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

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  • CHIA, NGEE CHOON
  • TSUI, ALBERT K. C.

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.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 2 (2003)
Issue (Month): 01 (March)
Pages: 41-65

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Handle: RePEc:cup:jpenef:v:2:y:2003:i:01:p:41-65_00

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Cited by:
  1. Brown, Alessio J G & Orszag, Mike & Snower, Dennis J., 2006. "Unemployment Accounts and Employment Incentives," CEPR Discussion Papers 5692, C.E.P.R. Discussion Papers.
  2. Hess, David & Impavido, Gregorio, 2003. "Governance of public pension funds : lessons from corporate governance and international evidence," Policy Research Working Paper Series 3110, The World Bank.
  3. Ngee-Choon Chia & Albert K C Tsui, 2005. "Reverse Mortgages as Retirement Financing Instrument: An Option for “Asset-rich and Cash-poor” Singaporeans," SCAPE Policy Research Working Paper Series 0503, National University of Singapore, Department of Economics, SCAPE.
  4. Stefan Fölster & Robert Gidehag & Mike Orszag & Dennis J. Snower, 2003. "Health Accounts and Other Welfare Accounts," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(3), pages 09-14, October.
  5. Chia, Ngee-Choon & Tsui, Albert K.C., 2005. "Medical savings accounts in Singapore: how much is adequate?," Journal of Health Economics, Elsevier, vol. 24(5), pages 855-875, September.
  6. Ngee-Choon Chia & Albert K C Tsui, 2005. "Reverse Mortgages as Retirement Financing Instrument : An Option for “Asset-rich and Cash-poor†Singaporeans," Finance Working Papers 22566, East Asian Bureau of Economic Research.
  7. Impavido, Gregorio & Thorburn, Craig & Wadsworth, Mike, 2004. "A conceptual framework for retirement products : Risk sharing arrangements between providers and retirees," Policy Research Working Paper Series 3208, The World Bank.
  8. Ngee-Choon Chia & Albert K C Tsui, 2009. "Monetizing Housing Equity to Generate Retirement Incomes," SCAPE Policy Research Working Paper Series 0901, National University of Singapore, Department of Economics, SCAPE.

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