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Posts Tagged ‘retirement’

The magic number is 65

In Money, News Reports, Politics on February 6, 2015 at 12:21 am

The problem with trying to please people is that you end up pleasing no one at all. And so the CPF review panel is finding itself in this conundrum almost immediately after its proposed changes were made public. How come?

  1. People had expected some changes to the rate of interest, which is now at 4 per cent for Special Account. Hey, the fund manager, GIC, sometimes makes more than this so how come it’s not higher?
  2. People thought that when there was talk about a lump sum withdrawal, it would be at age 55, not 65. After all, it wasn’t not too long ago that people can withdraw as much as half, instead of the measly $5,000 if you don’t have enough in the Minimum Sum.
  3. People thought that the draw-down age was set at 62, which is the retirement age. Sure, there are the re-hiring laws but it’s no guarantee that you would be re-hired right?
  4. People thought that more will be done for those with low balances but there’s nothing in the proposals about helping those with less than the minimum sum raise the amount. Nothing new at least.
  5. People thought that they could make a property pledge to make up half of the minimum sum. But it seems the property pledge which had people worried about having their homes taken away from them isn’t a big deal at all. It’s unnecessary. That’s good news but sheesh…why even have it in the first place?

Notice I use the word “people’’ – so yes, I’m generalizing here. “People’’ were expecting some massive changes to the CPF system but it looks like tweaks here and there. That’s because “people’’ forgot about the parameters that had been set for the review panel.

To recap: The panel was supposed to see

  1. How the Minimum Sum should be adjusted beyond 2015, in order to meet the objective of delivering a basic monthly retirement payout for life;
    (So it depends on what you mean by “adjust’’. Looks like there is no way the sum can be lowered unless we experience deflation. The panel hence came up with a three-tier Minimum Sum, now to be called Retirement Sum. And a 3 per cent increase – it’s $161,000 now- until 2020)
  2. How to enable CPF members to withdraw more as a lump sum upon retirement, and the circumstances for their doing so, taking into consideration the impact on retirement adequacy for different groups;

(It doesn’t say at what withdrawal age, whether at 55 or 62 or 65. The panel decided on 65 so I think we can presume that the retirement age will go up to that in the near future….Also, we can withdraw 20 per cent of whatever is in our retirement account in 10 years time. If we don’t, we could have bigger monthly payouts.)

So the panel’s proposals revolved on those two parameters. To come are its recommendations to do with:

  1. How to provide an option for members who prefer CPF payouts that are initially lower but rise with time to help with increases in the cost of living; and
  2. How to provide more flexibility for members who wish to

    i. Seek higher returns while balancing the higher investment risks involved, through private investment plans;

    ii. Invest in private annuities when they retire as an alternative to CPF LIFE

I know I sound like the panel’s mouthpiece but seriously, there is little it can do when the parameters set by the Prime Minister are so tight. In fact, that was the grouse when PM Lee Hsien Loong first announced the panel’s formation and its work. It means that we won’t be looking at the CPF system as a whole, such as whether housing is playing too big a role. The CPF system, the G maintains, is fundamentally sound. Providing for housing is good as it is an asset that can be monetized for retirement needs – although it would take quite a mindset change on the part of CPF members for that to happen. With such a narrow focus, the panel would be hard put to assure  ” retirement adequacy’’ for CPF members. For that, you need a jump in CPF contributions in some way, or higher interest rates paid out to Ordinary and Special accounts.

The panel did say something about making the CPF pot bigger, framing them as suggestions that the G might want to take up.

There were two ideas that could fit the “financial adequacy’’ portion.

  1. The proposal to equalize the CPF contributions of those aged between 50 and 55 to the same level as younger workers.

Now, I have to declare my interest in this. I was flummoxed to find that my take home pay had gone up, until I realised that my CPF contribution rate had been lowered, from 37 per cent to 35 per cent. So I’m getting one per cent of my money back to spend and my employer saves on the other one percent. I know employers will grumble about having to pay the extra money if the rate goes up. They will say it will make it less attractive to hire older workers. But with the retirement age at 62, those aged 50 aren’t exactly THAT old. Also, if the rates are equalized, I too will miss that one per cent spending money. I don’t suppose there’s any way to just have the employer’s 1 per cent go into the CPF without touching the worker’s pay? Like I said, I have an interest in this.

2. Raise the salary ceiling for CPF contributions now set at $5,000. The NTUC wants it to go up to $5,500 and later, $6,000. I rather wonder about this because those at the top of the salary ceiling will probably have more than the minimum sum already by the time they hit 55. I guess the idea is to increase the collective pool to raise payouts further. Could some kind of transfer be effected at this stage to help those with low balances?

And there was one idea to ensure more people are covered

  1. Allow spouses to top up or set up CPF LIFE accounts for their non-working partners. The worry is that women outlive men and not all women work. And there may not be any money in the spouse’s account by the time he leaves the world. This will probably be the case if his balances were low in the first place. o while he gets a payout until he dies – which might be even more than he had initially in his account like any annuity– there’s just no money leftover for his dependents.

What, however, to make of the panel’s recommendations? Take your pick.

  1. It is caving in to populist pressure, yet not quite. Those who want all their money at 55 will still be unhappy. There will still be charges of a “nanny state’’ seeking to control the money of its citizens or worse, allegations of some mischief by the G in retaining the CPF money.
  2. It is making the prudent worry that most people will withdraw that 20 per cent, and end up with less money for their old age never mind how carefully the sums are calculated now. Are we able to say” You reap what you sow’’? Or will there be pressure for yet more support structures for them?
  3. It is likely that those who can’t afford it are those who will withdraw the money, leaving them with even smaller payouts – so how is this serving the neediest group? The  answer: plenty of financial counselling – and some as-yet-to-announced incentives.

The thing is, the CPF system has been deemed a sacred cow. It can’t be slaughtered although we can tweak its innards. We’ll have to live it. Going by the systems in other countries, ours doesn’t look bad at all. In fact, I am inclined to leave my money in it because the interest rate is simply un-beatable – and I am not sure I can do better.

The trouble is this magic number: 55. Several cohorts and generations have passed and it’s still age 55 that we cling to. It’s even more deep-rooted than another number, 6.9 million. To accept the CPF system is to accept a new number: 65. Howe Yoon Chong tried and failed some years ago to shift this number; I guess he was way ahead of his time. We have got to start thinking about the meaning of retirement – at a later age. We have to accept that most of us will live way longer than 55, or even 65.

Like previous generations who looked forward to hitting 55, we should think about hitting 65 and then kaboom! Money! Yeah!

Unless future cohorts live to be 100-plus years old. But that’s not our problem….right?

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CPF – Complicated Problem to Fix

In News Reports on January 23, 2015 at 1:58 am

TODAY had an interesting way to describe one of NTUC’s proposals to tweak the CPF system. It described the suggestion to let those with less than the minimum sum take out 20 per cent on top of the $5,000 that they are allowed to when they turn 55.

Eye-catching indeed and doubtless welcomed by those who want their CPF returned to them to fund other expenses or even a holiday. But what happens then to their monthly payouts under CPF Life? Much smaller than before? And what happens to the payouts for the rest of CPF members who kept their money in the fund?

The NTUC suggested “incentives’’ to get people to keep their money in the CPF but one labour economist said this would have “marginal utility’’. People would be expecting more and more incentives over time. And frankly, can’t the money be better used to bolster health care or pump up the wages of those who need the money?

I guess you would expect the labour movement to weigh in on behalf of the working class. It has tried to do so, but like all policies, any change would have an impact on some other part of the whole. And you can’t ever satisfy all the people all the time.

I was also thinking about another “eye-catching’’ proposal – shave off the 2 per cent difference in CPF contributions between those below 50 and the 50 to 55. I have to confess that I was flummoxed when I realized that my take-home pay as gone up. And then realized is because I had just turned 50 and hence do not have to contribute as much to CPF. Then again, neither does my employer. So wonderful. I’m glad that I don’t need my CPF Ordinary Account to pay for my housing…

Here’s the problem: The rates were shaved to make old(er) people employable because employers won’t have to pay them as much – something which the labour movement surely welcomes. Then again, the labour movement wants people to have more money for retirement. What a conundrum!

Of course, this eye-catching proposal is viewed as “hair-raising’’ by businesses who see only a rise in wage costs at a time of restructuring.

Then there is the proposal to raise the cap on wage contributions from $5,000 a month to $6,000 and to do this in two $500 parts. The reason is because the 80 percentile of wage earners have been designated as the ceiling. And that hit $6,000 in 2012. Hmm. Interesting. I didn’t know about the 80th percentile factor and the proposal looks like simply a logical adjustment. But what is the impact really of the rise? I wish the labour union elaborated on this. More money for future retirement and less money for present needs? What sort of impact will this have on people who have to pay off housing loans?

There is also the 1 per cent extra interest given to those with balances of less than $60,000. NTUC wants the cap reviewed. According to ST today, it wants it doubled, to $120,000? I don’t think anyone minds more money. But do we really need to do more for those who are better-off – or give more to the lower income? How many people are we talking about with balances between $60,000 and $120,000 anyway?

Policymaking is quite an interesting exercise especially when there are so many good but conflicting priorities. I can’t wait to see what sort of proposals the CPF review panel will come up with that will satisfy all, or at least most, CPF members.

Chatting with Heng Chee How

In News Reports, Society on October 6, 2014 at 2:30 am

What’s the difference between a chance and a choice? That’s a phrase Mr Heng Chee How keeps using. A chance: To work beyond age 62 and even up to 67. A choice: To NOT work beyond age 62.

But what if there is no choice? That you have to work beyond a certain age to keep body and soul together, that is, work till you drop? Mr Heng counters that there is at least a chance: some people have to work, or want to work – but can’t because employers can “retire’’ you. In other words, you have BOTH a chance and a choice.

Methinks many people have mixed feelings about the retirement age. To think that it was only two years ago that we were told that we can work till 65 and now, we’re talking about labouring till 67!

Much of the misperception about the retirement age is this idea that we HAVE to work till we drop, or at least to whatever retirement age we’ve settled on. Some of us probably have to; some of us can afford to smell the roses earlier.

The confusion – or resentment – is compounded by the CPF withdrawal age of 55. That number is ingrained in everyone’s mind as the time you can start relaxing because there’s money a-coming. It’s a deadline. Then we get a jolt when we realise that the sums will be disbursed in small amounts over time, although with CPF Life, they will be given out until the day we die. (In fact, if you look at the CPF website, its home page has Turning 55 as Retirement. So much for G messaging…!)

Anyway, we’re told/asked to work for longer because we happen to also live longer and CPF savings may not be enough. And we are put on some kind of guilt-trip about burdening our children and the next generation.

Actually, the phrase “retirement age’’ is quite redundant to the worker. It’s not as though you get a gratuity or pension of some sort, at least for most of us. It’s actually something that works to the advantage of employers who want to see the back of some seniors who get too comfortable and fat on the job. Yay! We can retire the fella! He’s always falling sick and we’re paying his medical fees! Time to get fresh blood! Cheaper!

Methinks we shouldn’t be talking about retirement, we should be talking about re-employment. You can retire anytime you want, but if you want to still continue working, you can. Isn’t that a better way to pitch the message?

The question that people, at least employees, should be raising is not whether the retirement age should go up, but what sort of re-employment is being offered, if it is being offered at all.

So what’s the status report? I got to talking to Mr Heng, the deputy secretary in the NTUC, for some background.

From 2012, employers have to offer re-employment to those who hit 62. It’s the law – unless the person is unfit or the employer can argue that there is no suitable job for the person. Yup, it does seem weighted in favour of employers. (Imagine: Yes, you have been doing the same job for years but we’ve decided to do away with the job and we can’t find anything else for you…And then open the job up later for a new worker???)

In any case, the Manpower ministry has a survey of what happened in 2012. From what I can gather, 79 per cent of private establishments had measures to allow their local employees to work beyond 62 in 2011, up from 77 per cent in 2010. As for the rest which didn’t, or 21 per cent of employers, they gave reasons such as lack of suitable job and leadership renewal.

That’s the employer front. Seems 400 people didn’t get offered a job. MOM didn’t say if it did anything about employers who couldn’t give a good reason.

But just because a person is offered a job, doesn’t mean he has to accept it. It seems that 92 per cent or 10,600 of the older workers accepted re-employment.

So people want to work.

Sounds good, but what sort of terms were they offered?

Said MOM: “Of the local employees who accepted re-employment in the same job, only 17 per cent of the employees were paid lower, with a median wage cut of 12 per cent A small minority or 3.6 per cent were paid more, with a median wage gain of 12 per cent.’’

I don’t know why MOM chose to use the word “only’’.

Too often, we hear of older workers accepting terms below what they should be paid for, such as same workload for less pay or no medical benefits. It is as though their worth goes down at age 62, even though they do the same amount of work. They have recourse: to the unions, to the Commissioner of Labour. If they are unionised, or know their rights. ( I wonder what sort of workers accept lower pay for the same work? Probably those who HAVE to work, that is, the low wage worker. So you have a 62 year old trying to keep body and soul together on even lower pay… )

There is one aspect of the Retirement and Reemployment Act that is seldom mentioned:  That an employer who is unable to find a suitable place for an eligible employee

(a) must let them retire (so odd isn’t it? It’s as though the employer can handcuff you to your desk) OR

(b) “offer an employment assistance payment to the eligible employee’’. Tripartite guidelines say that this should be between $4,500 and $10,000.

Didn’t know that did you? I guess it’s because the whole idea of raising the retirement age is to get people to continue working and not view the sum as a sort of retirement benefit.

For those interested in what happens when you are getting close to 62, here’s a dumbed down scenario.

  1. You get a call from your boss/HR manager, like three months before your birthday, to ask if you want to carry on working. That’s assuming you’re medically fit.
  2. If you say no, then its “sayonara’’ and all the best to you.
  3. If you say yes, then the employer will have to try to find you something to do. It could be your old job or a new role and then you start discussing terms. One-year contract, for example, that can be renewed till you hit 65. If you are not happy with the terms and you’re convinced that the employer is making it too tough for you to stay, you can go to the union or the ministry. (Problem then is what is considered “reasonable’’ terms)
  4. If the employer doesn’t want you in your old job (maybe he has someone younger in mind) and can’t find a place for you anywhere, he’s supposed to help you find another job. That’s why he has to give you an Employment Assistance Payment, to help tide you over the job-seeking period.

I asked Mr Heng why this hurry to get the age raised to 67 when people might not be too clear about how re-employment works. Also, shouldn’t we wait till Medishield Life gets underway so that companies can move to a portable medical benefits system and workers can be assured of proper medical care regardless of age?

He cites the current labour market as a reason. Best to do it when employers feel the need for workers – and can’t get more bodies. The flip side, however, is that young workers will start wondering how to get to the top if the higher ranks are filled with “senior’’ people who seem to be staying on “forever’’. He says it boils down to re-designing jobs for older workers so that they still have a role to play, but make way for the younger lot. Like doing part-time work, or becoming mentors or consultants.

He says, very frankly too, that employers always have ways to get rid of older people, with or without legislation. They can, for example, find a reason to let go someone before the person hits re-employment age. The current set of statistics which lump workers within a 55 to 64 year old band isn’t enough, he reckons. Better to have a yearly breakdown to see if employers are playing punk (my phrase).

He asked me for my definition of retirement. I told him it’s about not having to work or working at a slower pace than before. And that, of course, depends on whether you have enough money stashed away to be able to do so. (Which makes me glad that the CPF contribution rate was raised for older workers two years ago, in line with the raised retirement age. Hmmm…Shouldn’t that go up too if we raise the age further?)

The question though is what is what is “enough money’’ to retire on – something which will differ from person to person.

Maybe we should retire the term retirement. And just keep calm and carry on working.

Really? A retirement resort?

In News Reports on January 6, 2014 at 2:25 am

You know you’re getting old when news reports about retirement homes excite you. Particularly when you’re hitting the big 50 and have no children to support you in your old age. So there was a semi-helpful article in the Sunday Times about the “first retirement resort’’ to be built here. Waaah. Resort! So where’s the sauna and spa? The swimming pool? Didn’t say.

Where is it? Jalan Jurong Kechil, said SunTimes. Hah? Jurong? Actually no, it’s in Bukit Timah, according to TNP today. Wah. Good address. It’s really funny for TNP to talk about the crowds on Sunday… Hmm…probably led there by the SunTimes report. (I am assuming here that people still read the newspapers)

Okay, enough pot shots. Now to get down to the nitty-gritty.

You know, we’ve had enough news about housing old people over the years and how the infrastructure should be made “elder-friendly’’. It’s one big reason for the HDB’s upgrading programmes – old people can no longer climb the stairs to reach their flats because the lifts don’t stop at every floor. And it’s the main reason for the building of studio apartments which appears to have lost some of its shine in recent years, with the final take up rate for the first six months of last year at less than 70 per cent although there were two applicants for every flat. Note that there is an income ceiling: average gross monthly income of all applicants should not exceed $10,000.

Of course there are old folks homes with medical staff on standby. But it simply isn’t Asian to be children who dump their aged parents into other people’s care even if there are pressing reasons to do so. I mean, who would look after the grandkids? But what about the middle-class retirees who don’t have to draw on their Eldershield because they are able-bodied and are still sentient beings who don’t want to depend on their children? And who want to splash around in a Blue Lagoon?

A nice retirement village would fit the bill.

So it seems World Class Land, the developer of the Hillford (is it on a hill and are there good views? Doesn’t say in news reports), can claim that this is “the first development of its kind’’ in Singapore. (Move over, HDB and your studio apartments! The private sector is here!)

I wish the papers had done the job of comparing the apartments with what is on offer in public housing. But they are probably wary of doing a “puff’’ piece that would amount to free advertising.

So here it is, according to the developer’s website.

–         The Hillford is a 10-minute walk to the upcoming Beauty World MRT station (Faster if I roll my wheelchair at top speed).

–         It has various “famous’’ schools nearby, such as Bukit Timah Primary School (parents please note and buy for investment purposes.)

–         It has a 24-hour concierge (it bills itself as the Ritz-Carlton Residences of Bukit Timah by the way) and its “payable upon usage ‘’. You wonder about the service and conservancy charges…

–         It will have five restaurants, seven medical-related facilities, one beauty salon, one laundry/flower store, one convenience store, one mini-mart bakery, one childcare centre (!), one eldercare centre and one “retail shop’’. In other words, it’s an integrated development, like every place else is now in Singapore.

–         It has a petanque lawn! (must learn to play this!)

–         And there are four swimming pools (splash, aqua aerobic, dip and spa) and even a Blue Lagoon…

So what did those who throng the showflats say about this? It’s interesting that they were more interested in the inside than the outside.  No non-slip flooring outside the bathroom. Marble tiles are “cold’’. Not enough space to manoeuvre a wheelchair. Toilets do not come with grab-bars. (And the URA had said that the site was released with special conditions to facilitate the “development of a private retirement housing project’’. )

In this instance, the HDB studio apartments beat the Hillford over the indoor amenities. It even has an “enlarged door eye viewer fitted on the main door’’.  

Then there were people there who looked to be buying these apartments for investment, rather than to live in. Perhaps, they were thinking of their own future. Rent them out in the meantime, and then move in later. They are probably not going to be fussy about who their tenants are. Who cares right? So long as the rent is paid.

 This “retirement resort’’ might well be a draw for singles as well and newly marrieds.  There is, after all, no bar on what sort of people are eligible to buy. (And they wouldn’t mind not having non-slip floors and such)

What’s the price? It is $388,000 for 398sqf one-bedder, $498,000 for 506 sqf and $648,000 for 657sqf.  Remember that this is private property with condo facilities and a concierge on call.

Come to think of it, this “retirement resort’’ might well not have very many old folks living in its 281 units when it’s ready…Who cares right? So long as the developer collected the money.

PS. TNP had an accompanying story today next to the Hillford article about a couple who downsized to a HDB studio apartment. I wonder about the reason for this. To stop old people from buying private apartments that are beyond their reach when there are cheaper options  available?