While many Singaporeans are always complaining about how raising retirement ages as well as the CPF structure in Singapore, looking at other parts of the world gives a better perspective of the problems faced. Australian Treasurer Joe Hockey intend to raise Australia’s retirement age to 70, which would be the highest in the world.
Government Pension Systems vs Self Funded Schemes
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While many envy the pension systems in the Western countries, where the government actually gives retirement income to retirees, many of these pension plans are facing sustainability problems. How these pension systems generally work is that the working class generally pay part of their income to support the retired. In an aging population however, as there are less and less working people compared to the retired, the pension funds face the danger of being underfunded. In fact, the ratio of working age Australians to those over 65 is expected to drop to 3:1 by 2050 from 5:1 in 2010.
Singapore CPF system is different from pensions in that it is a self funded scheme where each individual is expected to save for their own retirement over their working lives. This is important as it shifts the responsibility back to each individual and the funds are unlikely to become underfunded even as the population ages. Work out your retirement schedule and save for it with Dr Wealth.
How Much Further Can They Raise Retirement Age?
Australia is not alone in this, as both Germany and Britain are both planning to raise the retirement age to 67 from 65 currently. US is also raising the eligible to collect social security to 67. In general, the Western countries are trying to get around the underfunded issue by raising retirement age, but how far can they go? 75? 80? A fundamental restructuring in the their retirement system is required, before the whole system breaks down. In this aspect, Singapore is at the forefront of innovating rapidly to counter the problems i.e. CPF Life Annuity as they arise instead of kicking the can down the road.
Work and Retire in Australia?
Many Singaporeans have actually looked at Australia as a viable place to retire, given its lower cost of living and generally slower pace of life. However, make sure that you are well funded for your retirement by yourself instead of relying on government pensions. Australia’s budget deficit is forecast to reach A$49.9 billion this fiscal year, compare that to Singapore’s forecast budget surplus $1.6 billion. The system in Singapore can definitely be improved, but is generally working better than the pension systems in other countries.
About the Author
Calvin Yeo, CFA, CFP is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is is revolutionizing the financial advisory industry by building an online platform to provide high quality and comprehensive financial advice for free.