Enhancing Singapore’s Pension Scheme: A Blueprint for Further Flexibility

Koon-Shing Kwong, Yiu-Kuen Tse and Wai-Sum Chan
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Koon-Shing Kwong: School of Economics, Singapore Management University, Singapore 178903, Singapore
Yiu-Kuen Tse: School of Economics, Singapore Management University, Singapore 178903, Singapore
Wai-Sum Chan: Department of Finance, The Chinese University of Hong Kong, Shatin, Hong Kong

Risks, 2017, vol. 5, issue 2, 1-17

Abstract: Building a social security system to ensure Singapore residents have peace of mind in funding for retirement has been at the top of Singapore government’s policy agenda over the last decade. Implementation of the Lifelong Income For the Elderly (LIFE) scheme in 2009 clearly shows that the government spares no effort in improving its pension scheme to boost its residents’ income after retirement. Despite the recent modifications to the LIFE scheme, Singapore residents must still choose between two plans: the Standard and Basic plans. To enhance the flexibility of the LIFE scheme with further streamlining of its fund management, we propose some plan modifications such that scheme members do not face a dichotomy of plan choices. Instead, they select two age parameters: the Payout Age and the Life-annuity Age . This paper discusses the actuarial analysis for determining members’ payouts and bequests based on the proposed age parameters. We analyze the net cash receipts and Internal Rate of Return (IRR) for various plan-parameter configurations. This information helps members make their plan choices. To address cost-of-living increases we propose to extend the plan to accommodate an annual step-up of monthly payouts. By deferring the Payout Age from 65 to 68, members can enjoy an annual increase of about 2% of the payouts for the same first-year monthly benefits.

Keywords: inflation risk; investment returns; life annuity; longevity risk; post-retirement benefits (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
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