More flexibility in system, but more simplification, explanation needed: Experts

February 5, 20159:43 am380 views
More flexibility in system, but more simplification, explanation needed: Experts
More flexibility in system, but more simplification, explanation needed: Experts

SINGAPORE — The recommendations by the Central Provident Fund (CPF) Advisory Panel may provide more flexibility to CPF members seeking more control of the use of their savings, but whether it helps Singaporeans better understand a scheme often criticised for being too complicated is debatable, said experts whom TODAY spoke to.

Much effort would have to be made to help Singaporeans understand the implications of making a lump-sum withdrawal at 65 and which of the three Retirement Sum levels — proposals unveiled by the panel — best meets their needs, the experts felt.

“It’s still quite a complicated system for many to think about. Here, we provide a bit more flexibility, but create more complexity in the system.”

Nanyang Technological University economist Walter Theseira described the three recommended tiers as a “reframing” of the issues, which would assure CPF members that it is not the end of the world if they do not meet the Minimum Sum — currently S$161,000 for those turning 55 in July.

“Although they presented it in terms of three tiers, it’s not the case that a member has to choose among three tiers … it’s not about getting members to choose A, B or C, but to give people some illustrative idea of the payouts they’ll get in future.”

Commenting on the proposal to allow up to 20 per cent of CPF savings to be withdrawn at age 65, Dr Theseira said the problem is “people have a poor understanding of how compound interest might affect the 20 per cent, if they were to keep it in their accounts”.

More information — namely data on life expectancy, retirement and expenses of basic households — should be provided to allow people to make informed choices.

“Providing all this information in a customised way is also important. So an individual making a decision could get a pamphlet on his own case. It could even be a software that computes for each person (his financial status). This could be sent automatically,” Dr Theseira said.

Associate Professor Tan Khee Giap of the Lee Kuan Yew School of Public Policy agreed that more public education is needed. “People don’t understand what a financial adviser is trying to say. We should get grassroots leaders to simplify it —have mass training for these leaders and teach them to explain CPF in simple language, perhaps using dialects.”

As for the panel’s recommendation that the Basic Retirement Sum increase by 3 per cent for each successivecohort from 2017 to 2020, experts felt this could be too rigid.

Said Dr Tan: “If you set it (at 3 per cent), can you make sure your inflation is less than 3 per cent? If you index it to inflation, then maybe there will be more flexibility. (The panel has) chosen a harder option and now that they’ve done so, the proof of the pudding is in the eating.”

Noting that the panel had recommended that the figure be reviewed “periodically”, Dr Tan said it should be conducted every five years or longer. “If you review it too frequently, people’s retirement plans would be disrupted,” he said.

Dr Theseira noted that most countries peg their adjustments to a formula rather than a fixed percentage. “These formulas are usually pegged to wage growth, core inflation and so on,” he said, noting that such formulas are transparent.

“One of the problems we have in Singapore is that there is a formula in the background, but the exact context has never been made public,” he added.

As for the panel’s second set of recommendations due later this year, Dr Tan said of particular interest would be the proposals offering people the option of escalating payouts, which he believes people could be incentivised to commit to.

“It’s good for the country on the whole because people will be more independent. At the end of the day, it solves the retirement-adequacy problem,” he said.


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