Proposed changes strike a balance, say observers

Singapore

OBSERVERS have welcomed the proposals to offer higher payouts and flexible withdrawal options in Singapore's Central Provident Fund (CPF). On the whole, they said, the proposals strike a balance between maintaining the financial stability of the pension scheme and allowing for more flexibility, while making people more responsible for their choices.

However, some people interviewed by The Business Times wondered whether letting people withdraw up to 20 per cent of retirement account savings at age 65 was a good idea, especially when these savings would otherwise attract an interest rate that is commercially unbeatable.

Tokio Marine Life Insurance Singapore chief executive Lance Tay said: "The people who need the funds the most will probably withdraw the full 20 per cent, which will make their situation even worse."

However, others said that even with the concession, the ability of the CPF to provide its members an adequate retirement remained unchanged.

CIMB Research economist Song Seng Wun said: "The changes were brought about by political pressure, but the bottom line remains: policy planners will never undermine the self-funding nature of the scheme."

Holland-Bukit Timah GRC MP Liang Eng Hwa, who is chairman of the Government Parliamentary Committee (GPC) for Finance, Trade and Industry, said that if an individual with the basic retirement sum at age 55 chooses to withdraw the maximum 20 per cent at 65, he will get an estimated monthly payout of S$580 for life.

Another individual who does not make the withdrawal will get S$680 - S$100 more per month for life.

This is manageable from the risk perspective, he said.

Eddy Cheong, head of financial planning at retirement-planning boutique Providend, said that the freedom to withdraw afforded by the proposed 20 per cent limit might even "encourage people to save up more with CPF, knowing that some portion can be partially withdrawn before retirement".

He praised the move to allow people to enjoy higher payouts in return for putting in the enhanced retirement sum of S$241,500. "CPF Life is arguably the safest retirement product with the highest guaranteed (rate) in the market."

UOB economist Francis Tan pointed out that allowing for more flexible CPF withdrawals could potentially benefit the Singapore economy through increased consumption and investment. However, the impact, though positive, is difficult to determine.

On the deferred payout age, Tokio Marine's Mr Tay said that deferring payouts till 70 is "late enough", given how people live on average until their 80s. Ultimately, pension systems, with their allowances and limits, can only do so much, financial planners said.

Providend's Mr Cheong, for example, said: "Creating public awareness and financial literacy is a better way to safeguard one's retirement savings than relying on a system alone, such as one which prevents lump-sum withdrawals."

Similarly, Kevin Wilkinson, chief executive of Unicorn Financial Solutions, said that systems are a means, not an end. "The outcome of the changes will depend on how CPF members use them. Without education and proper advice, more freedom can be a bane rather than a boon."

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