Mr Han Fook Kwang, former editor of the Straits Times, wrote in his column today (2 June 2013) about how many Singaporeans are unlikely to retire after 60. The nice spin at the beginning was of course how he felt that 60 was the new 30 and that life at 60 should be more of a starting point rather than an ending point. However, Mr Han painted some disturbing figures thereafter.

One painful truth, though, is that for most who have stopped working, their retirement fund, if that’s what the Central Provident Fund (CPF) can be called, will be totally inadequate to finance the lifestyle they have been used to.

Even those earning fairly high salaries will not have enough savings because of the CPF cap which limits their contributions and is pegged to a monthly salary of $5,000.

That’s not just his opinion- an international study has confirmed it.

The research done jointly by the Australian Centre for Financial Studies and Mercer, a global leader in the retirement business, ranked the retirement income system of 18 countries based on 40 indicators in three areas: adequacy, sustainability and integrity.

Singapore obtained a C grading and ranked 13th. The bottom four places were all occupied by Asian countries – China, South Korea, Japan and India – while the top three were Denmark, the Netherlands and Australia.

But it was in the area of adequacy, which is about whether the retirement fund is enough when it is needed, that Singapore was found most wanting. It ranked second from the bottom, ahead of only India.

The CPF’s own figures support this finding: As at end-2011, more than half of those aged 60 and older had less than $100,000 in their balances, below the minimum sum specified by the CPF Board.

Mr Han’s observation shouldn’t come as a surprise. It’s pretty obvious that the CPF is a terrible scheme as far as retirement plans are concerned, the interest on the CPF OA isn’t even enough to beat inflation; in recent years, the interest rate on the SA can’t beat inflation either. What irks me is that even the former editor of the Straits Times (who obviously is a brilliant person) advocates more intervention rather than learning.

I listened enviously when a Swiss banker here told me that when he retires at 62, he will be paid at least 60 per cent of his last drawn salary for the rest of his life.

That’s a proper retirement scheme which has three pillars consisting of a national, a company and an individual pension plan.

If it were up to me, I would advocate more financial literacy. The state of financial literacy in Singapore is shocking- anecdotal evidence based on “peer speak and observation” suggest that the common approaches to Financial Freedom here in Singapore are:

a) Work hard and accumulate savings

b) Bet big on lottery (see here)

c) Property

d) Retire elsewhere

There’s more to say on each of the above approaches but that’s another post for another time.

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