"I urge our representatives to stand up in Parliament to take this opportunity to ask further for greater Public Assistance, especially for the elderly poor."

Hi, I think Ms Lily Neo been there tried that and took a beating and made a graceful retreat (as per your own evidence in point 1).

I believe the elderly folks in Martyn's video are from an era where there was a variant of the CPF as administered by the British for the local folks under their employ. Those folks would not have heard or even smelt anything about the CPF and is thus most reasonable to assume that many of them would not even have a shot at taking up CPF membership. And therefore, the CAS you outlined have almost no meaning for them.

If the CAS is also meant to cover those poor folks many of whom would be in the late 70s - 100 plus, I would speculate that many of them would not have much or if any CPF monies to purchase longevity insurance. My shot at the conspiracy theory is that the PAP government is broadening the financing of poor old age fellas who lived too long with few or no children/grandchildren to support them. Much bang we get for the ministeral pay increase ain't it?

Why can't Temasek Holdings or GIC use the surplus / reserves and buy the annuity for all Singaporeans age 85 and above. The ministers are good at raising their own pay, why not show some heart. What is the point of having such a big reserves? I can never understand this. Is it solely to fund Shincorp deals, IRs, F1 (which all promotes the gambling habit). I agree the many helping hands approach can be good, but it should not be mandated such that those who are less well off, (and probably cannot afford to live to 85) will have to subsidise the richer Singapore citizens (who can afford the medical care to live past 85) I think this is worse than a regressive tax. It is the poor robbed by the rich, mandated by the government. The poor do not even have the money to live and survive on a day to day basis from 65 to 85 - and you want them to pay a premium (even a small amount) to this sinking pool with zero returns if they die before 85? I have been reading the obituaries daily - THE HOUSE WINS, if the annuity is implemented. (see Mr Brown podcast)

Ted,

I have some sympathy for your points. When I referred to the current old poor people, I used that as an example of a problem that we can see can happen if there is no support. I think CAS is a good way to minimize that potential problem.

The trouble with CPF support system is its reliance on work (point 2). And I think the solution is either to rework the PA distribution network (does it really cost 2000) or increase the direct payout.

Actually, come to think about it, your points are not fundamentally different from point, just put in a cynical fashion.

With regards to your conspiracy theory, insurance is ESSENTIALLY about the spreading of risks - so you are right. In order to succeed better, everyone must participate. And obviously the poor must participate - it is supposed to be good for them. The sum is based on the state's idea of "substance" which is not enough. Back to PA again.

TC

You are essentially arguing about the use of taxpayer money. Better uses can always be found for reserves and the tax payer money.

The unhappiness I think many Singaporeans share. Be it the investment decisions or the huge military budget, to high Ministerial Salaries - these are all controversial things you know. But to change that requires something more fundamental. Right now, I am just saying for the reasons I gave that the CAS is a good thing.

Regarding "The House Wins" - it is true in many ways. First there will be agency costs - insurers will probably earn some money, the state does not have to allocate as much to direct handouts. Be that as it may be, I think it will decrease human misery for many people in the future above the age of 85, and also, I seriously doubt that this itself is sufficient.

The problem I have, you see, is that I cannot see any sign or shadow of any government's contribution to this insurance pool. It appears that they are just fooling around more with the CPF system using the members' money. Hell, if they even deem to say the government will put in a starting fund of 1 billion dollars to supplement/kick start the fund, I would think this concept would be more acceptable than not. There should be a sensible limit to aversion for welfare.

CPF is state run but not a state sponsored social security program that is funded by the taxpayers' monies. Therefore it is quite questionable for the PAP government to constantly meddle with it like it's a divine right.

Also, we're talking about really old folks who are statistical anomalies amongst their peers. Hell, my own grandmother is one herself, being 89 years old but unfortunately she's half-paralysed with stroke recently. What is she going to do with the payout when she have to take nearly 10 over different kinds of drugs and is immobile in the nursing home (I give kudos to the state for sponsoring her stay there, although the amount of hoops to jump through to prove her eligibility is really something quite horrendous).

Thanks for the essential in caps, I did economics, so I know what insurance is roughly about (although I might have returned most of it back to the lecturers already).

Incidentally, my personal preference of beverage is Long Black aka Kopi-O with 1.5 teaspoons of sugar as the optimal healthy level.

TS,

Thank you for your courage in broaching upon one of my favourite topics. Your research of official documents is admirable if somewhat flawed imho; assumptions tend to paper over reality to give a glossy image of what's really happening in our island-nation.

As Ted may agree, most economies do not really address the needs of the elderly, due mainly to the tendency that most of this group are not gainfully employed. If you have read recent ST articles however, you may be forgiven for believing that Western countries such as the US have somehow managed to keep the majority of the elderly employed, and by extension Singapore may well be able to do the same. While it may be true that the elderly may stand a better chance of being employed in the West, it would be a stretch to say that Singapore is moving along a similar path, not least because our economies are fundamentally different.

Private enterprise reigns in the US; Singapore's economy is driven by the interactions between the establishment and overseas capital flows, enterprising hawkers and taxi-drivers notwithstanding. Given the structure of the economy, that the elderly (and not-so-elderly) in Singapore face a bleak future is frankly staggering. On its part, the establishment would have us believe that the economy is running along in accordance to 'market forces', and would maintain a hands-off approach to welfare.

Yet upon closer inspection, one's indignation at the establishment's apparent unwillingness to utilise its much-vaunted 'reserves' can be tempered by considering that the reserves, vast though they may be, cannot possibly sustain the population's desired lifestyle of $1,500-2,000/month till age 85 (or whatever the figure of the day is). After the debacles of socialist welfarism especially in Europe, no ruling government would have the courage to say "There's no way we can feed all of you till you die" even though the economic principles are plain for the average blogger to see.

In this context, any discussion of workfare is effectively a step towards welfare, however many hoops one may be required to go through. Creating artificial bottlenecks to an ever-increasing demand for social services is a slippery slope that the establishment has deemed fit to negotiate. Effectively the question on Singapore being a welfare-state has changed from 'Whether' to 'When' -- a sad but inevitable outcome should the establishment stay the course. Consequently the establishment has undertaken not only the responsibility of funding one's retirement, but also disbursement of retirement funds -- no longer should CPF be considered the people's money when they now possess minimal responsibility i.e. control over it.

I do not begrudge the need for having a minumum sum in order to utilise CPF for investment purposes: this should have come much sooner imho. After all, returns have been somewhat patchy, no thanks to 'churning' of investment policies and other dubious practices. The establishment has gone from "You don't know how to save money so we'll do it for you" i.e. raising minumum sum to $20,000 in OA and $40,000 in SA to "You don't know how to spend money so we'll do it for you" i.e. CAS. I suppose both sides of the coin have to be removed sooner or later. Apparently with home buy-back schemes, the same principle will apply soon to home ownership...

My heart does bleed... noy so much for the elderly, but for the future of my beloved island-nation ;-)

Ted,

You said, "Also, we're talking about really old folks who are statistical anomalies amongst their peers. Hell, my own grandmother is one herself, being 89 years old but unfortunately she's half-paralysed with stroke recently. What is she going to do with the payout when she have to take nearly 10 over different kinds of drugs and is immobile in the nursing home (I give kudos to the state for sponsoring her stay there, although the amount of hoops to jump through to prove her eligibility is really something quite horrendous)."

If 85 is indeed the Average life expectancy, then those who live above the age of 85 will be quite common. In relation to your second point about health care costs, CAS were never meant to cover health care costs. Health care costs is another area where the debate can take a long time. But that was not the subject of the post.

And regrading the "hoops" that you mentioned, I agree - I have talked to a prison social worker about this before in another context about the time taken for money to reach family in need. There is more research that ought to be done with regards to distribution of welfare. That said, that has again little to do with the CAS

Spursfan,

Your points are very engaging, and have set me thinking for a long time. Clearly you think you come from a particularly different school of thought.

I think that if you are right, that "workfare" and the various compulsory stuff is but an inevitable step to some sort of welfare, it is cause of celebration.

The question is what kind of welfare.

I think populist angst against the state over these policies is very natural - self-interest is a recognized phenomena that one should not fight against too much.

Perhaps I am optimistic or idealistic (you say glossy), but I think that if we through workfare, charities, and a multi-tier approach narrow the people in need to a small number, we can actually provide welfare handouts. That will then make sure that at least in Singapore, when we give welfare, we give it to the truly deserving, and the slope will not be as slippery as in Europe.

Healthcare costs is an increasing consideration when one gets older with ailments. Disregarding the costs of old age health maintainance, can you then exactly point out what is the sole purpose of the CAS?

Ted:

You asked,

'can you then exactly point out what is the sole purpose of the CAS?"

I think you do know. You are just suggesting as before that it is limited?

http://www.channelnewsasia.com/stories/singaporelocalnews/view/295996/1/.html

"I don't want to have anybody who is 85 years old or 90 years old and say 'my CPF finished, I have no insurance, and now I need to live. And I have nobody to look after me... then what happens?' That's a problem, therefore we have to deal with this," said Mr Lee.

The subject of longevity insurance or compulsory annuity has been discussed quite widely ever since the prime minister raised the issue during his National Day Rally speech.

Yo TS

Or good welfare, compulsory annuity? Also,

Panel on longevity insurance issues to take in public views

The controversy is beginning to sound like the "debate" on whether setting up casinos are good for Spore or not. But at least there is a PR attempt at appeasing and assuring the public. Heh.

Yo yo

(after so long you still call the IRs casinos, tsk tsk, not sure whether annuities will ever become longevity insurance)

thanks for the link

annuities surely very very unpopular - i can imagine a lot of people arguing that the government is bad and naughty . the details released were so sketchy that it is kinda rich for the the Minister is saying that some of us dun understand.

will it be like the casino debate?

if you take a straw poll online, i wonder how many support it. i also wonder how the opposition parties should react.

I wonder whether the opposition to this is that aggressive.

Dear teh,

No one in his right mind would argue against helping the aged or the poor to live a decent life in "First World" country Singapore.

However, the most important question, who pays for it? Is it too much to request the government to take care of its people, especially the aged? These citizens have contributed to our nation building through one way or another. Furthermore, the lack of retirement financing is partly due to the low return provided by the CPF which is compulsory in nature.

Now, the compulsory annuity is just a scheme to shift the responsibilties of taking care of the aging population to the citizens. Is this fair at all? Especially so if anyone who is very ill with cancer or illness that make their life expectancy shorter, would it fair for them to buy an annuity that they know they would have almost zero chance of benefiting from it?

Put it this way, even when you want to buy an insurance from an insurance company, they will want to have a medical report on you and reserve the right not to sell you the insurance. So why would the state make it compulsory for EVERYONE, regardless of health status to buy an annuity?

We want a government that could take up the responsibility to take care of our citizens, not a government that will wash their hands off in taking care of our citizens.

Goh Meng Seng

Goh Meng Seng,

Thanks for dropping by.

I think this is a balancing act.

There are faults.

Some of these faults might be mitigated. Perhaps the state might eventually exclude those who are "absolutely" going to pass off before X age.

That said, one has to draw the line somewhere, and it could be so that a person who will very likely not live to the age of 85 for various reasons be "forced" to participate.

Many are unhappy with its compulsory nature.

But if it is not compulsory, people who tend to live longer will buy annuities, and it becomes very expensive.

See here.
http://www.res.org.uk/society/mediabriefings/pdfs/2002/January/finkelst.pdf

I am of the opinion that despite the flaws, it alleviates more misery than otherwise, and is crucially important because of the aging population problem.

Regarding that perennial question : who pays for it?

Many have argued that ultimately it comes downs to the who is being taxed. I agree.

The socialists might argue that the richer should pay more. Some people might argue that their children (working people) should pay.

My personal take is that we spend too much of defense and sending riot police to look at toy figures but the allocation of budget is a separate, and I approached the question of compulsory annuities on its own basis.

Whats your take?

I don't agree that the state is not taking care of the citizens because of the compulsory annuities scheme. In fact, I think it is a way to take care of the citizens. I think that there will be less human misery because of the scheme. In fact, this is a hopelessly paternalistic move.

Finally, I think nobody can be certain, especially about policy. It is also a rather brave move, considering the predictable outcry.

This book has a bit to say about Compulsory Annuities:

http://www.amazon.com/exec/obidos/ASIN/0415407052

In England, people got very angry with Compulsory Annuities because the returns were bad - it basically dropped over the years.

http://news.bbc.co.uk/2/hi/business/3197881.stm

Just ask the ministers to donate their pay to old folks.

Teh Si,

May be a good idea to be explicit who will be the winner and the loser of the CAP. EVERY policy has trade-offs, and EVERY program must be paid by someone (either the past, present or future tax-payers).

Therefore, will there be more "winner" than "loser" for the introduction of the CAP, and how can the "loser" be compensated?

Ang,

Can ask, don't think they will agree. Besides, as I say liao, we trying to talk about compulsory annuity - not allocation of taxpayer money lor.

Sze Meng,

Turns out to be very difficult to do. :) Must wait for what the state announces.

TS,

Perhaps you may be right in that I'm approaching the issue from a different perspective. It is evident that you are in support of the welfarisitic course (if I may be permitted to term it as such) that the establishment appears to be taking, despite all pronouncements to the contrary. I am not so sure that there should indeed be a slope at all ;-)

We have seen how private enterprise in the US has attempted to shoulder the burden, to its detriment (GE being a well-documented example). Similarly we have observed how too much state intervention can lead to disasterous consequences (the French are actually shunning 35-hour weeks in favour of employment).

Which begs the question -- is welfare/workfare inevitable, and if so, how can it be structured in a meaningful and ultimately sustainable fashion? I believe that most citizens would say that while $300/month comes in handy, it is hardly sufficient when taking into consideration the current realities of the economy. Thus far the establishment's main thrust of creating employment for seniors has been to 1) use moral suasion on companies, subsidising wages if necessary, 2) use moral suasion on employees, subsidising training if necessary, 3) bear the brunt of the burden by 'creating jobs' for those who have taken the training path to a nil employment result (on an individual level).

An alternative model could be found in the emerging social enterprise paradigm. We have seen how well charities have done in aid of the needy/disabled/disadvantaged, regardless of age. And who would turn down the chance to sponsor a child, if (of course) the charity passes the transparency test? Why not consider a similar structure of the elderly, without the stigma of charity? I would be surprised if companies are not looking at such an approach to increase the corporate social responsibility (CSR) score ;-)

Let's not assume that the powers-that-be necessarily know best, and become more active in helping our own...

Spursfan:

The politically incorrect truth is that if Singaporeans in general know better, there won't be a need for this.

Of course, people get insulted when you tell them they know nuts about investing. But it is true. Singaporeans lose their savings, and end up blaming others for it. They refuse to save and rather have their children and working adults pay for them.

And unhappy as they might be, the compulsory element is required for the reasons already given.

Clearly there can be more than one "paradigm" and each can work hand in hand with one another in terms of social enterprise.

This compulsory annuities will probably be good for Singaporeans generally - especially those who dun save, poor investors, and those who rely on others the most - and one might argue, the very same people most likely to complain today.

TS,

I believe I had mentioned earlier my concurrence with the view that CAS should have come sooner rather than later. However, I would disagree that the link from CAS to welfarism is tenuous when taking into consideration other possibilities such as social enterprise. Unfortunately the establishment seems to deem it fit to proceed along the slippery path, which you applaud, and which I decry.

Let's agree to disagree ;-)

Well, guys, what a load of bullcrap we have been discussing. Apparently the GIC holds an estimated US$330 billion bucks worth of assets and cash. And here we are pontificating on the merits and demerits of the CAS for OLD people above 85. Well done, well done!

http://www.todayonline.com/articles/209819.asp

spursfan:

Always a pleasure. There are also arguments made that we do not more welfare because it is already sufficient. I still two minds about that. Got to check that out too. What do you think about that?

Ted:

Woah. So much money. Aiyah, must say how many times - if we want to argue about proper distribution/use/depletion of reserves etc, we can argue till tomorrow. But despite that, CAS is good mah. I think lar.

Teh_Si:

Despite the fact that it is difficult to argue about proper distribution, it should not deter us from doing so at great length if it is necessary, at the policy discussion level.

Politics is interesting for this reason because there is no absolute right answer, no higher level human beings/supernatural beings to say, this is absolutely the way to go.

Lee Kuan Yew said before his role is to look after the older generation, the ones who are not mobile economically or socially, and look at how much he is earning as a Minister in Cabinet and how much he is, as a Chairman of GIC, guarding it. I don't see the evidence behind his many one liners that sounds good with bite and fury but no substance to it.

Ted:

I agree with you for the fundamental need to discuss things at the policy level. I am not going there though. I dun know enough, hold inconsistent positions :), and sometimes my heart leads my head, my head leads my heart othertimes. So I am not in the position to now speak too much about it. This might sound like a cop-out, but its really a topic that strikes me as very difficult to contain within a discussion like this.

Cheers

Hi

Very interesting information! Thanks!

G'night

For years the CPF has been paying interest of 2.5% which is barely above inflation rate. Moreover, most members have withdrawn their CPF to pay for their home and paying market rate interest on their loans. Therefore our CPF savings are eroded and many do not have enough for retirement. Had the CPF paid back most or all of its income, which would be at least 5% averaged, to members then more funds would be available to them upon retirement. Then the current debate would be moot.

Any civil society has an obligation to take care of its disadvantaged, especially a rich country like Singapore. It is not welfarism. With about US100 billion in foreign reserves and another US100 billion invested by the GIC, at 5% this would generate an income of US1 billion pa. Surely this is enough to spread some largesse amongst our most needy citizens. Otherwise who is to benefit from Singapore's wealth? The government cannot abrogate its responsibilities. Does not a government exist to serve its people?

We've been screwed big time!!

Sorry, typo in my last post. Income from foreign resrrves and GIC investments should be US10 billion pa, conservatively. That should be enough to give every citizen $300 pm.

Quick notes to P S Loh

Don't think I'm resolving anything but thought that the following might be relevant to subsequent discussions.

1. re: cpf interest rates and impact on retirement preparation. While interest rate for the Ordinary Account is 2.5%p.a., don't forget that it is 4%p.a. for the Special Account. And you can easily transfer from OA to SA. In any case, monies in *both* the OA and SA can be invested for higher returns--as long as the person is willing to shoulder the corresponding risks. With all this in mind, it seems strange to put the blame for the "many do not have enough for retirement" unqualifiably upon the CPF interests rates.

2. Re: income from reserves. This year's budget highlights (.pdf file) contains the following interesting section that should be relevant:

--quote (from p. 5)--

Net Investment Income Contribution (NIIC) for FY2006 is expected to be $2.8 billion, or $0.5 billion higher than the Budget 2006 estimate. This is due to higher interest and dividend income from the investment of the Government's financial reserves.

--quote (from p. 7)--

Leveraging More on Net Investment Income (NII)

Despite the emergence of structural deficits in the Primary Budget position, the Government has been able to avoid chronic Overall Budget deficits, by augmenting its Operating Revenue with Net Investment Income Contribution (NIIC) from the reserves accumulated in the past. Under the Constitution, NII refers to the dividends, interest and other income received from investing Government's reserves, as well as interest received from loans, after deducting expenses associated with investing and managing the reserves. The Government is allowed to use up to 50% of NII earned from past reserves for current spending needs.

The NIIC reflected in the budget statements is the part of the NII that is taken into the budget to augment the Government's fiscal position. Averaging around 1.6% of GDP over the past five years (see Chart 1.3), NIIC has emerged as an important fiscal buffer. It has allowed Singapore to maintain a regime of low direct taxes while having the flexibility to implement countercyclical measures during economic downturns without dipping into the reserves built up by past governments. Given the growing competitive challenges of a more globalised world and the investment needs of the future, it is necessary to augment this
fiscal buffer.

Currently, the NII is conservatively defined to include only dividends and interest. The Government is studying how the definition of NII can be broadened to include capital gains as part of the total returns earned from the investment of reserves, while ensuring a fair and
equitable distribution of NII for present and future generations.

--end quote--

Bluntly,whatever scheme they proposed is simply hogwash to me.

We need Social Welfare Scheme for our over-85 year old.

And the "seedmoney" is easily available from the impending sales of our 3 no. power generating companies which will add about S$7.5-billion to Temasek Holdings Coffer.

The interest of 4%, from Government Bonds, earned is sufficient to pay out a monthly S$300.00 social welfare cheque form Jan-2009 to our 30,000 over-85 year old SIngaporeans without even touching the capital sum.

Then, using GIC and Temasek Holdingsannualprofits to "seed" that CPF Annuity scheme to provide an addiitonal S$300 pm.

That is, all over-85 year old Singaporeans will have a minimum of S$600 pm "Social Welfare Cheque" as of Jan 2009.

And all these are feasible without touching CPF Funds nor touching our present National Reserves.

30,000 over-85 recepients x S$3,600 = S$108-million per annum.

GIC and Temasek Holdings contribute S$108-million per annum.

4% Interest earned from S$7.5-billion "Seed Money" will contribute another S$108-million.

My 2 cents worth on debate about compulsory purchase of annuities.

Government agencies and Insurance companies like NTUC do not provide cover for those who are likely to get sick because of genetic issues or those who are born with other critical illness

Many who have diseases like cancer, liver problems, kidney problems, congenital heart disease and other serious issues will not get cover under the Medifund or HPS ( cover if main bread winner paying for HDB flat dies ) if there has been an earlier clinical diagnosis of a critical illness.

Should people in high risk categories who for many years are declined insurance cover by insurance companies and Medifund contribute to the bottom line of such insurance agencies and society at large by buying an annuity- they are likely to get knocked earlier aren't they?

Justice and fairness tells us it is not right to compel people in such categories to buy an annuity if they somehow make it to the age where they are eligible to withdraw their CPF savings

What provisions are we going to make for high risk people. Are we going to apply double standards and say at first you cant buy when you want it but later when you don't want in view of short projected life expectancy "You die die must Buy For the Good of our society"