Why do Singaporeans save so little for their retirement?

QUESTION FROM STRAITS TIMES JOURNALIST

A new survey shows that Singaporeans might not have enough money to last them through their retirement years. The research conducted with 1,000 working adults indicated that only one in ten Singaporeans has actively saved for retirement in the last year. The study also shows that 61 per cent are seriously concerned about having too little money during retirement, while 64 per cent of Singaporeans feel they themselves should bear the financial costs of their retirement.

Why do singaporeans save so little? Are singaporeans in deep trouble for their golden years?

REPLY

Ten years ago or earlier, the contribution to the Central Provident Fund was at a high rate. Most people could rely on the CPF for their retirement. Housing prices was at a more affordable level. After paying for their HDB flat, there was sufficient savings left for retirement.

The situation changed during the recent ten years. CPF contribution was reduced. A higher proportion of the contribution was set aside for medical expenses. Repayment for housing take a major portion of the CPF savings.

Many people did not realise the need to make additional savings. The financial products available to them was not satisfactory. The saving in a traditional life insurance product did not give a good return, as a proportion of the premium has to be set aside for the insurance coverage and to pay commission to the insurance agent.

Today, consumers have a better choice.

NTUC Income has launched our Ideal plan. It is an investment-linked plan that encourages regular savings. The savings can be invested in our large, well diversified fund to earn an attractive rate of return. The return during the past three years was exceptionally good, averaging about 15% per annum.

Looking towards the future, we hope that the fund can earn an average of 5% to 7% per annum over the long term. This is not guaranteed. The average return earned over a balanced fund of equity and bond over the past ten years has been about 6% per annum.

Another advantage of our Ideal plan is the flexibility. The consumer can change the amount of regular savings based on their personal circumstances. They can increase or reduce the regular savings, or to stop savings for a short period without suffering any penalty. They can even make cash withdrawals from the plan.

Other insurance companies offer similar products. However, the key advantage of our Ideal plan is the low distribution cost. It works out to an average of 7 months of premium, compared to between 11 to 19 months for similar plans from other insurers.

More details can be found in this website: http://www.askdrmoney.com/Ins_ILP_RP.htm

Our Ideal plan is now actively purchased by consumers as a means to make additional savings for their retirement. The sale of this product has inceased significantly in the past two years.

With a more attractive product, we believe that more people will make additional savings for their retirement. Our insurance advisers are reaching out to educate them on this need.

We also invite the public to learn about insurance in our educational website: www.knowyourinsurance.com.sg

I have another suggestion.

It will be helpful if the government allow a higher amount of tax relief for people to make additional savings for their retirement. Currently, the tax relief is $5,000 per year, inclusive of CPF contributions. If the tax relief is kept at $5,000 and is separate from CPF contribution, it will encourage more people to make this additional savings.