Wanted: A new CPF vision

Tweaks over the years got in the way of original aim of providing for old age

What is it about the Central Provident Fund (CPF) that has attracted so much public discussion lately?

You would have thought that one of Singapore's most enduring social policies with an almost 60-year history would be well understood and accepted by now.

But debate and misunderstanding persist about its core purpose, how it works and how it affects different people, growing louder and more pronounced in recent months.

The Government has had to give repeated assurances that CPF money belongs to the people even if there are rules about how much can be withdrawn after retirement.

There are advertisements in the newspapers daily explaining how and why the scheme works the way it does.

Yet, talk to people and many don't seem able to grasp what it all means.

There is now an air of anticipation that changes are afoot, with Prime Minister Lee Hsien Loong expected to address the issue in his National Day Rally later this month.

I hope it won't mean yet more tinkering of a scheme that has been tweaked to death over the years.

It makes you wonder if the CPF as a policy tool has become too easy for policymakers to use.

It isn't like health care, where any change might involve building expensive and complex hospitals. Or training specialist doctors and nurses and anticipating new diseases.

Or like education, with so many different types of schools and universities, and curriculum to decide on, and teachers to train.

In contrast, changing the CPF scheme seems so simple, it appears that you or I could do it in the blink of an eye.

That's one reason so many people have so many ideas about how to improve it.

Change the contribution rate? Check.

Adjust the withdrawal age? Check.

Increase the interest rates? Check.

Increase the Minimum Sum? Check.

Do all four?

Check!

It's a policy wonk's dream, being able to adjust the numbers here and there to achieve whatever social, economic or political objective you care to set.

Over the years, housing, healthcare and education goals have been grafted onto the scheme.

As have economic considerations, when employers' contribution rates were cut in 1985 and 1999 to improve Singapore's wage competitiveness.

Because the CPF affects every working person and company here, these policy changes had considerable impact whenever they were implemented.

It's a powerful lever of change.

When CPF money was allowed for private property purchases in 1981, for example, the housing market exploded, fuelling a boom that lasted decades.

That happened to the healthcare industry too, when Medisave was started in 1984 to help Singaporeans save for their hospitalisation expenses.

And when the contribution rate was reduced in 1985 and 1999 following economic downturns, it was credited with turning the economy around.

Not so often mentioned though was how these withdrawals and cuts affected the future retirement savings of so many workers, the consequences of which are beginning to be felt today.

So are further tweaks in the pipeline?

Some changes might indeed be needed, given the demographic and social changes that have taken place since the CPF scheme was started.

But more important than any change is a clearer vision of the CPF's place in ensuring the financial security of every Singaporean retiree.

Arriving at and articulating such a vision involves answering many large questions about the scheme's objective and how it can be met.

Is the CPF in its present form adequate in meeting the financial needs of the majority of retirees?

It clearly isn't now, with so many members unable to meet the Minimum Sum.

What will it take to make it so?

What's the Government's policy regarding those with inadequate savings?

This last question needs to be addressed because part of the growing dissatisfaction with the CPF is how poorly it is meeting the needs of a large pool of low-income workers.

Because it is a fully funded scheme, meaning you get exactly what you put in plus interest, the CPF exposes the population to the full, often brutal, force of the marketplace.

If you didn't do well when you worked - your income didn't go up much, you were retrenched or unemployed - you suffer the full consequences later of low retirement savings.

Perhaps that's a hard fact of life and the only way to make the scheme self-sustaining without ending up like many national pension schemes elsewhere which are running out of money.

Or is it?

Are there ways to make the CPF a more dependable source of old-age savings, even within a fully funded system?

Some of the answers to these questions involve even larger issues about what sort of society Singapore is or wants to become.

Is it one which will always largely be about every man for himself, even in retirement, or is there a place for a greater sharing of the financial burden?

Looking at the history of the CPF, I think the early architects of the scheme did have a bold vision.

They had to - otherwise, how do you explain so brave a move as to decree, in 1984, that the combined contribution of employees and employers should add up to 50 per cent of wages.

I can imagine the excitement and hope this must have generated to the people then - half their wages set aside for their future use!

What a mouth-watering prospect of a nest egg that must have seemed then, especially with the economy taking off and incomes increasing every year.

Alas, too many tweaks and other considerations got in the way of that grand vision.

For most people now, their CPF funds at retirement seem barely enough for subsistence living.

Small wonder the scheme no longer inspires the same confidence that all will be taken care of in old age.

I should add that the CPF has benefited many people, especially those who have been able to buy their first homes with the fund's help. But I fear that the changing economic circumstances, with stagnating incomes and property appreciation no longer assured, will lead to inadequate savings down the road.

Can a new vision be found, one that will make Singaporeans hopeful again about their future well-being post-retirement?

It will require much imagination and political courage.

And less tweaking at the edges.

hanfk@sph.com.sg