atans1

If MOM correct about CPF, why need FTs, growing population? Cont’d

In CPF, Financial competency on 15/08/2014 at 4:23 am

Someone claiming to be a civil servant (and ex-reporter) replied to an article of mine on the above, As he has some good points, I tot I’d share it. My comments follow.

I’ll answer briefly the two questions you posed.

Firstly, why we need a larger population if each individual saves for his own retirement. Strictly speaking, we don’t. What we need is a larger *working* population because only those who have active incomes pay taxes. The taxes collected is used to run the country. It is simply not tenable nor sustainable to run a country with *both* a shrinking pool of tax revenue and a growing proportion of retirees.

For instance, even with steady population numbers, we expect the size of our law enforcement to maintain its strength (if already adequate). Our law enforcement staff is mainly supported by tax payers. Retirees generally enjoy their services but do not pay for the police. With waning tax revenues, it would be reasonable to cut funding and strength of our law enforcement agencies. And it stands to reason that crime rates would go up.

The same reasoning can be applied to health care, defense, or education expenses. Retirees don’t pay for these (other than a token co-payment).

Secondly, why the need for minimum sum and CPF Life. In my opinion, the Government is trying to be tactful in stating their reasons. I’d be more blunt here. Simply stated, the minimum sum is a proxy for your financial acuity throughout your working life. Financially savvy individuals would, by the time they retire, have a nest egg many times the minimum sum. Folks like you would be in that category. The Government does not have to worry for these folks.

Conversely, if you hadn’t even been able to save the minimum sum, what basis does the Government have to believe that you will be able to manage your own money to sustain you till death and not burden the rest of the population? If someone hadn’t been financially successful during their most productive years, would you believe that he is more likely to multiply his retirement account, or if given a chance, misspend or “mis-invest” his money. What then? What if they have no children or their children couldn’t support them or are themselves retired. Are you willing to support these folks for the rest of their life?

You yourself mentioned that life expectancy is much greater than before. That means whatever savings a retiree has would have to last for a longer time. If someone hadn’t sufficiently planned for his own retirement, what makes you think he could plan for his sustenance till death?

The views expressed here are mine and mine alone.

Whatever it is, it ain’t brief. So there goes his/her “briefly”.

Absolutely correct on first point though. My question was aimed at hopefully drawing out this answer.

This answer shows the BS (OK “incompleteness”, “economy with the truth”) that is the govt’s explanation here:

..a pension system. They collect taxes or get citizens to contribute to a social security fund. This pooled monies is then paid out to citizens who reach a certain age. However, many of these systems are facing challenges, because those who are young are now paying for the old. As most countries age, there are fewer and fewer young people paying for more and more aged people …
In Singapore, we have the CPF. Rather than pool all our monies together, every individual saves for his own retirement via his personal individual CPF account.
(Emphasis is mine)
Whether the Western system or ours, there is a need for “shared services’, MOM conveniently ignores.
It’s this kind of “answer” that gets me annoyed. S’poreans deserve better explanations.
On the second point, chap’s very cocksure: I’d be more blunt here. Simply stated, the minimum sum is a proxy for your financial acuity throughout your working life. Ever heard of the fickle finger of fate? “The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.”
Seriously, he has a point. Recently FT reported
Behavioural economist Dan Ariely, meanwhile, says it is “illusory” to expect education to lead to better financial outcomes. He points to a 2014 meta-analysis of 201 prior studies on the subject that found financial education had virtually no effect on subsequent financial behaviour. This is largely because most people forget what they have learnt within 20 months.

Mr Ariely therefore recommends a degree of compulsion. People should have to buy some insurance against longevity risks just as they are required to buy a basic level of car insurance, he says.

The problem is the govt’s solution, CPF Life. We juz don’t know if it’s any gd: black box calculations and no protection against default (yr CPF Life, it dies, you die). Sometime soon I’ll give blog further on these points.

As to Kee Chui’s *Population figures – nobody knows” comments last week: This is what the moderator at the event where he spoke (and a respected economist) posted on Facebook Chan Chun Sing, this is what

As an economist all I can say is that it’s not a very helpful answer.

A final population of below 4 million implies a drastic collapse of the economy not seen even in the Great Depression

10 million implies an impossibly crowded, highly unequal, socially divided society.

That we want to look after our citizens, or provide good jobs for our young is an independent truism.

No comment on an issue that is a key determinant of long term well being for future generations?

Gau Siam!

 

 

 

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  1. Point 1
    We have GST to ensure that everyone who consumes in Singapore pay taxes eg retirees and unemployed. So the problem is to rely less on income taxes and instead raise GST should the day comes where there are fewer workers than retirees.

    Point 2
    Just because u force people to withdraw an inadequate amount over a longer period of time does not solve the problem of inadequate amount at all. It makes it less obvious.
    The solution is to raise the interest rate for those who dont meet the minimum sum and u can raid those who have already meet the minimum sum (pay them less interest) if u cant afford it.

  2. When a ponzi scheme is small one could rely on the new inflow to fund the outflow. When the scheme is much bigger it is near impossible to continue to get new inflow to fund the ever increasing outflow. That’s when the rules have to be changed and one could call it Minimum Sum, Medisave, CPF Life etc. but these changes all have one objective – to limit or defer outflows. Its about time people wake up and realise that the CPF is NOT a retirement scheme but a home ownership scheme! It’s about time you call a spade a spade!

  3. […] – Thoughts of a Cynical Investor: If MOM correct about CPF, why need FTs, growing population? Cont’d […]

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