profile of Singaporeans' lengthening life span, but it does satisfy a primal urge in people. That the plan will be managed by the CPF Board, another recommendation, was never in question. There was little chance of the proposal carrying if a private company were to run it. Members will insist on a state guarantee for the investing and management of their savings, more so in an age of bolder and riskier investments by global finance houses. It has nothing to do with the CPF's better interest yield compared with a commercial provider designing annuities on the assumption of lower rates of investment returns.

All told, this is a plan that ought to sell itself. Retirement planning for a non-welfare state, with its trademark absence of taxation-funded old-age pension, does not come more carefully thought out than this. The Straits Times recommends it thoroughly. The public education which the committee proposes the CPF Board carry out to acquaint members with the scheme should address issues arising, not the hard-cast features. One such is ironically the need to sign on because of creeping inflation which will erode monetary purchasing power at a faster clip henceforth. The first members, now aged 50, will draw on their annuities in 15 years' time if they choose the age-65 access plan. (The access range goes up at five-year intervals to a rather ambitious 90.) These monies are not inflation-indexed.

How much a notional monthly payout of $600 at today's prices can buy 15 years from now will make for lively speculation. Premiums and payouts and their underlying investments will be reviewed periodically in accordance with actuarial change and economic cycles. This is the minimum assurance against monetary inflation. One trusts the Board to be fair to members. One other educating job is getting those outside the plan's actuarial scope - those older than 50 this year - to join up by opting in. These individuals should be making their own calculations. They will see the merits readily.