I'm sure you've heard of the oft-mentioned phrase "asset rich but cash poor", in relation to Singaporeans. Its been around close to two decades. And guess what, it's not going away anytime soon. So unless I can see substantial statistics proving that the vast majority of Singaporeans retire in grace, I am going to question your premise much the same way as you are questioning mine.
Fortunately for those that have assets but not enough cash, there are ways to convert to monetize these assets, the best one being the Lease-Buyback Scheme if they qualify for that. Otherwise there are always options to downgrade, or sell the house and take up rent. Since 'in grace' is a subjective term, there is no objective statistics available.
Old ladies pushing card-board boxes on Geylang Lorong 1 (despite the fact they have a $200,000 HDB flat in their name), octogenarians cleaning tables at hawker centres and food courts, shirtless old men sleeping at void decks and neighbourhood parks and east coast beach, are all well documented instances of the forgotten poor of Singapore. Where is their CPF and what is the CPF doing for them?
We need to look at each of these at a case by case basis before putting the blame on CPF, but there are a few things to bear in mind.
1. An old aged worker working doesn't mean that the worker is in destitute. It is fairly common to continue working if you can, even if you have enough retirement fund to fully retire.
2. Some people work jobs where CPF contributions are not made. Some of them may also be entitled to CPF but their employers never contribute. Which is of course against the law, but we've seen several cases of low wage employees being exploited like this.
3. The homeless people - what happened to their homes? Did they sell off their home after 55 and squander all the money, and only have the monthly payout to live on? If they never bought a home before, then what are they doing with their monthly payout?
And are any of these people going to be any better if the CPF scheme wasn't around?
I'm perfectly well acquainted with TVM, having programmed excel spreadsheets and macro subroutines based on all sorts of TVM calculations. Of course if you start with $100,000 you can't get much out of it by forcing it to be stretched all the way till the day you die. What happened to the rest of the money? It went into property. And right now given property prices, even more of young people's CPF will go into property, so many of them when they grow old won't even have the $100,000 (in present value terms) to begin with. You can't argue this is a property problem rather than a CPF problem, because the govt has converted the CPF which is supposed to be a retirement scheme into a property escrow account, in essence subverting the original intent and encouraging speculation using precious savings. And all this while letting property get out of control thus effectively crippling Singaporeans ability to retire in grace.
Yes, property prices in Singapore is high and needs to be fixed. People need to buy a property they can afford, and make sure that when they pay off the loan and reach retirement age there will be sufficient cash left for retirement. This principle applies even if property is cheap, because as you know people living in countries where property is cheaper buy higher end property. If people buy the property which is the right price for them, they should have enough money to retire with assuming they retain their level of employment.
Also why are Singaporeans being forced to accept the risk free interest rate when GIC and Temasek are earning a lot higher. Surely there is scope to remit some of the excess returns back to Singaporeans. And why are Singaporeans forced to invest in the govt annuity and not given a broad range of choices? I don't accept the argument that govt annuity scheme in order to be sustainable must be compulsory, because local run insurance firms can also sustain their operations even though obviously they are not getting every Singaporean as their client.
I would say that 4-5% at the moment is a very good risk-free rate. You can't find any firms out there that will match this rate with that level of assurance and safety. You can of course invest your CPF-OA if you want to if you are not happy with the 2.5%. The GIC/TH thing is a bit complicated and opaque (possibly intentionally) because of the SSGS bonds. They don't all go into GIC and TH, so they don't all earn the rates that GIC/TH get - afterall a lot of it earn only 2.6% from HDB loans. Of course, since they are all part of the Government reserves, there is definitely scope for the Government to use budget excess to provide bonus top-ups into our CPF or through cash. In fact, this has been happening from time to time, and they tend to happen right before a General Election...
I've looked at Great Eastern and NTUC Income Life Annuity plans, and frankly speaking their rates aren't as good as CPF Life. So although it sounds like a good idea to privatize Life Annuity like the way Medishield has been privitized, it doesn't look like the insurance firms are too keen on this themselves, and would rather concentrate on selling products that get them more money. Prudential and Aviva don't even offer a Life Annuity plan.
This returns me to the original thread title of "why CPF life payout keeps dropping". Yes isn't that the whole problem? The purchasing power of money keeping dropping and yet payout keeps dropping too. Isn't that a double whammy for Singaporeans? Why isn't our budget surplus used to plug the gap?
Erm.. if you read my first reply in this thread, I've shown that the CPF life payout did not drop - the Thread Starter entered some wrong values into the CPF Life calculator.
If as you say people can be smart and make additional retirement schemes over and above CPF life, then why can't more CPF funds be released to allow people to make their own judgment calls? I still believe in giving people a choice because I don't believe govt will always be the best financier and I don't believe in restricting the fundamental freedoms of the people. So the issue for me is philosophical, political and financial, and I see no easy answer.
People can be smart and make additional retirement schemes over and above CPF Life. They can also be stupid and squander it all, in which case they still have the CPF Life to fall back on to provide them with an income. Because they were stupid, they would not be able to maintain the lifestyle they want with that income, but the income will be sufficient to allow them to survive independently. CPF Life caters to both stupid and intelligent people. By taking away the compulsory CPF Life, the stupid people will create a burden for the intelligent people.
You may want to do anything you like with your money. I, however, would happily give that up if it means that my money will not be used to provide an income to the idiots that squander all their money and force the government to bail them out.