Aug 21, 2007

On CPF, Life, Work and Retirement

For the record, I agree with PM Lee’s views on the aging population. I agree with his proposed changes to the CPF system. When the specific details are announced, I will probably have a few quibbles and disagreements. But by and large, I agree with PM Lee’s general direction.

To be frank, there aren’t many alternatives to choose from. PM Lee’s solutions are not at all brilliant. They are quite obvious. It’s a “not-much-choice” situation.

As I poke around the blogosphere, I hear some people mumbling and grumbling. Their dissatisfaction is with the notion that they’re going to have to work to the ripe old age of 62, or 65, or 67. While I understand the sentiment, I think that these people may not be fully appreciating the issues.

The government is not forcing you to work. If you have enough money, you could choose to stop work at 60, or 58, or 55. As a matter of fact, if you have enough money, you could jolly well retire at 35. Come to think of it, I have ex-classmates who had already become tai tai’s at the grand old age of 30.

In all cases, it’s just that a certain portion of your CPF savings (known as the Minimum Sum) will not be available to you, until you reach 62, 65, or 67 years of age. And even then, you won’t get all of the Minimum Sum at one go. You’ll only get a small instalment, every month for the next 20 years (starting from age 62, 65 or 67).

Some people are peeved because they don’t want to wait till they’re 65 or 67, before they start receiving their monthly instalment. They feel that this rule compels them to keep working until they’re 65 or 67. Ideally, they would like to retire instead at, say, 55 or 60.

What do I think? Well, the monthly instalment is quite small. It was never going to make you feel wealthy. The whole idea of this monthly instalment is just to cover your basic survival needs.

For example, if you turn 55 after 1 July 2008 and before 1 July 2009 (and are able to set aside the Minimum Sum in full), then the monthly instalment you’ll get from age 62 onwards is about $416. That works out to about $14 a day. This will cover three square meals at your neighbourhood HDB coffeeshop. And leave you a few dollars for a kopi and an ice kachang.

If you turn 55 after 1 July 2008 and before 1 July 2009 (and are NOT able to set aside the Minimum Sum in full), you will get even less than $416.

Now, suppose you feel unable to retire at your ideal retirement age of 60, if you do not immediately start getting your monthly instalment. Then in my opinion, you really should not retire anyway. If with your own non-CPF savings, you cannot afford your own three square meals per day (plus kopi and ice kachang), from age 60 to age 65 or 67, then you must be quite broke.

You should probably keep working until you hit the then-prevailing official retirement age. And quite possibly, well beyond that.

Remember – the current life expectancy is around 81 years. There’s a 50% chance you’ll live beyond that. And the national life expectancy is still rising, year after year.

**********************

Singaporeans need to start adjusting their mindset about work. They also need to start adjusting their mindset about “old” age. The good thing is that we all grow older gradually, day by day, and not all at once. That means we have plenty of time to slowly adjust our mindsets.

Life expectancies in all developed countries have been climbing steadily through the past century, with no sign of leveling off. PM Lee is peering as far as he can into his crystal ball, trying to see what the future might hold. And he’s making plans for that future.

Our error would be to judge and criticize those plans according to our notions of how human society operates today. Because PM Lee is not preparing for today – he’s preparing for quite a distant tomorrow.

Today when we see a 70-year-old woman, frail, bent over, still working hard in a coffeeshop for meager pay, we feel sorry for her. That sympathy is justified. But if today you are 35 years old and live to be 70 years old in the year 2042, it’s quite probable that you will turn out to be rather different from that 70-year-old woman.

Due to medical advances, it is entirely possible that at 70, you will still be fit, healthy and fully functional. With another 35 years of life left in you. If that is the case, you will be quite happy to still be working at the age of 70. Because 35 years is a very long time to be sitting around and waiting to die.

Inevitably, over time, our views about work, and the role it plays in our lives, will also evolve and change. Currently we think of a working life spanning 35 years as “normal”. In time, we may come to think of a working life spanning 50 or 55 years as “normal”. When that happens, how might society change? Here are some possibilities:

(1) Currently, many modern women delay or avoid marriage / having children, so that they can focus on their career. This idea may gradually become redundant, as the length of the average working life increases. When you have 55 years to build your career, and not just 35 years, the idea of putting your career on the backseat for five or six years to prioritise your family life will become much more agreeable.

(2) Constant learning and relearning will naturally become accepted as a way of life. If you are going to work 50 years, you will probably be around long enough to see everything you learned in the first 40 years of your career become completely obsolete in the last 10 years of your career.

(3) It will become quite common to see people in their 40s or 50s go back to university and study for a new degree, in a completely different field from what they had been working. If you qualify as a doctor at the age of 55 but intend to retire at 75, you still have 20 years to practise as a doctor. That’s long enough to justify the opportunity cost of quitting your engineering job to enter medical school at age 48 or 49.

(4) As industries continually emerge, grow, boom, die or reinvent themselves, more people will from time to time be retrenched, made redundant or otherwise become unemployed. Over a 55-year working lifespan, it may become unreasonable for any individual to expect continuous, unbroken employment.

(5) The older workers of the future are not going to be like the older workers of today. A much higher proportion of the older workers of the future will be well-educated, skilled, trained, trainable and retrainable. Consequently, they will be quite able to compete against younger workers. In fact a very young worker with 1 year's working experience may be at a severe disadvantage compared to a very old worker with 54 years of working experience.

(6) A new species of workers will emerge – I’ll call them the Life Explorers. These are people who earn, save and invest well, within the 1st half of their working life. They accumulate a pool of income-generating assets (with potential for capital appreciation) sufficient to provide fairly indefinite financial security.

For the next 25 or 30 years of their working lives, the Life Explorers work not so much for the money, but for the fun of working, and for the sake of pursuing their various interests in life. Typically they will turn their hobbies into their jobs, or select jobs related to their hobbies.

Professional blogging, anyone? Sign up for my meditation class? Heheh.

65 comments:

singmailer said...

Seriously, Mr Wang, medical advances are very unlikely to keep you from aging. We are living longer because of the good life, to that extent it has slowed down aging. Medical care plays a part, so does not having to toil daily under the sun and eating poorly. We don't die PREMATURELY from some parasitic or water borne diseases for example.

IMO, medical care, good food and water etc keeps us more healthy and therefore helps us to realise our POTENTIAL to live longer, which is ALREADY in us. Not the other way round that medical care and nutritious food somehow will extend our lives. There is a difference.

I read that the Nepalese, a very tough people, had an average life span of around 45 years, despite a physical fitness few other peoples possess because of the mountainous terrain they live in and a hard life. I saw a programme many many years ago on them in which a woman living in the mountain had to leave home early in the morning and returning only in the evening only just to gather enough firewood. Tough life together with poor or inadequate nutrition = short life span, ie beyond what is potentially possible.

My point being, while many more Singaporeans would possibly live to a 'ripe' old age of the eighties or even nineties in the decades to come, it is highly likely that it would NOT be with commensurating fitness and health to do productive work or live an energetic life equals to people in their thirties or fourties, unless by that you mean, cleaning tables at a hawker centre or cleaning public toilets and offices.

Disease and physical frailty will surely seize our bodies come your late fourties. This is programmed in our genes or rather our genes start to deteriorate.

le radical galoisien said...

"Singaporeans need to start adjusting their mindset about work. They also need to start adjusting their mindset about “old” age. The good thing is that we all grow older gradually, day by day, and not all at once. That means we have plenty of time to slowly adjust our mindsets."

Heh heh, I believe you've repeated this in your blog 3 times so far (2 in your old one).

L said...

I'd very much like to be a "Life Explorer". I am trying to find the passion that allows me to jump out of bed each morning with great excitement. I think I still need a little help finding the "income-generating assets" though. =)

Peter said...

The part of your blog that hit me was that perhaps I am still "young enough" to consider a change in discipline or a further degree.

Going back to school now (I'm 40) knowing that I'll have another 10+ years to monetarise it due to potential late retirement does make sense.

I noticed that none of the Minister ever seem to have emphasised this point.

Hmm... Should I..

Anonymous said...

Mr Wang,

Personally, I think you are not understanding people's gripe about CPF. What people are peeve is why they can't withdraw all their money at 55. They are not peeve by the retirement age. If they can withdraw at that age and, if they want to go back to work after they have withdrawn, they will.

First CPF is suppose to be a long, very long term, saving plan. It is not a pension plan. It is not a tax. So the issue is WHY THEY CAN'T Withdraw their own money? Why should the government tell them how much they can withdraw.

THAT is the issue not the retirement age! If people feel they have to work longer they will. They don't have to be told they don't have enough to retire.

Tan Ah Kow

Darth Solarion said...

It is going to be hard to justify relearning at universities when as it is, the infrastructure does not support it and we are hard pressed as it is to even provide seats to local students. Building a fourth university may alleviate the problem but more and more students are eligible for university as the years go by.

And then there is the issue of employability, especially when for some employers in certain sectors would prefer to hire younger workers since it is cheaper and in some cases, companies prefer a younger person who is more impressionable and mentally agile. An older person has typically more responsibilities including a family and thus would want more pay.

It is going to be hard to adjust when there are realities that have to be dealt with first.

Mr Wang Says So said...

Singmailer:

No, I think you have to examine some of the available scientific and medical literature on this.

What's projected is not merely a case of living longer, and spending all those extra years in a physically frail, weak state. What's projected is many extra years of quite functional life.

There's plenty of stuff you can google around and read for yourself, but let me quickly give you some examples of what kind of medical advances will help extend functional life. A sampling of examples taken from a book entitled "The Extreme Future" by James Canton:

1. Personalised DNA tests, which will tell you at an early age your unique genomic profile and reveal future disease risks. In other words, at age 20, you can find out what diseases you would most likely die of, at age 70. So for the next 50 years, you focus on reducing the risk factors related to that disease. Therefore you don't die of that disease at age 70. For the past 50 years, you had adjusted your lifestyle to reduce the probability of that disease.

2. Stem cells. Useful for healing disease, growing organs and rebuilding human beings.

3. Genomic foods that consider the unique DNA of a person and identify the unique best diet for that person's optimal health.

4. Medical devices that have intelligent functions to turn on or off genes related to desired or unwanted behaviours or diseases or hormonal functions.

5. Breakthroughs in robotics that will create mobile systems to augment human movement. Your 80-year-old may win the Olympic gold medal for 100m sprint, due to his robotic legs - if the rules didn't disqualify him for having such an unfair advantage.

6. Cognitive replacements for dysfunctional brains. Helpful if you go senile. Just change the relevant parts of your brain.

Sounds like science fiction, but it's all on the cards. You should see or all of the above in the next 25 years.

Mr Wang Says So said...

"It is going to be hard to justify relearning at universities when as it is, the infrastructure does not support it and we are hard pressed as it is to even provide seats to local students."

This is a current situation (ie 2007). There is every likelihood that things will be different in 2010, or 2015, or 2020, or 2030. My post is really about future scenarios.

Anonymous said...

Does anyone know if our local Unis will subsidise you if you want to take a second degree but you're already in your 30s?

And just to throw out an idea: the government should make Uni education completely free. Or just as free as primary education.

What do you think?

hash said...

Just A few words on life expectancy. Mr Wang has been always quoting the number of life expectancy at birth. Much of the improvement in this indicator actually comes from much lowered infancy mortality, among other things.

If you look at the life expectancy at the age of 60, the improvement is still visible, but it's much less drastic as that of the life expectancy at birth.

Since we are talking about retirement, it's apparent that the life expectancy at the age of 60 is more relevant.

Anonymous said...

Mr Wang sounds today hilariously more like LuckyTan famous for his sarcasm on the system.

All sounds so utopic in future as Mr Wang puts it.

So let's scrap the CPF since we wont need that any longer and then there will be no more controversy.

Wait a minute, someone needs the CPF money to splurge around and lose by the billions of dollars like in Thailand Shin Corp.

When then you think minimum sum keeps increasing and retirement age keep rising?

So cannot scrap CPF lah, how else to feed the fat cats in the system?

Anonymous said...

Funny that LHL forgot to mention this:

Singaporeans cannot afford to retire because the PAP government has siphoned off their wealth and blew it on catastrophic investments like Shin Corp and Suzhou Industrial Park.

That why Singaporeans have to clean toilets and pick up leftovers in food centers until they drop dead at 80 (or maybe earlier if they jump in front of a speeding MRT).

Anonymous said...

Why does the Gahmen keep shifting the goalpost all these years?

What about those who don't foresee themselves living beyond 62, 65 or 67? So forcing these people to buy the annuities would mean that those who die younger than the average lifespan would be actually subsidising those who would be living longer than the average lifespan.

What about those who don't see themselves living beyond 67 years of age eg. those with chronic illnesses who would need the minimum sum more desperately than needing it to tide them over another 20 years which may not materialise at all? Which is more important to a sick 67 year old person - to be able to withdraw the minimum sum for immediate use or to be still able to withdraw a meagre sum of 200~300 per month when you are 80 years old ?

A lot of questions would still need to be answered.

Anonymous said...

Can the Gahmen please leave me to decide for myself whether I would like to live beyond 80 years or whether I would like to jump the MRT tracks when I reach 67 years ?

Whether I decide to spend it all in the IR casinos or spend it on the China mistresses or Batam prostitutes, but at least leave it to me to decide what I would like to do with the my own savings.

Likewise, can we have a say to tell Temasek that they shouldn't have spent so much money investing in the Shin Corp and lost so much of our taxpayer's monies. Also, can we object to the Ministers's pay.

If the answer is no, then why should the Gahmen interfere on how I decide to spend my savings.

Anonymous said...

Can the Gahmen please leave me to decide for myself whether I would like to live beyond 80 years or whether I would like to jump the MRT tracks when I reach 67 years ?

Whether I decide to spend it all in the IR casinos or spend it on the China mistresses or Batam prostitutes, but at least leave it to me to decide what I would like to do with the my own savings.

Likewise, can we have a say to tell Temasek that they shouldn't have spent so much money investing in the Shin Corp and lost so much of our taxpayer's monies. Also, can we object to the Ministers's pay.

If the answer is no, then why should the Gahmen interfere on how I decide to spend my savings.

hunguptodry said...

1) so, maybe good idea for old folks to immigrate to country with welfare.
2) at the least can take out all of your CPF.
3) better do it before u r too old. 4) otherwise new country may not want to take u in.

zj83 said...

I beg to differ on ur post Mr Wang. PM LEE have said that the rising of the withdrawal age is due to the rising life expectancy sgporeans as a solution.

I am currently 24 years. I belief medical technology will cont to advance and maybe by the time i grow old, life expectancy will be higher @ 85 or 90 in sg. it is oso inevitable that the cost of living in sg will surely be increasing too.
Thus, aft 2018 the govt may have another reason to increase the withdrawal age again n maybe the minimum sum in sgporean CPF becos of the raisng life expectancy n rising standard of living. N if this happens, sooner or lata u will start to see more 70 years old ++ working.

another prob is that when a person is old. they are prone to more sickness n r less energetic than the young adult. instead of being able to choose to relax n enjoy his/her golden years, an elderly have to worry abt retiring. i find the recent cpf policies v.ridiculous. How will they b able to find a job or hold onto their current one with their gradually weakening health. Insurance will not cover them, employers might find them a problem rather than an asset to the company.
Instead of relaxing down their life, they have to work (tis varies, depending on the commitments a person have) till ard 65 or more. Most $$ will go into medical care, which might even raise as well. Therefore, only those who can afford this will have access to such facilities.
The example i stated above are normal healthy adults, assuming he/she is lucky to be alive aft 65.

the main disagreement i have with the recent cpf policies is that its unfair to ask an elderly to work without considering their declining health. how many r able to work that long? n if there are exceptions, how many will stay healthy to do so?

singmailer said...

Mr Wang,

Your point on cutting edge medical advances:

1. Can you foresee it being widely and cheaply available to people who need them? Exceptions don't make the rule. As an aside, apart from eating less, do you not think MM Lee has access to other cutting edge stuff, not available to any tom, dick or harry?

2. The longevity of our body parts and organs, by implication our genetic makeup, is already decided in us. For example, dementia, forgetfulness or worse, will surely come, like a thief in the night, as soon as you hit your middle fifties-sixties. Surely, there will be exceptions, but that is not the point. Even the mental faculty of MM Lee is no exception - even you have commented on some of the slips in his public statements and pronouncement which were so assiduously edited out/conveniently 'forgotten' subsequently by the mass media. I often wondered about the motivation for such actions - self-preservation or because they have been hauled up before or given written 'guidelines'?

If you are a believer, the Bible mentions many who lived for more than a hundred, the most famous lend his name to the saying: To be as old as Methasuleus (spelling?). So, for some, we are merely regaining/reclaiming a fraction of our lost potential longevity?!

But more to the point, the govt seems to have with great alacrity and glee jump on the bandwagon of what is no more than a two-dimensional and academic forecast of our 'longevity', accusing us of living too long, forcing it to take such unpopular 'pre-emptive' actions. By the way,annuities is a no-brainer easy way out, when there is a plethora of other better alternatives, given the imagination and drive. We are talking about millions if not billions of captive CPF money.

Kai Jie said...

"Professional blogging, anyone? Sign up for my meditation class? Heheh."

Can i sign up? =P

Anonymous said...

you can opt out of the annuity scheme - migrate lor....

Blogter said...

It's increasing common for workers to get a second education in this global economy. The government should start providing free education at the tertiary levels to encourage more to take it up.

Education is the best investment for this budding nation. Why not invest in ourselves, rather than in other countries?

singmailer said...

I am truly astonished that apparently nobody has taken issue with the veracity of the growing life expectancy bit on which the entire justification for the compulsory scheme is based.

For instance, just who or which generation of Singaporeans is PM Lee referring to? Those who are at present 20,30,40,50,60 etc years of age? Or is it those born this year or from next year on?

No, I am not trying to be frivolous or facetious or funny.How can I when it's no joke that someone is taking away your hard earn cash and use it as he sees fit without you the hog-tied owner being able to do anything about it? Like a hostage?

I am rather tired of this constant and rampant tossing around of statistics that we are supposed to accept as gospel truth without even a decent attempt to provide their sources/origins and justification.

IMO, for instance, there is more than a fair chance that at least 50% of those who are in their fourties and fifties now will not see their 75th or 80th birthdays. I hope we are not supersitious about discussing it in this manner.

It would help if someone have the information on our current mortality rates and those for the past 10 years or so. Is there a growing trend of a significant number of Singaporeans passing on later and later in life. Such numbers are important to have and to know. Otherwise, its all up there in the air. This may be the 21st Century and medical advances are being made every day, but it doesn't mean everyone on this earth will automatically/miraculously have his expectancy extended. The aboriginal tribes in Paupa New Guinea, not to far from Singapore, in their natural setting are not likely to have a life expectancy that is comparable to us. By the same token, the rat race, the stress and stress induced diseases like cancer, heart problems, etc is more than likely to shorten rather than lengthen live span/expectancy.

Mr Wang Says So said...

Current life expectancy for Singapore is 81 years. This isn't based on assumptions of what the future will bring - it is based on actual statistical data of what has actually happened in the past up to today.

Note that calculations of life expectancy generally make no provision for ANY improvements in medical science. Eg if a baby is born this year and its life expectancy is 82 years, this is on the assumption that in the next 82 years, medical science makes ZERO progress in terms of discoveries and advances that will prolong life.

Yes, life expectancies are of course not the same across all countries. In fact, current life expectancy in many African countries today is only 40+ years, approximately the same as life expectancy in the United States around the year 1900.

Singapore's current life expectancy is not in the world's top 10 ...... it is only around No. 14 or 15. However, the difference between the 20 countries or so is not very much - ie the gap is relatively small. Japan tops the list.

---

More thoughts on CPF changes, by a blogger, Imp of Faerie Land. Link.

Anonymous said...

It does not matter whether one live up to 70, 80,90 or 100 years old. It is the quality of life that matter most.

Many foreigners came to Singapore have made one common observation: Why are there so many old people working?

Mr Wang Says So said...

As mentioned, my post is about the future, not about the present. In any case, if you were 70, 80 or 90 years old today, the CPF changes announced by PM Lee would be irrelevant to you

Pat said...

"If you have enough money, you could choose to stop work at 60, or 58, or 55."

Yes! Retirement is very attainable if you just plan ahead. I'm working with the Women’s Institute for a Secure Retirement, and we're trying to make sure that the 70-year-old woman working in a coffee shop for meager pay is a thing of the past. We just put out a new ebook called "What Women Should Know About Retirement" at http://www.wiser.heinz.org/portal/ that I recommend you all check out.

If we just learn how to prepare for retirement better, then we can all be one of those "Life Explorers"!

zj83 said...

Sibei Sianz with the CPF Thingy. Watever logics bloggers and Netizens alike proposed or argue will not be sufficent. similar to the GST, bus hike and Ministers salary. The law have Passed n s usual sgporeans have to accept our 'fate'. Yet Another obligation of being a sgporean. Either migrate(which is tempting) or stay put (in the hands of our 'elite')!!!!

Anonymous said...

Let's just ignore the CPF, annuity and life expectancy for a moment. Singapore has no future. Period. Woe on those who live out the end of their days here. Woe on their children.

le radical galoisien said...

Mr Wang is a transhumanist too, eh?

Anonymous said...

http://www.swivel.com/graphs/show/13840305

the best insurance against longevity risk is delayed retirement. research shows that boeing aerospace employees who retire at 49 live till 86. those who retire at 65 till 67.

problem solved already what. garmen raising retirement age to 67. we all die at 67.5

Anonymous said...

Somehow the image of the government trying to squeeze every last drop of productivity from citizens lodges itself in my mind when announcements like this are made.

A longer working period necessitates a higher [b]healthy[/b] lifespan. As I see it, advanced medical technology is not sufficiently common/affordable to ensure all Singaporeans have the ability to work longer and not simply breaking themselves down as they push themselves beyond their limits in their later years.

Mr Wang Says So said...

In this sort of discussion, you have to keep time frames in mind. Whatever is "advanced medical technology" today will certainly not be "advanced medical technology" by the year 2020 or 2030. I'm sure Panadol was expensive when it was first invented, but it isn't now.

Robert L said...

Dear Mr Wang

I'll break down the annuity issue into only two points - (1) 85 years median lifespan and (2) confiscation of savings.

For (1), you can have your own beliefs on the govt's figures, but do allow others to have their own judgements. There may be many of us who believe the median is 75, not 85. I don't think we can expect the yeas or the nays to change each others' mind, so lets leave it at that.

Now let's see point (2). So far, nobody has addressed the group of CPF members who have made their own retirement planning. A simple example - supposing the CPF member has a long term plan to rent out one room in his HDB flat for $300 a month. This is a retirement income that will never cease, no matter how old he gets.

By all lawful reasoning, his entire life savings should be inherited by his family. Why should he take any risk to have an amount confiscated if he dies before age 85? If he does not believe he would live beyond 85, then you're clearly robbing him of his savings.

The PM claims that he does not want the young working population to bear the cost of those who live beyond 85. Does it then make it right to make another group of older 60-yr-old citizens bear this burden? Does cruelty enters your mind?

Mr Wang Says So said...

No. Insurance enters my mind. After all, this is insurance, plain and simple - it is essentially the same as compulsory 3rd party motor insurance.

To elaborate, if you own a car in Singapore, you need to buy 3rd party motor insurance. If you knock anyone down on the street and he dies or becomes serioously handicapped, your insurance will pay him/his estate if you can't.

You don't have a choice. You can't say, "I want to own a car but I don't want to buy this insurance." The law says you must buy it. It's judged to be for the greater good.

So 99 out of 100 drivers may drive quite safely and have a low probability of negligently killing a pedestrian. But they still have to buy the compulsory insurance.

Point here is that this is the basic nature of insurance. I believe in this basic idea - how exactly it is implemented, that we can again debate, over the details. I haven't bothered with the details, because up to now, I have no idea of what the cost of the annuity will likely be. That's a key detail ...

Mr Wang Says So said...

The premiums paid by the 100 drivers (99 safe ones and 1 rash one) go toward ensuring that the victim of the 1 rash one will definitely get his compensation ... in case that wasn't clear.

George said...

Mr Wang,

Annuity = 3rd party car insurance?

I beg to differ - for one simple difference: A driver can maim or kill with his car. Third party is to cover that liability.

When you die before 85 years, you no longer becomes a liability to your family or the govt (in terms of medical care etc). In fact there is every reason for the sum to be returned to you in full plus at least a nominal interest. Do the sums when the figures are out. I am sure an accountant can project the sort of money we are talking about here.

It is not too difficult to work out a 'balance sheet' for such a scheme. Remember the GST was supposed to be revenue neutral in th words of Richard Hu. How has it turned out in reality?

Mr Wang Says So said...

Believe that the "I want money back" option is available. Will cost u more, that is all.

But of course. Otherwise the system is not sustainable. If everyone who dies young wants his money back, where is the money to pay those who live very long?

I'm sure you know that this is how all forms of insurance basically work. You probably have some medical insurance. If you fall ill and get paid, the reason is that the amount of premiums paid by policyholders (those who are healthy + those who are not) is sufficient to cover the payouts to those who are ill. If all the healthy ones say: "hey I didn't fall ill after all, I want my money back", well, obviously the whole insurance thing just would not work.

Only real questions are whether annuities should be compulsory, how much they should cost etc. Thinking creatively, I imagine that one possible idea is to allow those who have some pre-existing and significany medical history or condition (cancer? Diabetes? Heart problem? COPD?) at age 62 or 65 to opt out of the scheme, on the reasonable expectation that they will die sooner rather than later.

Anonymous said...

Can forget about cpf!When 70 s then collect!

hunguptodry said...

why is it so bad to give us old folks some welfare?

are they not already doing it with ad-hoc schemes like CPF topup.

there's no need to go all out with this welfare thing. surely the gov can meet us halfway.

for instance, leave the CPF the way it is and take up the slack with welfare.

no need to be so un-compassionate and refuse to cough out a single cent towards welfare.

as if "welfare" was a dirty word. as if "old" was a dirty word.

is there really a need to be this brutal?

Mr Wang Says So said...

Welfare is not "bad". The real question is whether you can sustain it. It is most difficult to sustain in an aging population, because (1) welfare is ultimately paid for by taxpayers, and (2) as the population ages, you have fewer and fewer young workers to tax, and more and more old people to give welfare to.

In the proposed alternative (compulsory annuities) instead of taxing the young to feed the old, effectively we "tax" the dead (more precisely, those who die sooner)to feed the old.

Key point to note is that welfare always has to be paid for; the question is who bears the burden for whom. Even if govt coughs up money directly, that's still taxpayers' money.

Mr Wang Says So said...

Welfare is not "bad". The real question is whether you can sustain it. It is most difficult to sustain in an aging population, because (1) welfare is ultimately paid for by taxpayers, and (2) as the population ages, you have fewer and fewer young workers to tax, and more and more old people to give welfare to.

In the proposed alternative (compulsory annuities) instead of taxing the young to feed the old, effectively we "tax" the dead (more precisely, those who die sooner)to feed the old.

Key point to note is that welfare always has to be paid for; the question is who bears the burden for whom. Even if govt coughs up money directly, that's still taxpayers' money.

Mr Wang Says So said...
This comment has been removed by the author.
George said...

Mr Wang,

In Term Insurance, one pays on a monthly/annual basis. Such something untoward happens, one can claim according to the terms and condition of the Term Insurance. If you signed up for a $100,000 insurance, you get paid this sum. Cut and dried. The only thing is that you do not accrue anything should there be no claim during the entire term of your insurance- which is usually defined as having reached a certain pre-defined age, eg age 62.

In the case of the annuity under proposal, the govt intends to compulsorily lop off xxx or is it more likely to be xxxx sum of dollars AT START from age 55 years, and you only see a miserable few hundred dollars/month 30 or more years down the road, if you are still around, and which you may in all likelihood 'enjoy' for only a few years of (how many more years are you likely to go beyond 85 years before you pass on?). And it is more than likely that at least half of the participants in each 'cohort' will not reach the qualifying age, whatever the longevity forecast).

In the case of your 'regular' insurance, you/your beneficiary either have a participating or not participating policy. You get interest on top of your capital sum for the latter and you get back a certain sum, minus the cost of insurance, in the case of the latter. And in fact, if you reach the termination age of your insurance and you are still around you get paid by the insurer.

So you can see the VAST DIFFERENCE between buying insurance and 'buying' the govt proposed annuity. In fact, it is not insurance that the govt has in mind, it is govt win, you lose game. As stated in my last post. govt gets millions and millions every year of interest free CPF funds to do as it pleases FOR 30 and MORE years from each cohort of 55-sters.

My point is why shouldn't the govt's scheme operate more like a real insurance? As it is the deck is patently stacked against the CPF holder. Why shouldn't the scheme benefit their beneficiaries/dependents?

Will the govt undertake to open its books annually to the public on the annuity scheme and lay bare the actual balance sheet/performance of the proposed scheme? Citizens have every reason to mistrust the govt given the lesson learnt from the GIC experience and every right to know what has happened to THEIR hard earned money.

It is not a given that future, even the current, govt will not change for the worse. Given the stranglehold it has on politics in this country, it is well neigh impossible for any opposition to take over, except in a red hot revolution, if we can find revolutionary of the calibre of the communist revolution.

Robert L said...

Dear Mr Wang

I'm sorry but your car insurance comparison just don't fit.

In car insurance, the objective is to pay for the damage YOU caused, if you killed somebody else.

In annuity, I'm looking after myself. I have given a very simple example where I can look after myself without annuity, by renting one of the rooms of my HDB flat for years and years. This income will never end, until the 99 years of my flat ends.

Why should I lose my savings to other people when I have fulfilled the "insurance" requirement in my own way, without surrendering my savings? Don't I have a God-given right to leave my savings to my decendents?

Let me ask you again: somebody has to pay for the over-85 years old, but why pick on me?

Mr Wang Says So said...

I believe that most likely, the annuity programme will be managed by insurance companies and CPF's role will only be as administrator. After all, annuities are traditionally a product offered by insurance companies.

You may recall that a couple of years ago, CPF considered a scheme whereby CPF monies would be managed by external fund managers, eg Aberdeen, Fidelity, etc. Scheme never got implemented then, but they are probably considering a variant for annuities.

George, your own numerical example referring to "xxxx" dollars as the cost of the annuity clearly shows that it's really a matter of pricing. At some point, "xxxx" will theoretically be low enough to make you very happy to pay for the annuity.

How low can "xxxx" go? I don't know, but clearly the more people participate the lower it will go. So if the annuities are compulsory, xxxx will be lower than if they were not.

Other factor is that if more people die earlier (ie after 65 but well before 85), then xxxx will become lower. So those who think that the govt is mistaken about how long S'poreans will live can be comforted by the thought that xxxx would be lowered if the govt is mistaken.

Mr Wang Says So said...

But robert, one way or the other, you would have to pay. Eg if S'pore adopts welfare system as per europe or australia, it will just have to raise income tax as per europe or australia. Essentially you'll just pay for the over-85s throughout your working years (via higher income tax).

All and Sundry said...

My mum used to participate in PAP grassroot activities but she has stopped about some years ago when she began to feel disillusioned with the things happening around. The recent Ministers' pay and GST hikes have pushed her to the limit. She now thinks the leaders are not compassionate at all towards the people who support them. They only see profits and economic growth in their eyes.

zj83 said...

Welfare through high tax sure scares plp off. However, i tink welfare provides oppotiunities for plp from birth to grave. imagine free education, medical care pension for the old...etc. These r something which $$ cant be used to measure. our govt may seems to disapprove the 'welfare' system widely used in Europe, as they proclaimed it turned people into 'lazy' bums and possible burdens of society. i dun deny nor agree to that. There r laws in sweden which prevent citizens from abusing such welfare according to my swedish friend. looks at Europe GDP. They are among the highest in the world. Productive levels r high too. their people r more of a risk taker than us. Becos welfare systems creates a sense of security within plp to fall upon if things, out of their control, turns out negatively.
If welfare systems r simply a burden to citizens, y sgporeans still wana go there to work n live? my aunts n some of my friends are good example.
Welfare system doesnt just give out free education, pensions n such. there are lots more benefits underlying the heavy income tax citizens pay every mth. Maybe the movie 'Sicko' by Michael Moore (available on the net) would be a good documentary, allowing netizens (including Mr Wang) here an in-depth understanding of the benefits of a welfare system.

I stayed in Germany for a few mths and was surprised to how plp there r willing to give out half of their income in return for welfare for themselves n their future generations.
Tot i have not yet live long enough in a welfare state, i do have relatives, and friends who benefited from such systems.
I hope to have the chance to live in such country in future to judge for myself (rather than simply listening to our govt's criticism)

George said...

"Other factor is that if more people die earlier (ie after 65 but well before 85), then xxxx will become lower. So those who think that the govt is mistaken about how long S'poreans will live can be comforted by the thought that xxxx would be lowered if the govt is mistaken."

Dear Mr Wang, the above quote was the last para of your response to me. Is there something the rest of us don't know but that you are privy to?

Have the govt made any commitment to date or said something to this effect regarding the possibility of the lowering of the paid upfront annuity when the scheme is running. In any case, what about those who have already paid up when they 'came' of age earlier? Will they be refunded/reimbursed or forefited?

I have mentioned the laying bare of an annual 'balance sheet' for the scheme for max transparency for all to see because even the simple maths bothers me:

Spore's annual birth rate is about or at least 20,000, give and take a few thousands. So 20K citizens will be 'surrendering' xxxx dollars of their CPF to govt for the annuity scheme on reaching 55 years of age. For the sake of discussion lets make this upfront payment $5,000 each (affordable, you would say). This is $100 million of interest-free money being hived off by govt for its purpose EVERY YEAR from year of inception of the scheme.

When the first annuity payment becomes due 30 years later, this $100 million would have grown by several folds if govt investors are any good. And in all likelihood only about 50% will survive to 85 years to collect their first payment. How many years beyond 85 will they live? How many 90-sters are there worldwide esp. in countries like Japan, known for the longevity of its citizens?

Mr Wang Says So said...

"Dear Mr Wang, the above quote was the last para of your response to me. Is there something the rest of us don't know but that you are privy to?"

No. The thing is, we are looking into the distant future. Necessarily we must make assumptions, but then of course the assumptions may not hold true. For example, maybe North Korea will strengthen its nuclear capability, have an all-out war with South Korea, and the radioactive fallout spills over a large part of Asia, leading to lowered life expectancy as large populations of people increase their risk of cancer. So the life expectancy projections would be wrong.


"20K citizens will be 'surrendering' xxxx dollars of their CPF to govt for the annuity scheme on reaching 55 years of age. For the sake of discussion lets make this upfront payment $5,000 each (affordable, you would say)."

See what I mean? I told ya, it's a matter of pricing. If 5K makes you unhappy, who knows, maybe you would be happy at 4K? 3K? 2K? 1K? $500?

When the first annuity payment becomes due 30 years later, this $100 million would have grown by several folds if govt investors are any good.

Yours is a more general argument which could be made against CPF money in general, not merely annuities. In fact, the total amount contributed to CPF OA, SA and Medisave each year would vastly, vastly exceed the total amt deducted for annuities this year. Not saying that your point has no validity, but surely it's got nothing SPECIFICALLY to do with the annuity idea.

How many 90-sters are there worldwide esp. in countries like Japan, known for the longevity of its citizens?

Ah, Japan. Its life expectancy curves are still not levelling off. Like Singapore, it is on a steady climb upwards. Who knows when it will level off, and when. Maybe it will be 100 years by the year 2040 ... who knows.

hunguptodry said...

In the proposed alternative (compulsory annuities) instead of taxing the young to feed the old, effectively we "tax" the dead (more precisely, those who die sooner)to feed the old.

-----------------------------------

great idea, if only it were true.

taking money from the dead is a non issue. i think dead people don't need the money and could care less.

the real deal here is you're taking money from them while they still need it. yes, the xxxx premium.

Anonymous said...

So far, i have not read any mention regarding those who are not working (and will most probably continue not to work) and have not reached the minimum sum. What is expected of this group of people?

Anyone has any idea?

George said...

Dear Mr Wang,

It is fat hope to think govt would return you any money it has collected. I am not merely saying that for sake of disagreeing. For a good example, look at the COE - you are not allowed to get your cash back when you scrap your car before 10 years. Instead, you get a piece of paper which entitles you to a 'discount' for your next new car purchase. But if you decide to be a greenie or decide to abandon car ownership altogether, you still cannot get your money back directly from the govt. Instead you are left to your own devices, you have to find a new buyer/broker to take it over from you and in the process get back less than your entitlement because of 'service charge' to the broker.

On the $100M hived off the CPF accounts every year, isn't it a fact that govt gets to use it practically FOC? It is not the same as the rest of the CPF which govt has to pay CPF members interest. Even the interest, I am sure paid to members is less than what the govt has actually made with their money. There is no free lunch, remember?

It's a relatively free country, I can see your sentiments are for the govt. But I also have no qualms about the govt operating schemes to discharge its responsibilities to the citizens, but it must be open and transparent
and equitable. The taxpayers are entitled to the earnings govt made with funds collected from taxes which should be poured back and made available for their benefit. I don't see why it must always be argued that the younger taxpayers will have to pay for any scheme to help the senior citizens conveniently forgetting that the billions of dollars held in reserved and invested by the govt came from taxes of the older folks. So they have actually earned their keeps and not dependent on taxes paid on younger citizens.

Robert L said...

Dear Mr Wang

You said, "Yours is a more general argument which could be made against CPF money in general, not merely annuities. In fact, the total amount contributed to CPF OA, SA and Medisave each year would vastly, vastly exceed the total amt deducted for annuities this year. Not saying that your point has no validity, but surely it's got nothing SPECIFICALLY to do with the annuity idea."

I'm sorry, again you're making a comparison that does not fit. You're comparing the compounding funds in "savings" versus "annuity".

You are continuing to ignore the fantastic difference between CPF savings and annuity. This is a new kind of annuity, one that is compulsory and that confiscates your money unless you live longer than 85. This kind of annuity has never been found in the world before, because it's plain robbery.

In the first case, in your CPF savings, no matter what you argue over the interests compounded, the money eventually gets returned to you or to your beneficiary.

In the second case, the huge amounts are confiscated from those many, many citizens who don't live beyond 85. For that matter, you should also concede that even those who live up till 90 are still at the losing end, since drawing their annuity at the age from 85 till 90 would not recover the savings compounded from age 60 onwards. It is the robbing of our savings that bother us, no matter what kind of math they cook up.

Mr Wang Says So said...

Well, Robert, maybe you are right. Who knows?

But let's say the annuity is tweaked like this.

Everyone must buy an annuity. It costs [$1,000]. This will be deducted at age [62]. If you live to age [65], you will start getting monthly payments of $200 per month, for as long as you live. By age [66], you would have gotten $1,200, more than your original $1,000. If you live to age [67], you will already have reaped substantial profits.

Good deal, yes?

What this shows is that it's a matter of figures. You think that xxxx is too high, (funny - the government hasn't even indicated what xxxx will be) and you think that the age of 85 years is too old, and you think that a payout of $350 is too low.

All these are your own judgments of the numbers, and yes we can argue about the numbers. I, for one, think that it's quite probable that many Singaporeans of my generation will live past 95 (by then, even if you go senile, stem cell technology will enable you to grow a new brain) so of course my views about the numbers are different from yours.

But I think that in principle, the proposed idea is quite workable. Also, personally I believe that most likely the annuities will be structured and managed by insurance companies (just like compulsory motor insurance) so I don't think the government will make any money out of it. That is, when your xxxx is deducted, it goes to the insurance company, not the govt.

Mr Wang Says So said...

From Under The Willow Tree - there is a useful compilation here of bloggers' views about the annuity scheme and other CPF changes.

George said...

"Also, personally I believe that most likely the annuities will be structured and managed by insurance companies (just like compulsory motor insurance) so I don't think the government will make any money out of it."

Dear Mr Wang,

If it is going to be big money involved, I have my doubts if govt will allow any tom dick or harry insurance company to take over. Th risk, including political risk is just too high. If govt does decide to give it to a commercial unit, it is very likely to be one with close link to it. Your guess is as good as mine. Who knows govt may even incorporate an insurance company or similar establishment to handle it.

Surely, we must have learnt something from the AIA debacle? The govt cannot tell CPF members it just too bad when many are against money being taken from them without a choice.

Anonymous said...

Mr Wang, your example:

"Everyone must buy an annuity. It costs [$1,000]. This will be deducted at age [62]. If you live to age [65], you will start getting monthly payments of $200 per month, for as long as you live. By age [66], you would have gotten $1,200, more than your original $1,000. If you live to age [67], you will already have reaped substantial profits.

In your example, it is true that getting $200 for 1 year will make up for more than then the original $1000 paid to the insurance company for the annuity one is forced to buy. However, you seem to have forgotten to consider the balance of the CPF amounts which has to be surrendered to the insurance company. And this amount surely far exceeds $1000, $10,000 or maybe even $100,000.

Mr Wang Says So said...

Heheh, no wonder you're worried. But I really don't think the annuity would cost that much. In today's dollars, my guess would be that it would be far below 100k, possibly below 10k, and unlikely to be above 20k. It would be cheap because (1) everyone has to participate, and the more participants there are, the cheaper it would be, (2) the payouts are deferred for many years, and (3) the payouts are not meant to be large, just enough to meet basic living expenses

Anonymous said...

I too agree with PM Lee's view.

The irrational fear of the masses comes about because of Singaporeans experiences with past policies.

I have no doubt that these policies are crafted with good intentions.

Implementation by various levels of bureaucracy may distort or amplify these intentions.

For example
Camp CO gives RSM order for parade square to be cleared of leaves.

RSM gives SSGT order for parade square to be cleared of leaves and dirt.

SSGT gives CPLs order for parade square to be cleared of leaves and dirt and washed.

However, I must also add that the blogosphere has been very effective in bridging this 'affective' divide. It would not be a surprise if blogosphere is a staple read for 'PATT' (People At The Top).

Anonymous said...

3rd World Savings, 1st World Cost of Living

It has been argued strongly that elderly Singaporeans are not saving enough, despite the CPF scheme. This is hardly surprising.

The CPF was introduced in 1955 when Singapore was a Third World colony. Our per capita GDP (at current market prices) in 1960 was S$1,306. This figure rose significantly to S$13,725 in 1983 and to S$35,552 in 1996. Today Singapore is a First World nation and this is well backed by our 2006 per capita GDP figure of S$46,832.

The transformation of our country has led to rapid increase in the cost of living as suggested by historical Consumer Price Index (CPI) data. Using 2004 as the base year (=100.0), the CPI was 31.9 in 1961 (1960 figure not available), 74.7 in 1983, 94.3 in 1996 and 101.4 in 2006. (Source for statistics: http://www.singstat.gov.sg/)

Senior Singaporeans played individual minor, but fundamental roles in driving this economic miracle. Back in the 1960s, through the 1990s, they probably could not have imagined, how with hindsight, their salaries, by the same token their CPF savings, will appear so meagre today. Likewise they would not have expected the cost of retirement to be so expensive.

It appears that the pioneer generations of Singaporeans have become victims of their own hard work and success. Having earned Third World wages and made Third World savings in their younger days, they suddenly find themselves living, and dying, under the weight of First World costs.

Over the years Singapore has accumulated substantial wealth, including those made through investments worth millions by the GIC and Temasek Holdings. No one guarantees workers above 62 will find good paying jobs and the proposed compulsory annuity’s payout of $250 to $300 is a drop in the ocean by today’s costs of living. While we applaud our government’s initiatives to stretch our retirement savings, it is high time we tap on our riches to help those with inadequate CPF monies to overcome the disparity of Third World savings, First World costs.

It is increasingly urgent for the government to lower the cost of living for retired Singaporeans. This could be done by co-paying for their essential expenses, such as medical, healthcare and public transport. This should not be viewed as pouring resources into a bottomless pit. Just as government investments into the economy through mega-projects like the IRs and hosting of F1 are now rewarding handsomely, investments into such schemes will generate the economy and the welfare of our people.

The CPF Board website states “CPF ensured that workers could support themselves with dignity in retirement”. Would the government play its part to fulfil this?

Robert L said...

Dear Mr Wang

You said, "What this shows is that it's a matter of figures. You think that xxxx is too high, (funny - the government hasn't even indicated what xxxx will be) and you think that the age of 85 years is too old, and you think that a payout of $350 is too low."

Alas, it's not just me who thinks like that. How many billions of people are there in this world? Annuity is a very common financial tool, but I dare say that not a single person in this whole universe has bought himself an annuity that freezes his wealth until he reaches 85 years old, and then confiscates it if he dies before that age. Come on, you name me one single person who bought such a policy, and I'll eat my words. Out of the billions and billions of people in this world, you name me just one person who chooses to do that.

And if not even a single person out of the billions and billions in this world has done that, please don't tell me "you think like this and you think like that..." The fact is that everybody who's not braindead thinks like that.

Mr Wang Says So said...

The older you have to be to start receiving annuity payouts, the cheaper the cost of purchasing the annuity. It's a mathematical relationship.

Robert L said...

Dear Mr Wang

Gee, Mr Wang, of course it's mathematical. It's also mathematical that nobody in this whole planet has bought an annuity that starts payout only at age 85 and confiscates his savings if he dies before age 85. Out of perhaps half a billion people who have bought annuity plans on this planet, not a single one has chosen such a plan. That is a mathematical zero. These half a billion people cannot be all wrong, can they?

Gee, Mr Wang, you think you're right and these half a billion other people on this planet are all wrong? It's all so nice to talk of mathematics, when the reality is that it's mathematically zero.

When are you going to admit that you've taken the wrong side of the debate?

Mr Wang Says So said...

Robert:

Don't get excited. You have your own view, I have mine. Personally I'm not terribly excited about this topic at all, and I have no emotional investment in it - because for myself, I plan to retire at 40 or 45; and my financial plans obviously have to be quite different.

Your comment about no one else other than Singapore having such an annuity scheme is quite silly. After all, in the first place, no one else other than Singapore even has something like our CPF scheme.