A CPF for tomorrow : critical analysis and suggestions

• Main Authors: Chua, Sunny Yong Hui, Lui, Aaron Leong Kit, Ang, Soon Tat
• Other Authors: Sng Hui Ying
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Social sciences::Economic development::Singapore; DRNTU::Social sciences::Economic theory::Microeconomics; DRNTU::Social sciences::Economic theory::Macroeconomics; DRNTU::Social sciences::Political science::Public administration::Asia::Singapore
• Online Access: http://hdl.handle.net/10356/62453
• Institution: Nanyang Technological University

Singapore’s CPF stands out from other pension systems globally with its multifunctional withdrawals such as home and healthcare financing and policy measures such as minimum sum (aka Full Retirement Sum (FRS)) and withdrawal limits. Yet a worrying 50.6% of active contributors were unable to attain FRS for basic retirement. This paper examines possible behavioural biases and perceptions that may manifest within individuals to exploit well- intentioned pre-retirement withdrawals, hence resulting in insufficient retirement funds. Empirical survey of 196 respondents reveals that majority aspire to be self-sufficient for their retirement finances. Strong demonstration of present-bias behaviors suggest that opportunities for pre-retirement withdrawals such as housing are likely to result in suboptimal earlier withdrawals at expense of longer term payoffs. Many view CPF contributions as a loss and most perceive CPF as a property financing tool rather than a retirement tool, signifying diverging perceptions from CPF’s fundamental role. Policy re-framing is required if primordial retirement focus of CPF are to be reverted. CPF utilisation policies remains a foremost consideration in respondents instead of contribution rates in effecting behaviours. CPF home financing were found to be ‘sticky’ and inelastic towards contribution rate changes but displayed greater internalisation of housing costs when CPF home financing were disallowed, suggesting tweaks to usage allowance rather than contribution rates are more effective towards retirement adequacy. Drawing upon empirical insights, recommendations to strengthen the CPF would be proposed.