A limited retirement solution

NATIONAL mortgage corporation Cagamas Bhd’s rollout of a second reverse mortgage scheme, the Skim Saraan Bercagar Bertempoh, is likely to cater to only a small fraction of the country’s ageing population that is “house-rich, cash-poor”.

This is because the residential properties most likely to generate a meaningful amount of cash are those in neighbourhoods where housing continues to be in demand and can, therefore, command higher prices.

This scheme allows eligible homeowners aged 60 to 70 to leverage their housing equity through a reverse mortgage, enabling them to get regular payments over a fixed period of five or 10 years while continuing to live in their homes.

The catch, however, is that Cagamas has not clearly explained what happens if the property’s value drops below the outstanding financing balance.

This is a real concern because homeowners choosing this scheme are actually going into debt. Given their age, this debt is more than likely to be passed on to their children or heirs, who would have to pay it off after the financing period ends.

Hence, the reason why this scheme may be more suitable for those living in neighbourhoods where housing demand remains strong and property prices are better supported, increasing the likelihood that the homes can still be sold at a higher price than the mortgaged amount.

Curiously, on its website, Cagamas states that this scheme is for those who want to convert their fully paid-up non-primary home into predictable monthly payouts. However, this was not made clear in its announcement of the scheme.

Since non-primary homes typically refer to investment properties, Cagamas should clarify this point. If the scheme is indeed for non-primary homes, then it would be targeting a much smaller market.

The scheme is only available in the Klang Valley for now, and rightly so, as it is the country’s most economically dynamic region, with the greatest number of higher-paying jobs and many neighbourhoods where housing remains in demand.

Property prices are also more likely to appreciate in desirable locations, reducing the risk of homes falling in value. The same can be said of other economically vibrant regions in Penang and Johor.

Cagamas is responding to a growing need among retirees to supplement their retirement incomes as they face the challenges of rising living costs, particularly healthcare expenses, which have increased sharply.

Perhaps it really is catering to the specific needs of a segment of the middle-class population. However, this scheme, which follows the rollout of the Skim Saraan Bercagar in 2021, also underscores the growing urgency of developing more sustainable retirement income solutions.

This is because the retirement of the earliest Gen X cohorts has already started.

Over the following 15 years, the later Gen X cohorts will also retire, adding to the surviving baby boomers, who by then will be well into their late 70s and 80s.

Raising the retirement age may become increasingly difficult as technological change reshapes the labour market.

Others suggest a universal basic income scheme, which, to some extent, the Sumbangan Tunai Rahmah resembles.

As the number of retirees grows and the country ages, retirement income solutions will address not only the practical concerns of making ends meet, but also the the need to sustain economic growth.

It is to be hoped that the proposed senior citizens bill will address some of the concerns surrounding old-age financial security, which is not an isolated issue, but one that is closely related to other issues such as access to housing and healthcare.