DEBATE over retirement adequacy has heated up and the appointment of a panel to discuss four key areas of the Central Provident Fund is timely. These areas are possible adjustments to the Minimum Sum beyond 2015; enabling lump sum withdrawals; offering CPF payouts that rise with living costs; and the flexibility to choose private investment plans. For sure, the CPF is well respected globally and has served its members' needs for decades, not just in terms of mandating a savings rate among members and employers, but also as a source of funding for homes and education.
In the 2013 Melbourne Mercer Global Pension Index, the CPF was ranked seventh out of 20 pension systems. Notably it was rated "C" in terms of adequacy, a measure which took into account benefits, savings and growth assets, among other indicators. Pension adequacy is an issue that carries some urgency. This is because CPF is a defined contribution scheme, so members bear the full risk of saving and investing for their future.
In addition, a rapidly ageing demographic and low fertility rate suggest that future retirees are unlikely to be able to rely on children for financial support. A recent Moody's report on global ageing estimated the proportion of the elderly among Singapore's population at 11 per cent in 2015. This is expected to exceed 20 per cent by 2030 when Singapore enters the ranks of "super aged'' countries.
The CPF has sought to address the adequacy issue through a lifetime annuity scheme, CPF Life. In this context, it is helpful to revisit the findings of a 2012 study by the National University of Singapore, commissioned by the Ministry of Manpower. The study was encouraging in that it found that a male worker entering the workforce today should be able to replace 70 per cent of his wages in retirement. The study's base case, however, assumed the purchase of an HDB flat on a dual income basis, with no upgrading. It concluded that the CPF would be able to provide adequately for retirement - "with prudent choice of housing and the wise use of withdrawn CPF savings".