Back to basics

Prime Minister Lee Hsien Loong has promised that retirement adequacy and improving the Central Provident Fund will be key focuses for the Government. Three experts offer their views on the right policies in these areas.

Singapore's Central Provident Fund (CPF) system has changed significantly since its birth in 1955.

Significant changes include allowing the use of CPF monies to purchase HDB flats in 1968, the use of Medisave in 1984 to pay hospital bills, and the introduction of the Minimum Sum in 1987.

In 1997, the CPF Investment Scheme allowed members to invest for themselves. By most expert accounts, our CPF system works well. But some fundamental issues need to be reviewed.

The use of CPF savings in the name of asset enhancement has arguably led to asset inflation. Perhaps CPF savings should be used only for owner-occupier homes, or for one residential property.

This would reduce potential froth in land costs when bouts of liquidity entice CPF members to tap their long-term savings.

The CPF has been overly weighted on housing when it should be about retirement.

With about 80 per cent of Singaporeans owning their own HDB flats, the country will witness more asset-rich cash-poor CPF members as the population ages. And the problem could be exacerbated with the immigration slowdown.

The HDB's decision to ramp up the construction of build-to- order (BTO) flats will see an average of 26,000 new HDB flats coming into the market each year.

But demand for HDB resale flats has shrunk, and prices have fallen, creating a medium-term supply overhang with price pressures.

One solution may be to progressively take HDB flats off the market, possibly older flats above 40 years, as more BTO flats are completed.

As a retirement nest egg, CPF money should not become short- term punting funds or fodder for high trading turnover, where fees and commissions erode its long- term value.

Members need to understand they get a risk-free minimum return on their CPF balances. But this is easily forgotten when they are swayed by reports in the media about bigger returns elsewhere.

That said, CPF members should be given the choice of staying with the "risk-free" CPF or taking on higher risk portfolios - all to be managed professionally.

As for the asset-rich cash poor, one consideration is for the HDB to widen the current Enhanced Lease Buyback Scheme to include four-room flats, subject to conditions.

The CPF debate is potentially divisive because most people do not understand how it works. As more citizens approach the age of 55, the CPF will become more controversial.

Unlike earlier cohorts, these people are more likely to be staring at a pile of CPF cash due to better progressive earning power.

Apart from looking at ways to improve the CPF system, there is a need to educate people about it. What is alarming is how way-off-the-mark commentaries can produce so much angst and insecurity.

The writer is CEO of an insurance company. He is also the People's Action Party branch chairman at the Bedok Reservoir-Punggol division of Aljunied GRC.

This article was first published on July 18, 2014. Get a copy of The Straits Times or go to for more stories.