While the unemployment rate in the US is improving (8.3% in March, 2012), personal consumption expenditures index has arisen, and more Americans opine that the national economy is getting better, Bloomberg has reported Federal Reserve Chairman Ben Bernanke recently saying as follows:-

Apparently, other than a general statement, Bernanke stopped short of giving indications what he had in mind in respect of recommendations.  Compared to him, the Federal Open Market Committee was more direct to point out that subdued inflation and high unemployment still warranted holding the benchmark interest rate to near zero at least to late 2014. 

Mark Gertler, an adviser to the Federal Reserve Bank of New York who has co-written research with Bernanke, said that inflation was contained, employment  growth was picking up, and controls were at the right setting . He also said the following:-

Some policy makers in the US say the Fed should hold off from more accommodation as the economy rebounds.  James Bullard, the Federal Reserve Bank of St Louis president, said that with policy seemingly to be on pause, “it may be a good time to take stock of whether we may be at a turning point.”

Latest economic reports lent credence that the world’s largest economy was gaining momentum.

Reading in between the lines of the above statements and contents, I am the more convinced than before that the idea of another round of quantitative easing (QE3) is indefinitely shelved behind closed doors….at least not for this year.

I am curious enough to wonder why Bernanke preferred to make a non-committal statement without referring to any directions in terms of recommendations or actions. Just what was actually in his mind by painting a sketchy picture without the finer details? Was he hinting that he was harbouring some plans in his heart but would not reveal what these were for the moment? Or was he merely suggesting that fellow Americans should not expect the lean times to be over that quickly, and that it might take a while longer for a real revival to materialise. Well, only he himself knows best what should or could be in store for further actions if needed. 

My good friend CS Chan, who is a close observer of global economic trends and a fund manager himself, has shared with me his personal views. Chan feels that the Federal Reserve may have run out of tools. Already, US$1.6 trillion in excess reserves had already been rolled out and yet not able to aggressively spur lending or job creation, so what good can another US$1 trillion do? Perhaps, to keep the game rolling on, Bernanke has to project that the central bank possesses the tools, but without providing details or signalling when or whether policy makers might deploy them.  In the chairman's speech made on Aug. 26 last year to central bankers and economists at a forum, he said: “In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.” To be fair, the Federal Reserve will try something. But like me, Chan is not sure what the “something” will be. Till now, it is still very much about different pundits gazing at different economic crystal balls to predict the likely turn out of events in the world’s dominant economic power by single nation. 

As for the greenback, Chan feels USD should strengthen much against EUR, YEN and GBP in the time frame of this year as the latter three are already wounded by their own problems. Thus, unless US shoots own self, USD should strengthen against the other three within this year, possibly by 3Q. 

Chan is looking for levels: EUR/USD below 1.2; USD/JPY above 100; GBP/USD 1.5 (he is not so bearish on GBP as it is already at low level). 

His views: The Spain problem (even Italy) may re-surface by then. New bailout/”haircut” speculation may heat up. The other pertinent question would be how much German growth could be affected. These could lead to a weaker EUR. As for Japan, the banking sector is not functioning as it should and consumers are behaving like “ostrich”. GBP has been negative for 2 years. The flow to push it down has already accumulated.

Best regards to all.

SINGAPORE’S CENTRAL PROVIDENT FUND: HEADING FOR ANNUITY SCHEME COMMENCING 2013

While our Malaysian Government is mulling over the actual landscape of its intended Private Retirement Scheme (PRS) as a voluntary programme open to Malaysians to supplement the Employees Provident Fund (EPF), I believe you will be keen to join me in taking a peep at Malaysia’s immediate and next door neighbour – Singapore – to find out the changes that will take place with regard to plans for retirees there.  Yes, as the heading (above) depicts, it is to do with monthly income pay-outs from Singaporeans’ account in the Central Provident Fund (CPF) in the near future.

But before zooming into it, please allow me to divert the flow of communication to the “puzzle” whether annuity products would be, or not be, incorporated into final PRS scope (refer to my last posting on Feb. 29, 2012). A few officers of life insurers, in my casual check with them, express positive hope that annuities should ultimately emerge on stage at a later chapter, after Securities Commission (SC) has sorted out the applications from fund houses to be product providers. I also understand that certain quarters among the sales force of life insurers have raised queries with relevant representative bodies. Only time will tell about the outcome in due course. Hopefully any of the relevant regulating or supervising bodies could quell the suspense early by clearing the air via a press statement – off or on it is to be, rightly so interested parties, including life insurers and family takaful operators, at this juncture should by now be able to see.

Now, coming back to the Singapore scene regarding the latest developments to the CPF, I retrieved a few reports from the electronic web about the island state’s provident fund being ready to implement a compulsory annuity scheme for members effective 2013 onwards. The best reference is the report compiled by Don Yeo, the Deputy CEO of CPF Board, entitled “CPF-Life: Singapore’s National Annuity Scheme”. It was dated 2011.

Let us look at the key points of the report:

A report on  “Longevity Risk & Annuities in Singapore” which appeared in the electronic website of Singapore Management University, outlined the reasons for the Singapore Government wanting to implement the annuity scheme. Over the last two decades, the proportion of CPF members aged 55 and above had increased four-fold, from 5.5% in 1985 to 25.1% in 2005. The group younger than age 24 fell from 25.1% to 9.2% in 2007. Based on this working paper, the obvious conclusion that can be drawn is that the intended annuity is to sustain the needs of the fast ageing population trend amidst diminishing average CPF account balance at age 55. The report also said annuities either from a government-administered entity or qualifying private insurer are available.

Neither of the two postings by CPF nor Mercer touched on non-Singaporeans staying and working in the island state. However, in the provident fund’s detailed “Employers’ Guide to CPF”, it is stated that CPF contributions are mandatory for foreigners with permanent resident (PR) status. Foreigners working there with employment pass or work permit do not contribute to the fund. Going by this guide, Malaysians who are PRs of Singapore should logically be included in the incoming annuity scheme, if nothing is mentioned that they would be excluded or granted an option.

The Malaysian Insider on April 28, 2011 quoted a World Bank’s source that Singapore had “absorbed 57% of Malaysia’s overseas citizens.”  A freelance journalist, Anil Netto, reported on April 29, 2011 in his portal that according to Singapore’s 2010 Census published by the Department of Statistics, 386,000 were residents born in Malaysia. I believe by now, the figure may be noticeably more.

  

Now, back to Malaysia…………if ever an annuity scheme is launched by the Malaysian Government for us Malaysians at home in the future (If and when, we do not know), what model or arrangement would it likely be? Would it be a public or private scheme, or both public and private open for choice? Or would the proposed Private Retirement Scheme (PRS) now being explored with the support of private fund houses be ultimately linked to a type of annuity scheme?  Only time will tell about the final outcome. 

Like Singapore, the average account balance of Malaysians in the Employees Provident Fund (EPF) at age 55 is low. A report by Mercer on “Malaysia’s Pension System: Current Status, Issues and Way Forward”, which was completed in October 2010, shared some salient facts:

Surely, in line with the noble objective of high income and developed nation status, proactive measures need to be put in place right now - just 8 years away from 2020 – to cater for the welfare of senior citizens by then.

Best Regards.                   

IMPORTANT NOTE: This sharing is based on reports extracted from various sources. In event of inaccuracies or later changes/updates not included in the reports after their dates of compilation, please note I am in no position to ascertain the veracity of contents; neither should I be deemed responsible for the inaccuracies. It is best that you source out for more information and details by yourself so that you can properly form your own perception.