reporter2
17-02-15, 12:47
http://www.businesstimes.com.sg/opinion/restrict-the-use-of-cpf-for-property-to-boost-retirement-savings
EDITORIAL
Restrict the use of CPF for property to boost retirement savings
10 Feb
AS worries over retirement adequacy come to the fore, Singapore has to embark on the politically challenging debate of whether to introduce restrictions on the amount of CPF savings that can be used to purchase property. There will always be people buying properties that they cannot afford in the hope of a quick flip. People are more likely to overextend themselves when buying private properties, or one of the resale flats that the market is pricing at around S$1 million in attractive locations such as Duxton, Queenstown, or Bishan.
At the same time, as people live longer and costs continue to go up, they might not realise how much they need to save. The current proposed benchmark is S$80,500 to be set aside in the Central Provident Fund (CPF) system for those turning 55 in 2016. This provides payouts of S$650 to S$700 a month in 2026, and is meant to sustain a lower middle-income lifestyle. The basic sum is proposed to go up by 3 per cent a year in the next few years. There will be those who will not meet this sum because of property commitments. Existing age limits till which most mortgages can be taken with relatively little downpayments - at 65 years for a Housing Board (HDB) flat and 75 years for a private property - are higher than age 55, the point at which a basic retirement sum needs to be set aside to buy an annuity plan. Thus, even at age 55, most people can commit to a 10-year mortgage for a HDB flat and a 20-year mortgage to buy a private property. Some people clamour for withdrawal rules to be relaxed at age 55, precisely because they want to use the money to buy a house.
This obsession with property as an investment should be controlled to ensure retirement savings are not at risk. One of the sad rules of the marketplace is that older workers are less employable due to their high cost and perceived inertia to change. This is applicable to professionals, managers and executives (PMEs) - the group most likely to aspire to buy a condo, be it in their 30s, 40s, or 50s. Unemployment can quickly derail retirement savings plans, especially when there is also a loan to service.
Should people be allowed to use money meant for their pension pot to speculate on the property market? The liberals might say, let people take responsibility for their own financial mistakes. The conservatives, however, say it is better to protect people from themselves. Either way, it is time to discuss if CPF monies should be restricted from being used to buy expensive property, and by how much.
There are a number of ways the system can be improved. One is to funnel more money into an untouchable account meant for pensions, or into the Special Account which cannot be used to buy property, so that the baseline sum has a higher chance of being met. Another is to tweak the ages which people can use CPF money to buy private property. With restrictions on the use of CPF money for property, policymakers still have to ensure that a home to stay in is not out of reach for the majority of Singaporeans.
Home ownership is a cornerstone of Singapore's retirement adequacy system where the elderly do not need to make rental payments and can even rent out a room for extra income. CPF monies should be used to buy subsidised HDB flats within one's means, not expensive private condos meant only for those with means.
Ultimately, as Singapore reshapes its economy and encourages its younger citizens to find a broader meaning in life beyond the pursuit of material wealth, it has to attack the idea that one can and should get rich by buying a place in the sky.
EDITORIAL
Restrict the use of CPF for property to boost retirement savings
10 Feb
AS worries over retirement adequacy come to the fore, Singapore has to embark on the politically challenging debate of whether to introduce restrictions on the amount of CPF savings that can be used to purchase property. There will always be people buying properties that they cannot afford in the hope of a quick flip. People are more likely to overextend themselves when buying private properties, or one of the resale flats that the market is pricing at around S$1 million in attractive locations such as Duxton, Queenstown, or Bishan.
At the same time, as people live longer and costs continue to go up, they might not realise how much they need to save. The current proposed benchmark is S$80,500 to be set aside in the Central Provident Fund (CPF) system for those turning 55 in 2016. This provides payouts of S$650 to S$700 a month in 2026, and is meant to sustain a lower middle-income lifestyle. The basic sum is proposed to go up by 3 per cent a year in the next few years. There will be those who will not meet this sum because of property commitments. Existing age limits till which most mortgages can be taken with relatively little downpayments - at 65 years for a Housing Board (HDB) flat and 75 years for a private property - are higher than age 55, the point at which a basic retirement sum needs to be set aside to buy an annuity plan. Thus, even at age 55, most people can commit to a 10-year mortgage for a HDB flat and a 20-year mortgage to buy a private property. Some people clamour for withdrawal rules to be relaxed at age 55, precisely because they want to use the money to buy a house.
This obsession with property as an investment should be controlled to ensure retirement savings are not at risk. One of the sad rules of the marketplace is that older workers are less employable due to their high cost and perceived inertia to change. This is applicable to professionals, managers and executives (PMEs) - the group most likely to aspire to buy a condo, be it in their 30s, 40s, or 50s. Unemployment can quickly derail retirement savings plans, especially when there is also a loan to service.
Should people be allowed to use money meant for their pension pot to speculate on the property market? The liberals might say, let people take responsibility for their own financial mistakes. The conservatives, however, say it is better to protect people from themselves. Either way, it is time to discuss if CPF monies should be restricted from being used to buy expensive property, and by how much.
There are a number of ways the system can be improved. One is to funnel more money into an untouchable account meant for pensions, or into the Special Account which cannot be used to buy property, so that the baseline sum has a higher chance of being met. Another is to tweak the ages which people can use CPF money to buy private property. With restrictions on the use of CPF money for property, policymakers still have to ensure that a home to stay in is not out of reach for the majority of Singaporeans.
Home ownership is a cornerstone of Singapore's retirement adequacy system where the elderly do not need to make rental payments and can even rent out a room for extra income. CPF monies should be used to buy subsidised HDB flats within one's means, not expensive private condos meant only for those with means.
Ultimately, as Singapore reshapes its economy and encourages its younger citizens to find a broader meaning in life beyond the pursuit of material wealth, it has to attack the idea that one can and should get rich by buying a place in the sky.