With the current TAP contributions of 10 % (5%-employee & 5% employer), by the time I retire I will probably earn about $200K. Now, let’s say I live for another 20 years then my monthly retirement will be about $800. I have not taken factors such as inflation which will make the $800 have a lesser value, and Brunei-without-oil which will probably mean I need to spend more for my basic necessities such as medical care.
Oh dear. What should I do? Contribute more seems to be the suggestion.
But hang on, what about those who are earning less than me? What about those who have many children to support? Who, even now, are difficult to make ends meet. How can they possibly ‘voluntarily pay more’ in their contributions?
Anyway, I googled Singapore’s Central Provident Fund (click CPF for a quick summary) which is their TAP equivalence (but more superior). What I find very interesting is their principal behind their scheme:
Over the years, the success of the CPF scheme has depended on values such as self-reliance, good work ethos and family support. Besides encouraging self-reliance, the various schemes underscore the members’ responsibilities as parents, children and breadwinners. The values that the CPF both promote and rely upon include: Standing on one’s own two feet. Every CPF member is encouraged to work, even beyond his retirement age. The CPF savings will guarantee him a comfortable retirement. Even those with modest savings will have enough for basic needs. This self-reliance—funding one’s own retirement instead of relying on the future generation—is a vital element of the scheme.
I don’t know about you but the word ‘guarantee’ stands up. With their total of 30% contribution (10% employee, 20% employer) surely can make that happen. And reading further, there is a required minimum sum to be met, which at the moment is around $100K.
Now, I don’t mean to criticize and belittle anyone’s effort but we seriously need to review our TAP scheme. For a starter, I don’t see any harm in increasing the employer’s contribution. As for those who are working in SMEs, whose employers can’t make the increasing contribution, shouldn't they deserve a miniscule slice of oil income?
Salaam.
6 comments:
The government should contribute more towards TAP for low income earners. A government co-contribution scheme of matching dollar for dollar for each individual contribution made to the scheme for low income earners (below $2K). This will encourage low income earners to contribute more while they are beginning their careers and increase participation through understanding of the benefits of early contribution. Still the fact of the matter is that social security schemes whether it be TAP, CPF, Superannuation or 401K can only provide basic support for retirement and also only to a certain age (i.e. 80). With increased life expectancy, increasing cost of health care as well as declining work force due to birth rate, the system may well be overwhelmed.
One of the problems at the moment with local SMEs 'getting a slice of the oil income' is that parts of the government are not spending the budget that they are suppose to under the 'pretext' of 'saving the govt money.' One of HM's directives were to allocate budget for each department and ministry for each year and these are suppose to be spent by the end of year thus adding to the multiplier effect within our economy. However, this isnt happening. Most do not understand it takes spending (locally) to grow our economy and being a state-fuelled economy, funds are simply not reaching the private sector and helping fuel our economy.
Maybe with a healthier and more robust private sector economy, we can begin to look for more ways to add to the fuel by looking into private investments BY the private sector that will bring to our GNP.
Frankly speaking, even with His Majesty's govt being so generous to the people, it is still very hard for many to save beyond the usual TAP amount per month. I know people who earn as little as $800 and month and they have to pay for the car, fuel, food et al and usually end up in debt to someone before the end of the month. The next month's salary is used to cover up the gap and the vicious cycle begins. Most of them here do not believe in taking up a second job and earning more but are happy to live with what they have working 8-5. However, those working for themselves, on the other hand, end up working 12-14 hr days. Maybe this is due to the fact that those who are employed are content with a secured salary whilst those without such security tend to make as much as they can? Some food for thought.
They say if you fail to plan, you plan to fail. And this is where most Bruneians are stuck in the rut of living paycheck to paycheck.
The key to retirement is to start saving NOW. A minimum of 10% should go into our retirement either in a provident fund like TAP or maybe into a long-term wealth creating vehicle like takaful saving plans, unit trusts or property investment.
Savings in long-term products like Takaful Mawaddah(Takaful BIBD) also keeps our money in a stable low-risk, low return fund. It might not make us rich but it will keep up with inflation which in Brunei is presently averaging 2% a year.
Living within our means is another thing we have to consider. Something which many of us aren't doing. Keeping up with the Pehins, Pengirans and the Hajis is not a good thing. If we just delay our gratification, we can avoid destructive consumer debt.
To rely entirely on TAP for our retirement is a recipe for disaster hence the need to place more of our savings elsewhere.
Our main problem is we always want to wait for the govt to help or bail us out. This typical spoon-feeding mentality has to go. Why wait for TAP to be restructured when we can act first to avoid disappointment when we retire?
My recommendation:
1.) TAIB's Akaun SiManja: 3.25% this year.
2.) Takaful-linked savings plan ie Takaful Mawaddah indicative 4% a year.
3.) Increasing TAP contribution from 5% to 7-10%. Last year's dividend was 4.25%.
4.) Investing in Islamic Unit Trusts, recently introduced this year by BICB Capital. Average returns over the long-term is 10% per year(Note: Not guearanteed but better here than paying off credit card debt every month)
The initial investment is low(B$1000), the funds are syariah-compliant and the company is owned by BICB which is wholly owned by BIA. The office is in Kiulap next to Takaful Insurans Islam TAIB.
5.) Invest in property. The returns in the long-term will beat inflation and if properly planned, will provide a passive income stream. In fact i highly recommend this.
6.) Start a business. 9/10th of wealth comes from business. The returns are unlimited but the risk of course remains high.
Just my 2 cents,
The Weekend Investor.
Mrs RE, for professionals like your goodself, I think you and your fellow younger generation professionals have every right to stand up to His Majesty's Government for your rights to PENSIONABLE JOB SCHEMES just like your older colleagues and superiors in the Government Civil Service. Highly-qualified professionals like you all ought to be given an exception to the rule i.e. pension after retirement!
There is an option that WILL give security for you and your family. It can even call for early retirement!!!
and how is exactly is the government going to fund this pension? Bruneians are too dependant on the government; what's wrong with buckling up and contributing a percentage of your salary to save up for your own future? the employers are doing their part by matching your contributions, no?
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