The Straits Times, Saturday 6 April, 2002

More efficient utilisation of resources may help

I REFER to the article, 'NTUC chief suggests less CPF for housing' (ST, April 4).

While I support any initiative that would help Singaporeans retire comfortably, I am not sure if the answer to the problem is a further restriction on the use of Central Provident Fund (CPF) savings for property purchases.

Such measures curb home ownership, which has beneficial economic multiplier effects and is a factor that has kept the United States recession shallow.

Another misconception is that our CPF savings rate is 36 per cent of our salary.

The truth is that housing, whether through ownership or rental, is a basic consumption need and at least 20 percentage points of our CPF savings go into paying for this.

Another 6 percentage points, in general, go into the Medisave Account. Thus, we are left with 10 percentage points of CPF savings for retirement planning.

From a financial-planning perspective, Medisave is primarily a self-insurance fund. It is not the most efficient way of provisioning for future medical consumption.

My research shows that if we move from self-insurance to true risk-pooling, we can free about 1.5 percentage points from Medisave for other needs. The1.5 percentage points are precious if one considers that we just need to save about15 per cent of our annual income and compound it at a conservative 5 per cent real rate of return over 35 years to retire comfortably.

I am convinced that the retirement problem is not one that can be solved with a single silver bullet.

Indeed, the answer lies in finding efficiencies in the way we allocate and utilise our resources. The solution would also have to be differentiated for Singaporeans in different age groups as time is not on the side of people close to retirement.