Big HDB flat = Big loans = Big trouble in retirement

Some economists warn doing this could affect retirement income.
The New Paper
TO MOST Singaporeans, the flat they own is a sacred cow. It is not just their home but a form of investment too.

If things go bad, the idea is that they can sell their flat.

So they often buy the most expensive Housing Board flat that can be supported by their Central Provident Fund (CPF) ordinary account.

But some local economists have warned that this could significantly reduce the adequacy of their retirement income from their CPF savings.

These concerns were shared at the Singapore Perspectives 2012 conference yesterday, which was organised by the Institute of Policy Studies.

The conference this year focuses on challenges facing Singapore, such as the affordability of housing and health care, and the problems of an ageing society.

Associate Professor Hui Weng Tat of the Lee Kuan Yew School of Public Policy gave a hypothetical example of a 30-year-old, with a starting salary of $2,560, who buys an HDB apartment that costs $560,000 (the maximum price supported by CPF contributions).

When he retires at 65, his retirement income from his CPF special and ordinary account (if he has any left) will only be 38 per cent of his last-drawn salary, factoring in inflation-adjusted CPF salary ceiling at 2011 level.

This is far below the 60 to 70 per cent that the World Bank, in a study reported in 2005, considers as adequate old-age income for private-sector employees.

To make matters worse, Prof Hui found that over the past decade, there has been a sharp increase in the proportion of the highly educated among those retrenched or unemployed.

Data from various issues of the Manpower Ministry’s labour force report showed that degree holders made up 9.4 per cent of those without jobs in 2001, but this figure jumped to 26. 6 per cent in 2011.

If a 40-year-old experiences unemployment even for a very short period, his retirement income at age 65 will be an even smaller percentage of his final pay cheque – dropping by as much as 10 percentage points.

Prof Hui said the increase in property prices poses the most serious threat to retirement adequacy, so there is a need to contain or bring down prices.

He also recommended a review of the impact of policies on property prices and future welfare of residents, as well as “a move from the mindset of using property as an investment towards using property purely for consumption purposes”.

But why can’t home owners sell their flats if they need more retirement income?

Associate Professor Chia Ngee Choon from the National University of Singapore’s Department of Economics questioned whether the value of housing does get unlocked.

She referred to a Housing Board survey in 2008, which showed that 80 per cent of the elderly (those aged 65 and above) prefer not to take up monetisation schemes such as reverse mortgage and lease buyback.

Bequest motive
This could be due to the bequest motive, where people want to leave property for their children, or the “endowment effect”.

“When you have property of your own, you are very reluctant to downsize or to sell.

“There are also other preferences such as individuals (who) like to age in place,” said Prof Chia.

Among her recommendations to refocus the CPF to provide for housing finance while ensuring a more adequate retirement financing is to have a minimum pension guarantee targeted towards low-earners.

“The current system of redistributing income to the elderly is ad hoc in manner and dependent on the economic growth, and does not provide enough security for these households,” she said.

Even as academics call upon the Government to tackle systemic problems through their policies, the social service providers are asking how they can play their part to help meet needs.

Mr Eugene Seow, executive director for Touch Community Services, said: “There are definitely going to be greater needs out there. It’s like stating the obvious, so how ready are we to handle that? “As I hear about these macro issues, I am asking how can I increase and help the capacity of my organisation to meet these needs on a people-to-people basis?”

Author: Gilbert Tan TS

IT expert with more than 20 years experience in Multiple OS, Security, Data & Internet , Interests include AI and Big Data, Internet and multimedia. An experienced Real Estate agent, Insurance agent, and a Futures trader. I am capable of finding any answers in the world you want as long as there are reports available online for me to do my own research to bring you closest to all the unsolved mysteries in this world, because I can find all the paths to the Truth, and what the Future holds. All I need is to observe, test and probe to research on anything I want, what you need to do will take months to achieve, all I need is a few hours.​

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