Housing loans eating up funds for retirement
As of December, over 25,000 people above 55 were using CPF to pay
off debt
The Straits Times July 3, 2006
By Tan Hui Yee
THOUSANDS of older Singaporeans risk running low on retirement
savings because they have spent too much on housing.
As of December last year, more than 25,000 people above the age of
55 were still paying off their housing loans with Central Provident
Fund (CPF) savings.
Of the active CPF members - that is, those most likely to be
working - 22,300 were paying loan instalment amounts that were
larger than their monthly CPF contributions.
And 12,800 of them stood to deplete their CPF Ordinary Accounts in
less than six months if they lost their jobs and could not make new
contributions.
The Ordinary Account is the account into which is paid the bulk of
a worker's CPF contribution.
Money in this account can be used to service housing loans.
These figures mean that of the 140,000 active CPF members over the
age of 55 in December, one-fifth had yet to pay off their home
loans.
This is a worrying statistic, given that financial advisers say by
that stage of life, people should be paring down on their financial
commitments.
Mr Leong Sze Hian, president of the Society of Financial Service
Professionals, explained: 'The older you get, the easier it is to
get retrenched and the harder it is to get re-employed.'
The CPF Board, which released the figures in response to queries
from The Straits Times, cited the example of a 55-year-old woman
who bought a four-room resale flat three years ago.
She has wiped out her CPF Ordinary Account and her monthly
contribution amounts to just $171.
Yet, she needs to pay $780 a month in home loan instalments.
And she needs to do so for the next 10 years to repay her
outstanding loan of $99,000.
Another CPF member who has nothing left in his Ordinary Account is
Mr B.G. Siriniwas, 56.
The former security officer bought an executive flat six years ago
and was retrenched in 2004.
Unable to keep up his home loan payments, he has sold it off and is
downgrading to a smaller flat.
Dr Amy Khor, mayor of Southwest Community Development Council, said
she thought many of the older people still servicing their home
loans bought bigger homes in the 1990s as they thought that
property would keep appreciating in value.
But prices plunged after the 1997 Asian financial crisis and have
inched up only recently.
The CPF Board said some home owners made the mistake of using their
entire monthly CPF Ordinary Account contributions to pay for
housing, leaving no buffer to see them through contingencies, such
as a period of joblessness.
Some also failed to factor in possible hikes in mortgage
rates.
Others were caught out by recent policy changes to lower CPF
contribution rates for older workers.
As a result of CPF cuts announced in 2003, only 27 per cent of the
income of someone above 50 to 55, will go into his CPF account,
compared to 33 per cent for someone under 50.
The figure drops for those even older.
Housing agent Albert Lu, who runs C&H Realty, advised: 'Don't
always stretch it to the limit. Always keep some money as a
reserve.'
Mr Leong suggested that financially strapped home owners try to use
their other assets to pay off as much of their housing loans as
possible, if the returns from those assets were lower than their
mortgage rate.
The CPF Board, which has been organising roadshows on retirement
planning over the past few years, said it will be taking part in a
property seminar organised by Singapore Press Holdings and the
Institute of Estate Agents in August, where it will urge people to
be more prudent on their housing purchases.
