Wednesday, January 13, 2016

Bridging CPF gaps: NUS don raises idea of payouts, but notes risks


January 13

SINGAPORE — A National University of Singapore (NUS) economist has raised for discussion the idea of payments of S$450 to S$600 a month for the low-income elderly, citing concerns that the existing Central Provident Fund (CPF) system may be inadequate for vulnerable groups who were unable to save enough during their working years.

However, she also cautioned that such a scheme could also risk unintended consequences, such as disincentives to save, work and creating a crutch mentality. Associate Professor Chia Ngee Choon, who researches retirement issues and sat on the National Longevity Insurance Committee, was speaking at a symposium on social security at NUS yesterday.

Sharing several ideas for bridging the gaps in the CPF system — which were also published in a paper in the Singapore Economic Review last year — Assoc Prof Chia noted how CPF has worked well for the majority of Singaporeans who “work consistently” and have “made prudent housing choices”. But while the system has been lauded for its fiscal sustainability, “it doesn’t address the retirement adequacy for vulnerable groups”, she said.

For instance, as CPF is based on contributions, it might fail to address whether the needy, including low-wage and casual workers, those unable to work due to poor health, stay-at-home mothers, and the single elderly with no family support can save enough for retirement, she explained.

[Some ideas off the top of my head.

For Disabled, and the unemployable due to health reasons either provide a CPF top-up at age 55 (or 65), or have payout from age 55 (or earlier - 50? 45? - if they are certified as unemployable.).

For stay at home moms (or dads) matching grant (1 for 1) for husband's (or wife's) contribution to the stay at home parent's CPF. i.e. for every $1 the spouse contributes, the govt will match with $1. The contribution will go into the Special account (to close the loophole of contributing to OA, and then having the spouse use the OA to pay for mortgage).]

Meanwhile, data from the National Survey of Senior Citizens showed that financial support from family members, while still significant, trended downwards between 1995 and 2011.

Hence, adding a “means-tested, non-contributory basic pillar to the system would make it more inclusive to vulnerable members of society”, said Assoc Prof Chia, who previously did a Ministry of Manpower-commissioned study on the retirement adequacy of the CPF for young entrant workers.

Assoc Prof Chia proposed a range of quantums — ranging from S$450 to S$600 — calculated using the basic income and expenditure patterns of retiree households in public flats reported in the 2012/2013 Household Expenditure Survey. Economic simulations of mortality and projections of GDP growth were also factored in.

These included the need to spend on “food servicing services” — such as meals bought from restaurants, hawker centres, food courts — given their necessity to such households. However, expenditure on non-basic goods and services such as recreational activities, educational services, personal care services, and alcoholic beverages and tobacco was excluded.

Factoring in an inflation rate of 1.7 per cent, Assoc Prof Chia arrived at a monthly sum of S$500 for 30 per cent of those aged 65 and over — a sum she called the “benchmark” — which would be equivalent to 0.41 per cent of the GDP in 2030.

Using more conservative figures — inflation of 1 per cent — the quantum would be S$450 a month for 30 per cent of the elderly, or 0.22 per cent of the GDP. The “generous” version of this scheme would entail S$600 a month for 50 per cent of the elderly, at an inflation rate of 1.7 per cent, or 0.83 per cent of the GDP.

Assoc Prof Chia said such a scheme could complement other public assistance schemes like the Silver Support Scheme and Comcare. She also acknowledged the possibility of people feeling less incentivised to work if given overly generous benefits.

NUS Business School finance professor Joseph Cherian, who also spoke at the symposium, said the proposal was a reasonable one, although it might be a costly undertaking.

“People may (complain) about helping to subsidise (the needy), but if society doesn’t take care of the vulnerable, the costs of welfare (spending) are higher … It’s for the Government to decide what is prudent,” he said.

In her presentation, Assoc Prof Chia also suggested allowing two-way transfers between a CPF member’s Ordinary Account (OA) and Special Account (SA), noting the better interest rates for the latter. Currently, members can only transfer funds from the OA to the SA. The improved flexibility would allow members to take advantage of better rates in the SA, as well as be able to move funds into the OA for needs like housing. Charges could be levied for those seeking to transfer monies back to the OA.

More than 60 participants comprising primarily academics, policy makers and professionals from the economic, social service and healthcare sectors also attended the symposium, which was organised by the Singapore Centre for Applied and Policy Economics and the Next Age Institute.

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