Sunday 14 September 2014

Bridging the retirement gap

By Mark Whatley, Published TODAY, 12 Sep 2014

Retirement adequacy and the need to plan for retirement continue to be top of mind for many Singaporeans. Retirement-related issues formed a key part of Prime Minister Lee Hsien Loong’s National Day Rally speech — in particular, plans to help lower-income Singaporeans and making the Central Provident Fund (CPF) system more flexible. Enhancements to the CPF system will be considered by the CPF Advisory Panel, which was announced on Wednesday by the Ministry of Manpower.

While the question of whether one has saved enough money for retirement may seem a simple question, the fact that retirement is often many years away makes it more difficult.

Trying to answer it generates a number of other questions: Will I have met the CPF Minimum Sum and will that be enough to meet my needs? How will healthcare and living expenses change by the time I retire and how will they continue to rise after retirement?

Global professional services firm Towers Watson, for which I work, explored these issues through a pulse survey of more than 100 human resources professionals in February, revealing insights into how Singaporeans are thinking about and planning for retirement.


With Singaporeans living longer than before, a later retirement age is necessary to ensure that the balance between working years and retirement years is sustainable financially. Department of Statistics figures for 2012 showed that a Singaporean male who had already reached 65 would be expected to live to age 83.5, while a Singaporean female could expect to live to age 86.9. Those working now will therefore need their retirement funds to last for approximately 20 years on average — and even longer as longevity continues to increase. Putting this into context, if you expect to spend S$3,500 per month in retirement, you would need a savings of S$840,000 (ignoring any potential interest earned) to last for 20 years.

In light of increasing longevity, and the ageing of the Singapore population as a whole, re-employment legislation — requiring employers to re-employ all workers who are medically fit and have at least satisfactory performance up to age 65 — has been in place for over two years. Our survey indicates that re-employment takes place in 95 per cent of cases, with renewable one-year contracts most commonly agreed upon along with the same job scope, salary and benefits. Given the success and necessity of the scheme, discussions are under way to push the age limit from 65 out to 67.

Against this backdrop, our survey found that 5 per cent of baby-boomer respondents (those aged 50 and over) expect to retire after age 70 and 35 per cent expect to retire between ages 65 and 70. In contrast, 19 per cent of Gen Y respondents (those aged below 35) expect to retire after age 70 and 17 per cent expect to retire between ages 65 and 70. While this appears to indicate an acceptance among younger Singaporeans that the retirement age will continue to increase, 42 per cent of Gen Y respondents still expect to retire before age 60. The realities of saving a fund big enough to sustain such a long retirement are likely to make this more of a dream than a reality — but time is on their side if they start saving now.


The majority of people realise they need to do more to ensure a comfortable retirement, with 60 per cent of respondents admitting to not saving enough and 11 per cent not preparing at all. Healthcare needs are the primary concern of almost half of respondents. While everyone aspires to a healthy retirement, and MediShield Life will help alleviate concerns about the availability of cover, it is important to plan adequately for healthcare costs in old age.

The impact of inflation on future living costs also needs to be considered. Even if inflation remains stable at 2.5 per cent per annum, goods would cost over 60 per cent more in 20 years than they do now — a factor that too many people fail to take into account. If you wanted your S$3,500 per month income to increase with inflation (at 2.5 per cent per annum) over a 20-year retirement timeframe, the fund you would need at retirement increases from S$840,000 to around S$1.1 million.

As Singaporeans are living longer and are having children later in life, it is very possible that people may reach retirement age with both younger and older generations dependent on them. This needs to be taken into account in planning.


When it comes to their primary source of retirement income, Singaporeans are looking to a number of different options. About 34 per cent of our survey respondents will rely primarily on the CPF savings, 18 per cent on their life insurance plans and 12 per cent on investment properties, but an alarming 20 per cent indicated their savings in banks as their main source of retirement funds. While putting money in a bank is safe, inflation will erode the real value of bank savings over time, particular as interest rates lag behind inflation.

An emerging option is drawing down on the value of one’s property — whether through downsizing, renting out a room or equity release. The recently announced changes to the lease buyback scheme should also help generate more interest in this option.

One form of retirement savings that provides tax efficiencies is the Supplementary Retirement Scheme (SRS). Our survey showed that 20 per cent of respondents were expecting to use SRS savings to some extent to enhance their retirement income.

However, based on Ministry of Finance data, SRS penetration has been surprisingly low to date. Given its potential, more people should consider this alternative in their wider retirement planning.

As the Singapore population ages, retirement planning becomes more and more important. Thinking about when you might retire, how long you might live and what kind of income you might need is the starting point. Then you need to think about what you might get from your current planned savings — both from the CPF or from other sources. From there, you can derive what gap you might need to bridge when you reach retirement.

One thing is clear: The sooner you start, the better. Pledging to save a proportion of your future salary increases can be a relatively painless way to start.

Mark Whatley is a senior consulting actuary with Towers Watson, specialising in advising employers on retirement and other employee benefits. He has been based in Singapore for eight years.

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