I wonder this what this consultant would think, if he
knows the annuity that we are going to be forced to buy is like the
one Lim boon Heng said.
Annuities: It's risk-sharing among all
By Christopher Tan | Posted: 31 August 2007 0728 hrs
Over the past week, every newspaper and financial periodical in
town has been talking about one thing: The changes in the Central
Provident Fund (CPF) and, in particular, the introduction of the
compulsory annuities scheme.
The gist of the scheme is: To ensure that payouts from the Minimum
Sum last throughout the life expectancy of CPF members, the
Government has recently proposed delaying the Minimum Sum draw-down
age progressively from 62 to 65.
To give a stream of life-long income to those who may live beyond
85, the Government is also planning to set aside a sum of money
from each individual's minimum sum to buy into a compulsory annuity
for all CPF members. If one dies before age 85, the amount goes
into the pool and the payouts for those who are still living.
Then the unhappiness arrived, in all forms articles,
commentaries, forums, online chat, and so on. Singaporeans felt
they have been denied the choice of deciding whether they want to
buy the annuity, or leave the money in their CPF to pass on to
their loved ones if they die early. It is their own money, after
all.
As I read the remarks and sensed the unhappiness of fellow
Singaporeans, I thought for a really long time to try and see what
was wrong with this scheme.
The intentions of the scheme are clear. Singaporeans are ageing and
we are living longer. A large proportion of Singaporeans,
especially the poorer and less educated ones, may not know how to
plan for themselves, and could invest unwisely. And although
financial awareness talks are being organised to help people
understand the importance of planning, many people may still not do
it well. They could run out of money. The annuities scheme will at
least provide them with subsistence living. Otherwise, the
Government will have to take care of them with taxpayers' money.
This means less tax money for other important areas such as
infrastructure, defence, education and so on. Poverty may also
create social problems. The overall effect for all of us will be
bad.
As chief executive of an independent private wealth management firm
that serves top-end, affluent and high-net-worth individuals, as
well as a trainer and consultant in retirement planning to the
general masses, I meet people from all walks of life. As I speak to
hundreds of retirees each month, I know that most are not
financially ready for retirement. The people who are really ready
are those like our clients who are wealthy and have sufficient
income, and wealth, to plan for themselves.
I scrutinised the scheme for a long while and my conclusion is that
this is indeed a well thought-out programme. Based on our
calculation, CPF members may only need to set aside $4,000 to
$7,000 from the minimum sum for the compulsory annuity. This is a
very small amount relative to the current minimum sum of $99,600 or
$120,000 in 2013. Thus, the monthly drawdown from the minimum sum
from age 65 will not be greatly reduced. If the CPF Board manages
this annuity, it is likely to do better than an insurance company
as it has the economies of scale and lower expenses.
So what exactly are we unhappy with? After much thinking, I
concluded that it is due to a matter of perception, lack of
knowledge and discontentment.
Singaporeans are unhappy because we feel that the Government is
often high-handed. In this case, we feel that the Government has
already decided on forcing everyone to participate in a scheme that
does not give us flexibility to do what we want with our own
money.
In Singapore, once an intention is announced, feedback sessions and
consultations are perceived as mere motions the belief is that it
will be implemented anyway. Whether this is a fact or perception
remains to be debated. Even good policies will be rejected once
such a perception is formed.
The unhappiness is also partly caused by lack of knowledge. Many do
not understand how the scheme works. As an example, many may not
know that the estimated monthly payout amount at age 85 from the
annuity scheme would probably have taken into consideration the
number of those who may not have lived to that age, and have
contributed their share into the pool. This probably explains why
many doubt whether those who survive beyond age 85 will
benefit.
There are comments that the Government is looking to benefit itself
financially. But many do not understand that the Government is not
a private enterprise. It is like a trustee to a pool of funds of
which every Singaporean is a beneficiary.
Finally, the greatest cause of unhappiness is discontentment.
Humans, including myself, are a discontented lot.
