Invited by NTUC to a Retirement Adequacy/CPF Group Discussion

Update 1/9/2019:

- It's now my 1.5 months in my new company and everything is stabilising so I have time to blog again!
- I am now keeping net cash and not adding more positions at the moment but focusing on savings.

KC have had some feedback that he is quite "Lor-so" (Slang "Long-winded") and it is difficult to read for some readers. Going forward, KC will definitely try go as to point as possible and to explore telling visual stories through short comics or picture. Sorry this will still be a long article.

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TL;DR Summary

1. Many Singaporeans probably do not have enough to retire. Whose responsibility is it?
2. Retirement age and Re-employment age is increased as with CPF contributions for older workers to help to bridge that gap.
3. The possible "backfires" to the policy changes: Unwilling employers and unwilling employees. How will the government convince them otherwise? We won't know the effects till years later.
4. CPF's liberalisation over the years have allowed Singaporeans to enjoy some benefits at the cost of our retirement. (This has to be managed carefully)
5. Stay away from money detriment habits!
6. Personally, I feel that we ought to take ownership of our own financial plans, and not expect the handout from the government. Learn about the systems in place and how they can benefit us.

Hereby, I would like to ask and encourage fellow readers to contribute your comments/complaints/feedback/suggestions to the discussions. Who knows? Someone who has a say in policy making might be reading. (We hope)

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Recently, because of this blog "30yearoldinvestor", I had the chance to take part in a small focus group organised by the NTUC on the topic of "CPF, retirement and re-employment ages". (Special thanks to J from NTUC for inviting me).

I will just talk to myself about my own opinions. I think the talk essentially was trying to answer a question:

How much does a Singaporean need to retire adequately? (Consequently, is the Govt and CPF doing enough?)
Note: This post represent solely my own opinions and are not affiliated to any organisations. Yea, it is NOT a sponsored post.

In the recent NDP rally, Our Prime Minister spoke of raising the retirement age and re-employment ages progressively from now till 2030. Firstly, I can imagine it to be quite an unpopular policy given the older folks and business owners I have spoken to. But the government seems quite positive about this so let's hope they are right. My foreigner boss actually credited our government for thinking so far ahead of time saying that usually governments only care about the next election.

Definitions (if we still do not understand what it means for us):

1. Retirement age:
Employers are not supposed to terminate us unfairly due to age below the retirement age. The minimum retirement age is 62. This will be raised to 65 by 2030.

2. Re-employment age:
While we are employed, employers must offer re-employment to eligible employees who are turning 62, up to age 67. This will also be raised to 70 by 2030.

These are enforced under the [1] RETIREMENT AND RE-EMPLOYMENT ACT (CHAPTER 274A) to protect our rights. For accuracy, please visit the site.

First of all, it will take some convincing for employers to continue to employ elderly workers (whose CPF contributions will now also be on par with the younger folks). This could translate into additional business costs for companies. Is there any incentive for business owners to align to this policy? (e.g. tax rebates etc for a % of elderly Singaporeans hired?)

Source: CNA NDR 2019: From retirement age to climate change, here are 9 things you need to know

A few older folks I have spoke to also do not want to work until so old (In their words: Wa lau, work till die meh?). Many are working not because they want to but they have to to make ends meet. There is some disparity here from the narrative that older workers want to work longer.

Another pressing concern is that as an elderly, we may get retrenched in a better job prior to 62. Therefore many will not be holding jobs that make them eligible for re-employment.

This is perhaps better illustrated by this graph taken from the Report by MOM on the [2]Labour Force in Singapore 2017:

In 2017, the number of elderly (>60) employed rose to 14% from 6.1% in 2007.
We somehow have to shift that curve towards the (rather exaggerated) brown one.

The policy changes sounds good on paper (nice in theory), but time will tell if they really pan out as we imagined. Let's hope that it is not too late by then.

Now, this is where the other tool called CPF comes in.

So, What is CPF? Can eat one?

Since CPF was started in 1955 by the British and our first self-governance's Chief Minister David Marshall [3], it has become a much different instrument for Singaporeans. Our living standards have improved, but so has our cost of living. As such, many people start to feel that CPF may not be adequate for citizen's retirement needs.

In my understanding, CPF originally was only meant for catering to the retirement needs of old and aged Singaporeans through enforced savings but has since started to cater for a range of things. (we shall not go into specifics here but just to illustrate that it has evolved with time)

4 major things we can now use CPF for:
1. Public Housing since 1968 [4]
2. Healthcare needs: Medisave started in 1984 [5]
3. Investing for higher returns in 1986 (later became CPFIS) [6]
4. Education for tertiary education (self/children) since 1989 [7]

For full list of timeline changes to CPF, refer to here.

Then and Now: I think we have already liberalised CPF's usage over the years to cover alot of things. 

I think you get the point that CPF has changed already been changed to "GiveUsBack" our money over the years so that we can use it to enjoy certain benefits such as to tend to our housing needs, education and healthcare needs. But, there is a catch. Because ultimately it is still meant for retirement, funds "borrowed" will have to be returned in some way...

So, is CPF enough for our retirement?

Going by current trends, it would be a yes/no. It depends on our own expectations and what kind of living standard one wants to sustain. I would say, it will probably be a No for me. That is why I have started my own planning ahead of time. I would think that CPF is like an additional tool I must understand and put into my own planning as well since we can't get rid of it. Might as well understand how it works and how it can benefit us.

What can the govt do to help us?

To be honest, after role-playing for about 30 minutes as the government in the discussion, I do think that it is not easy for the government to implement a one size fit all or be flexible in our arrangements to help everyone but also not to penalise someone for the mistakes of others so as to be fair (and therefore we become inflexible).

For example, assuming we become flexible for example to let someone take all their CPF out as per in the past. What do we do if these people spend all their money and come back to us? Would we then have no choice but to "punish" the people who managed their own money well to take care of those that did not? It would likely be unfair. I myself wouldn't want to be taxed unfairly to pay for someone who didn't plan for their retirement. Worse, if this is a social norm.

On a side note, I think the government must really take action in educating financial literacy in schools from young. Even at current tertiary education, we could start financial literacy modules that is compulsory for everyone. It can be a module that awards credits (but not graded, just pass/fail) as an incentive for students to take up. You might also want to host talks to engage the youths in universities about policies that are going to affect them.

What can we do to help ourselves?

For me personally, I have seen first hand how Gambling destroys family. At max, I think if the ocassional TOTO draw comes to $8m, buying $10 is acceptable. For a comparison sake, my own mum is a hardcore 4D/TOTO gambler who spends $600-900 per month on it. 😓

My general take is to STAY AWAY from savings detrimental habits such as excessive smoking, drinking and gambling. My smoker friends know that they spend a lot on cigarettes ($14 x 30 x 12 =  $5,040) if we smoke one pack a day. But they cannot help it. It has become a habit. You can go on a good holiday with that, but let's save that money.

Cultivate money saving habits instead. Most people cannot invest because they do not save much at all. We all live in an age where the society tells us to enjoy life here and now, in the present. We crave instant gratification. But there is power in delayed gratification.

How many of us will really plan for ourselves if CPF decides to give back our money today?

I am in a few investing chat groups and I would like to think that I belong to the more financial savvy group of people who actively plan ahead for our finances.

We would THINK that logically everyone would SAY they would plan their own. But, experience tells me that most wont take ACTION and DO.

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In short, I do think that there are no quick fix to resolving retirement adequacy. Given a choice to depend on the government and leave it to doubt, I would rather take responsibility and ownership to ensure that I will have enough when my time comes (and incorporating CPF into that plan).


Until Next Time,

K.C.

If you like this post, you might like our facebook page as well. I'm also on Investing Note.

Related topics:
1. About K.C. What is my story?
2. My 3Cs to money/investing
3. Why you need to set aside money for savings first
4. Interview process cycle: How to increase your interview rates
5. My 2018 Year end review
6. I'm retrenched: 3 things to think about

Disclaimer: The views expressed, opinion and information in this article are strictly for informational purposes to encourage educational discussions only. It is important to conduct your own analysis before making any investment decisions based on your own personal circumstances. You should take reasonable measures such as seeking independent financial advice from professionals and/or independently research and verify the information that you find on "30 Year Old Investor" before undertaking any important investment decisions. No content on this site constitutes - or should be understood as constituting - a recommendation to enter any securities transactions or to engage in any of the investment strategies presented in our site content. We do not provide personalised recommendations or views as to whether a particular stock or investment approach is suitable to the financial needs of a specific individual. No representation or warranty expressed or implied is made as to, and no reliance shall be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained on this website. "30 Year Old Investor" shall not be liable whatsoever for loss or damages of any kind arising from the result of any use, reliance or distribution of the articles or its contents from information contained on this website. 


References:
1. RETIREMENT AND RE-EMPLOYMENT ACT (CHAPTER 274A)
2. Labour Force in Singapore 2017 (2018, January 26)
3.  S.A Lee., J. Qian (2017) The Evolving Singaporean Welfare State SOCIAL POLICY & ADMINISTRATION ISSN0144-5596 DOI: 10.1111/spol.12339 VOL. 51, NO. 6, November 2017, 916–939
4. A flat every 45 minutes. (1964, August 31). The Straits Times, p. 10. Retrieved from NewspaperSG.
5. The impeccable logic of Medisave (2015, August 9), National Day Special 2015 | A toast to an improbable nation: 1984, The Straits Times
6. Cheong, C. (2005). Saving for our retirement: 50 years of CPF. Singapore: SNP Editions, p. 152. (Call no.: RSING 368.40095957 CHE)
7. Cheong, C. (2005). Saving for our retirement: 50 years of CPF. Singapore: SNP Editions, p. 153. (Call no.: RSING 368.40095957 CHE)

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