Prudent housing choices ensure enough CPF savings for retirement: survey

SINGAPORE: With prudent housing choices, young Singaporeans in the workforce today will have enough savings through the Central Provident Fund (CPF) system for their retirement.

This is according to details released on Wednesday from an independent study commissioned by the Ministry of Manpower.

Deputy Prime Minister Tharman Shanmugaratnam first made mention of this study at the opening of the Singapore Human Capital Summit in September this year.

The study was conducted by two researchers from the National University of Singapore, Associate Professors Chia Ngee Choon and Albert Tsui.

In the study, the assumption is that Singaporeans entering the workforce today, would be looking to buy their first homes in 2017.

Another assumption is that the men would be 30 years old, and women 28.

And these couples would buy build-to-order flats that are in keeping with their household incomes.

As workers use CPF savings to finance housing, it is important that they buy a flat type within their means, to leave enough CPF savings for retirement.

For lower-middle income households at the 30th income percentile, typically with a combined monthly income of S$5,100 in 2017, that means a three-room flat.

For median-income households at the 50th income percentile, typically drawing a combined monthly income of S$7,100 in 2017, a four-room flat would be the choice.

Upper-middle income earners at the 70th income percentile, typically earning a combined monthly income of S$9,200 in 2017, could choose a five-room flat.

These figures are projections of 2017 dollars, i.e. nominal household month salary when new entrant turns 30 for males and 28 for females.

With these assumptions, couples can then fully pay their mortgage instalments from their monthly contributions to the CPF ordinary account.

And men earning median incomes at the 50th percentile should be able to replace 70 per cent of their wages on retirement at 65.

That is, their CPF savings should be enough to provide them with 70 per cent of the monthly income that they earned at 55, which is assumed to be the age when a Singaporean's monthly income peaks.

For women, the income replacement rate (IRR) is 64 per cent.

The IRR is a widely-used international measure for retirement adequacy. It refers to the ratio of retirement income to pre-retirement earnings.

The study estimates the IRR that workers could get at age 65 based on their CPF savings. The figures in the study compare well with international standards.

The World Bank recommends a range of 53 to 78 per cent as the IRR for middle-income earners.

Associate professor Chia said that IRR can be used as an indicator of retirement preparedness.

"Our study shows that there is a very clear trade off between retirement adequacy and housing consumption," said associate professor Chia.

"Take for example the base case, when we look at the median worker at say, 50 percentile, we have assumed that this worker will buy a four-room flat. If this household decides to buy a flat type that is one size bigger, say a five room, then we'll see the income replacement rate fall from 70 per cent to 58 per cent," he added.

The median IRR amongst Organisation for Economic Co-operation and Development countries for a median-income earner is 66 per cent.

The study takes into account current CPF policies and features such as CPF contribution and interest rates.

Singapore's jobless rate rises to 2.1% in March

SINGAPORE: Fewer jobs were created in the first quarter of the year, but the Ministry of Manpower said the domestic job market remains "fairly strong".

An estimated 27,400 new jobs were created in the first quarter of 2012, compared to 37,600 the previous quarter, and 28,300 the same time last year.

Unemployment rose slightly, to 2.1 per cent from last December's two per cent.

UniSIM School of Business' Business Programme head Randolph Tan said it is the start of an inevitable slowdown, as Singapore passes the peak of its economic recovery.

"From this point onwards, I expect to see the employment situation decline but not significantly deteriorate," Associate Professor Tan said.

"One of the reasons why, is because of the fact that government policy, to a large extent, has been anticipatory in trying to deal with the potential decline in demand [for labour].

"So the reduction in the influx of foreign manpower to some extent, will help hold up the labour market."

Assoc Prof Tan said he expects unemployment to creep up to about 2.5 per cent by year-end.

Meanwhile, in a blog post, Minister of State for Manpower Tan Chuan-Jin said higher unemployment is to be expected, as companies restructure or go offshore.

Workers will be affected, but he said his ministry will help them through the transition.

Singapore's latest employment data is set against a much bleaker global situation.

The International Labour Organisation has warned that the global employment situation is alarming, especially in Europe, where austerity measures are hurting job markets.

As the economy stays buoyant, some recruiters expect Singapore to reconsider its recent curbs on skilled foreign manpower.

Randstad regional director Karin Clarke said: "I think government is committed to restricting the number of foreign workers, particularly at the unskilled and semi-skilled layer.

"Those restrictions are here to stay. But I think there will be some easing when you look at professionals and the qualified level because Singapore's long-term growth depends on being able to bring in the skill sets to upskill the Singaporean workforce.

"Training and education come from overseas expertise, so if we continue to attract large R&D centres, then we need to be bringing those people in that can train the workforce.

"I also don't think Singapore probably has enough people to support all of that growth."

But for the unskilled foreign worker, observers said the restrictions are here to stay.