Tuesday, October 10, 2006
[RealEdge] BT : Three storm clouds over retirement savings
| Published October 10, 2006  | |
| Three storm clouds over retirement savings Fertility rates fall, life expectancy up, family support down: CPF Board
By GENEVIEVE CUA
SINGAPORE is staring at three 'storm clouds' over retirement savings as fertility rates fall, life expectancy rises and family support shrinks, according to CPF Board chief executive Liew Heng San. Speaking at a retirement conference yesterday, Mr Liew also disclosed that the CPF is studying alternatives for members' 'decumulation' phase, which refers to the time in retirement when individuals begin to draw on funds for income. The conference is hosted by the Singapore Actuarial Society. At the moment, members can choose to draw on their Minimum Sum savings from age 62 or buy an annuity. 'However, as interest rates have been low in recent years, most members have chosen to leave their money with the Board. I believe that in contrast to the accumulation phase, we have not given enough attention to trying to optimise decumulation alternatives. Mr Liew said that Singapore faces issues similar to those of other countries grappling with underfunded pensions. One is the 'inversion of the age pyramid' as the proportion of people over 60 rises. In Singapore, the total fertility rate in 2005 was just 1.24, well below replacement rate. On life expectancy, one in 12 Singaporeans today is age 65 or older. By 2030, the ratio will be one out of five. Family support is also shrinking as families get smaller. The proportion of elderly depending on their children as a source of support dropped from 76 per cent in 1995 to 66 per cent in 2005. 'There might be a value change in that elderly parents may now be more reluctant to rely on their children for financial support. With more working overseas we can also expect family support to become more fragile.' Mr Liew said that the CPF has tried to address the issue of the retirement savings shortfall. Singapore already has one of the highest savings rates in the world. On investments, the CPF is studying ways to lower the cost of investment. The investment experience, however, has not been happy. 'Most of those who invested in the market would have been better off leaving their money to earn interest with CPFB.' On options for those in retirement, he said that members could defer drawing down on their Minimum Sum balance. Every year of postponement will extend the annuity payout by two more years. But even this is a stop-gap measure, he said. Annuities have to play a major role in the issue of longevity. 'However, we will need to recognise that worldwide, annuities have not taken off in markets where they are voluntary.' Asia also has not developed mortality tables for accurate annuity calculations. |
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