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Life annuities of compulsory savings and income adequacy of the elderly in Singapore

Published online by Cambridge University Press:  01 April 2003

NGEE CHOON CHIA  and
ALBERT K. C. TSUI
NGEE CHOON CHIA
Affiliation:
Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260
ALBERT K. C. TSUI
Affiliation:
Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260
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Abstract

Singapore has a publicly managed central provident fund (CPF) system, which is compulsory and based on individual accounts with an explicit link between contribution and benefits. This paper assesses the adequacy of the CPF saving to meet the retirement needs of the elderly in Singapore. Instead of emphasizing the mechanism of accumulation, we focus on the expenditure side of the lifetime budget of the elderly and estimate the present value of retirement consumption (PVRC). The estimated PVRC is obtained by simulations through three major components: calibration of subsistence and medical expenses of the elderly; forecast of cohort survival probability by age and by sex; and generation of yield curves to discount the future cash flows. Our results indicate that the existing CPF-decreed minimum sum is inadequate to meet the future consumption needs of the female elderly. The inadequacy becomes more severe when medical expense is set at higher growth rates. Moreover, the monthly payouts of a single premium deferred annuity are computed as illustrative examples.

Type
Research Article
Information
Journal of Pension Economics & Finance , Volume 2 , Issue 1 , March 2003 , pp. 41 - 65
Copyright
© 2003 Cambridge University Press

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Footnotes

An earlier version of the paper was presented in a conference, ‘Issues in Pension Reform’ organized by the Initiative for Policy Dialogue and the Centre for Pension Studies, University of New South Wales, Sydney, March 2002. We are indebted to the participants of the conference for their comments. We also thank Charles Horioka, Collins McKenzie, Michael Orszag, John Piggott, James Smalhout, Yasuto Yoshizoe, various editors of this Journal and the anonymous referees for their many helpful comments and suggestions. The second author acknowledges the support of the Japan Society for the Promotion of Science Scholarship in July 2002.