LAST year I visited a small-cap company at Woodlands to take some photographs for a feature. The chief executive was a warm friendly fellow. And after the work was done, he asked me to stay on for a cup of coffee. Then he personally showed me around the place. Waving his hand at the surroundings, he said proudly that the five-storey building was almost paid for. A great achievement for a company just 10 years old.

Out of curiosity, I looked over the firm's annual report when I returned to office. It had a healthy net cash position and had been paying consistent dividends for a decade.

In some ways, personal financial planning and running a successful company have some common denominators.

Instead of a payroll, we each have personal responsibilities. Instead of a product line, we exchange our services for a regular pay cheque. And like all businesses, we aim eventually to build up a sound asset base.

The major difference is that most of us don't have the same degree of business judgement that chief executives and successful entrepreneurs have. And in a consumer society, we are constantly bombarded by encouragements for quick gratification. It's often a case of spend now and you will save later.

But whereas most businesses spend only after careful analysis, many individuals do not exercise a similar degree of due diligence. Companies also have experienced managers involved in decision-making.

I have often found it very informative to sit back with a calculator in hand and crunch the numbers when buying big-ticket items.

This was how I discovered I can end up poorer by more than $100 every morning if I were to drive an expensive car.

I often drink at the coffee shop where a kopi-o costs less then a dollar, but my son, who is 15, has taken a liking to Starbucks, which costs three times more. The fact of life is we live in a different world from our forefathers.

The economy today is largely driven by consumption - and most people earn their living through it.

So it is no surprise that many people have little reservation about spending and taking on debt, encouraged by innovative marketing.

Debt in itself is not dangerous unless it exceeds your abilities and context. The reality is, a fairly large percentage of people succumb to living beyond their means, whether it's buying a larger flat or a more expensive car than they really need.

The government has the unenviable task of ensuring that when our active lives are over, we can provide for our basic necessities.

In his National Day Rally speech, Prime Minister Lee Hsien Loong announced a plan to make people below the age of 50 buy some form of annuity. Making the annuity programme compulsory ensures it will have the largest possible membership base.

Ideally, such a scheme should be administered by the government.

A large base and a single administrator on a non-profit basis ensures economies of scale and possibly the best investment returns.

This may go against the notion of 'privatisation', but when a programme is made compulsory it is reasonable to argue that those compelled to be a part of it should receive the best possible benefits.

While one can argue that privatisation encourages competition, it may result in people who buy company A's product losing out to Company B's clients because company returns depend upon the investment skill, the size of its investable funds and other factors.

Also over time, more subscribers will likely gravitate towards the company that pays the higher return. The lower-paying company is then faced with a very real challenge - improve its returns with a diminishing subscriber base, while facing a large number of discontented members who bought in earlier. Even if amounts vary by $25 a month, it adds up to $6,000 over the 20 years.

The alternative is for all companies to agree on fairly similar payout rates, which is all the more reason for a single national annuity programme.

A pure life annuity has harsh consequences for the annuitant who dies early - they forfeit the guaranteed payments for life. It is possible to incorporate a term life 'rider', so if an annuitant dies early, their dependants are assured of a capital sum. This capital sum is on a sliding scale, with progressively smaller payments as one grows older and probably none upon reaching a certain age.

To make actuarial sense to insure such a large group of people at an advanced age, the term-life 'rider' has to be made compulsory and start early, at perhaps age 40, when most people are still in good health. The premiums received from this pool of young members over the years form buffers for later claims by older annuitants.

Minister for Manpower Ng Eng Hen elaborated on Tuesday that the proposed compulsory annuity programme will pay out from age 85. It might be simpler to have one national annuity programme starting from age 65 - replacing CPF payouts and a later annuity programme.

A lot of people already have cover under a basic form of compulsory life assurance - the CPF dependants protection scheme. An 'annuitant programme' can be programmed to take over at a certain age and cover everyone instead.

The normal policy with annuities is a single lump-sum payment on entry with fixed payments over a person's life. Economic variables make it logical for these payments to change slightly, with bonuses for good years. It is also possible to engineer the 'fixed' payout rates to be on a sliding scale, with lower payouts after say age 80 thereby allowing for a higher monthly payment between 65 to 80.

This annuity plus term-life package has two major benefits. First, members are assured of a life-long guaranteed payment from age 65. Second, their next of kin are assured of life assurance returns if they die early.

This goes a long way towards making annuities attractive and provides for next of kin should death come early. It also benefits many non-working wives and children.

In addition, a public education programme illustrating current mortality tables and the numbers of people who may be unable to provide for themselves in their old age will alleviate much public concern over a compulsory scheme.

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