Photo of elderly Singaporean with Lee Hsien Loong portrait

Most Singaporeans are clueless about the precarious situation they are in, that could result them in a life of poverty. For a start there are several numerous ticking time-bombs from the operating system Singapore is built on, and two of the more pertinent ones related to poverty are the HDB housing policy and CPF system.

Here are the reasons why:

1) HDB flats “ownership” is essentially rental payment

The government may dispute this but the reality is Singaporeans are sacrificing their retirement for rental payment. There is no ownership, everything is on a 99-year lease. According to the government’s logic, 99 years is more than enough for two generations. However, this argument result in inter-generational poverty, where inheritance wealth is diminished or totally wiped. Every Singaporean generation will have to save up S$300,000 and only have less than 50% the same dollar value by the time their parents pass away. The younger generations in other countries like Australia are relatively richer than Singaporean youth today because in 30 years’ time, they get to inherit a property of the same value. In Singapore, children benefactors receive a HDB flat with lesser value than what it was first bought due to the HDB lease.

2) “Cheap” HDB mortgage loan result in retiree poverty

The HDB and CPF policies could not be separately discussed as most Singaporean households spend 50% of their CPF funds on a HDB lease. Many Singaporeans foolishly celebrate the HDB mortgage rate rate of 2.6% (pegged at 0.1% higher than the CPF interest rate), which is relatively lower than mortgage rates in Australia. However the question we should ask is whether is it worthwhile to sacrifice CPF returns for cheap mortgage rate?

By doing simple mathematics, there is actually more value to have higher CPF interest and mortgage rate. For example, we take standard pension fund return of 10% as comparison: a 10% CPF interest rate with a 10.1% mortgage rate would generate higher returns from the compound interests, as compared to the current 2.5% CPF interest rate with a 2.6% mortgage rate. In both scenarios, the only mortgage cost factor remains at 0.1% but it is diminished when higher CPF return rate is compounding. You still pay the same compounded 0.1% in both scenarios.

Fixing the retirement versus housing problem simply requires the government to raise CPF interest rate. However the corrupted Prime Minister and his wife Ho Ching are naturally resistant to this because this would mean higher performance benchmark for GIC and Temasek Holdings. This is a political problem with the Singapore dictatorship, and there is solid proof: the CPF interest rate remained unchanged at 2.5% for over 15 years since Lee Hsien Loong took power in 2004.

3) CPF is a tax of 37% on even the low income

According to the CPF board, anyone earning above $500 a month has to pay 37% of his income to CPF. The government propaganda claimed that the 15% is “contributed” by the employer, but in any Singapore company’s balance sheet the 15% is counted as labour costs. A better evidence would be the hiring of a foreigner, where the Singapore employer saves on 15% CPF “contribution”.

With rubber-band withdrawal rules and a Minimum Sum, the CPF functions like a tax. The Withdrawal Age was raised from 55 to 65 years old, and the Minimum Sum was doubled from S$80,000 to S$181,000. This is, again, a political problem as Lee Hsien Loong and Ho Ching do not need to churn out as much cash to meet retirement withdrawals.

37% is a huge chunk off your take-home salary. The low income in Singapore are actually a lot poorer than the low income in Australia as the latter pays no income tax. The lack of a Minimum Wage and wage depression in Singapore complicates the matter further but that is an article for another day.

4) Resale housing oversupply

Prices of resale flats are going down due to it’s declining lease value. This is bad but what is depressing prices further is an oversupply. More elderly Singaporeans are unable to retire off the paltry CPF payout, which on average is about $600 – even after a life of full-time employment. The Singapore government dished out a convenient lie telling the elderly to sell their HDB flats to retire, and many listened to the good old PAP doctrine. The market eventually became oversupplied, and now many retirees found there is no buyer as everyone is doing the same thing.

As oversupply hits the resale market, the elderly had to sell their flat at a loss – which in turn hits their retirement adequacy. In addition to the 0.1% mortgage cost factor mentioned in the previous point, Singaporeans are in essence exposed to higher investment risk in HDB flats than the stock market.

Alex Tan
STR Editor