Dear The Real Singapore,
This is going to be my little rant because of all the online discussion I have seen of late regarding CPF contributions. I have seen all sorts of comments, some rational and backed up but unfortunately most are what I see to be typical Singaporeans just loving to complain. I understand that life is hard and many people are doing it tough however for all the keyboard warriors out there, please offer solutions and alternatives instead of making wisecrack remarks.
A bit of background, I am a Singaporean currently living overseas. I keep abreast of the happenings in Singapore as I am very much in touch and will be back at least four times this year. I am overseas as my whole family emigrated when I was young, I voluntarily returned to serve NS before completing my studies abroad and now also working abroad. The reason I am telling readers this is because I don’t want to be seen as someone who moved overseas and is now arrogant and unsympathetic to the average Singaporean’s hardships and struggles. As I said, I am very loyal to my roots but am fortunate enough to see the world out there and compare it to home.
CPF. To be honest, this is the article that started it all for me when I read this article: "http://therealsingapore.com/content/shocking-facts-about-our-cpf". The main argument here is that although we have some of the highest pension contributions in the world, we have the lowest adequate amount of pension savings at retirement. How can this be? Here are the main points I have observed following that argument:
- Your CPF is tied up in your primary place of residence, you can’t be expected to sell your house so you will forever retire with minimal amounts left in your pension;
- The appreciation in value of your house is only a paper gain, never to be realised, and
- If you do sell your house then the profits you have made will have to go towards buying your next place, so no net gain
Lastly, I have started to see comments regarding the payback of accrued interest but as I have not had the time to read into it, I will refrain from commenting about this topic. What many Singaporeans don’t realise is that the ability to use your pension funds to purchase the home you live in is the envy of many from the rest of the world. If you want to have a large balance in your CPF account upon retiring, the solution is simple. Do not use your CPF to purchase your home. Whilst this may sound insane for the average Singaporean, this is the exact situation in other countries, which is why they have their large balances at retirement. Using CPF to pay for your home means that households do not need to have additional budgeting pressures and set money aside to pay for their mortgages. You know that the CPF contributions are taking care of the mortgage payments.
Right now at 9%, I have a lower pension contribution rate than that of the average Singaporean and assuming I earn a wage of $50,000 per year, I will have $4,500 set aside for my retirement at the end of each year. Disregarding interest, yes I will have $180,000 at the end of the day, assuming a 40 year working life. HOWEVER, I will have had to pay for my mortgage on top of other living expenses throughout my working life. Please take a minute to fully comprehend this impact of NOT having CPF pay for your home mortgage. In fact, your employer contributes a whopping 16% of your gross pay towards you CPF, 16%! es, the appreciation of value in your house is a paper gain and can never be realised if you don’t sell your house. If you are at retirement age and you have no savings considering not having to fork out cash for your mortgage, then clearly something has gone wrong. Readers, let me give you a sound piece of advice. If you are unfortunate enough to be that situation and unable to make ends meet in your ripe old age, I suggest you sell your house and RENT. Yes, rent. What other alternative do you have? Do you die in your only sizeable asset, old and penniless or do you use those funds to live out the rest of your life? For the majority of people, you have effectively not had to pay a mortgage your whole life so there is no good reason as to why you have no savings.
As for my third point from above, people are forgetting that we are talking about a retirement situation. This means that you are should to be downsizing from a 3 / 4 / 5 room that you have lived in your whole life, raised kids and needed the space to a smaller 2 room flat at best. With all things equal, selling a higher value bigger property then buying a smaller and hence cheaper property should free up a good amount of liquidity so your CPF contributions over the years should have made you money. If you have to pay back all the profits to CPF then you would at least have cleared your CPF “debt” and now be living in a property that is debt free. Some might say you would have money in CPF that cannot be touched and no savings to live on. For those people, RENT.
Everyone, whilst I recognise that there may be many flaws in the CPF system, such as the raising of draw down age meaning many will never be able to access their hard earned money in their lifetime, there are also considerable benefits to it. CPF provides the government with a source of low cost funding and at 2.5% interest, citizens get a fairly low return but considering the amount of people in CPF who are attracted to 1% fixed deposit schemes, it makes CPF look good. The cost savings the government has through CPF is in part the reason why Singapore is the place it is today, a developed economic powerhouse in the midst of developing Asian countries. Many governments around the world would be envious of our fiscal balance sheet. Back to my earning $50,000 a year and still having to support my family plus pay a mortgage!
On a $50k salary, my annual tax rate will be between 25-30%. I would like readers to have a hard think about how much income tax they paid in the last financial year as a percentage of their income. I recently read a quote that stuck with me, “Singapore prefers to tax consumption.” This in a nutshell sums up why I think Singapore has a fair taxation system because you ONLY pay for what you use! If you don’t want to pay the tax, don’t consume the good or service! I am paying 25-30% in tax for the government to fund initiatives of which 75% are not applicable to me and on top of that, I pay 10% GST as a consumption tax (with talks of further increases)! Also, I agree with the concept behind COE but not the execution because I think the concept has been lost in translation along the way. The opaque “bidding” process of COE and dropping prices down to $1 during an economic downturn, thereby ignoring the whole principle of congestion control for short term gains are examples of bad execution. Singapore is a small place and can only take that much cars on the road before we become the next Jakarta or Bangkok and I think financial cost is the best way to incentivise people and control vehicular overcrowding. However, I believe that considering public transport is to be the main mode of transport as a result of COE, public transport should be subsidised by the government rather than try to make a profit and constantly increase prices. he point of this article is not to point out who is in a better situation but more to inform readers of life outside the tiny red dot and get a better understanding of alternatives. I am sure I will get comments such as if Singapore is so great, why are you living overseas? To pre-empt that, I want to point out that it is a personal decision and there is more to life than to use numbers as an absolute to make informed decisions.
Please note that above assumptions are based on reasonable adults making reasonable decisions throughout their adult life and have not gotten into precarious financial situations.
Let the abuse begin.
End rant.
Ken Lim
TRS contributor/reader