The Truth About Our CPF & Minimum Sum

Minister Tan: The Truth About Our CPF & Minimum Sum

May 26th, 2014 | Author: Contributions

Minister of Manpower Tan Chuan-Jin

PART I – Our CPF SystemWe have been hearing some of this online. In many dialogues and conversations, I have asked if people actually read about what CPF is really about. Most admit that they don’t. But there are also those, especially the ones keen on financial planning, who put out thoughtful pieces to help Singaporeans understand how it helps.

Let me state that the CPF is put in place to help Singaporeans have peace of mind when it comes to their retirement years. With increasing longevity, it has become even more important to help Singaporeans sustain their retirement adequacy for longer. There are 3 main points I would make.

CPF Helps Us to Retire

We will all retire one day so we need to prepare for it. The CPF is how Singapore does it.

Many countries do the same through a pension system. They collect taxes or get citizens to contribute to a social security fund. This pooled monies is then paid out to citizens who reach a certain age. However, many of these systems are facing challenges, because those who are young are now paying for the old. As most countries age, there are less and less young people paying for more and more aged people. The status quo cannot hold. Either taxes will have to rise, or old people will get a lower and lower pay-out. The pension payout age is also being increased.

In Singapore, we have the CPF. Rather than pool all our monies together, every individual saves for his own retirement via his personal individual CPF account. We contribute monthly into the account. Our employers contribute too. The Government also contributes into the accounts for those who need more, through Workfare and other schemes such as Pioneer Generation Package. We then make sure this CPF account grows at a reasonable interest rate without risk. In fact, your CPF monies are backed by the full faith and credit of the Singapore Government – only one of a few countries in the world with a triple A credit rating from all of the world’s major credit rating agencies.

Money in your CPF account is your money

Unlike most other systems, our CPF does more than just give us a monthly pension. We use it to help own our homes and pay for healthcare. In countries where a significant proportion of retirees do not own their homes or are still servicing their mortgages, pension payments have to be used for these costs. As the vast majority of Singaporeans including lower income retirees own our homes, paid for out of our CPF, and have fully paid our loans, we do not need to use our CPF LIFE payouts to pay for rentals. Many of us are already using our CPF monies to fund expenses that would otherwise have come from our disposable income.

The Minimum Sum is increasing because we are living longer so we need to spread out our payouts.

In many other countries, pension monies are not drawn out in a lump sum, but paid out monthly. This helps retirees spread out the use of their retirement savings over their retirement years.

When the British introduced the CPF scheme in 1955, we could withdraw all our savings at 55. Do we remember what our retirement age was then? It was 55. What was the life expectancy in 1955? It was about 60. Hence, what you withdrew at age 55 would have to last you for just a few years.

Today, the retirement age is at 62 and we could be re-employed until 65. And life expectancy is at least 82 and rising fast. For those turning 65 years old today, 1 in 2 will live beyond 85, and 1 in 3 beyond 90. What would happen if we withdrew everything at age 55? Or even 65? Would we ourselves be able to manage our monies for two decades or more?


Unfortunately, most savers are unable to achieve good returns with low risk. Many have lost money because they chose the wrong products to invest in, or because of market downturns that occur in their retirement. Would we have peace of mind if we were subjected to the same uncertainties? What would happen if our monies ran out? Who would bail us out?

This is why the CPF Minimum Sum matters.

As we retire, we will need more money, because

1. We are living longer. In fact, we can probably expect to live 10 years longer than our parents did. Unless we intend to work and retire much later, we will spend more years in retirement.
2. Prices will increase over time. The same things will cost more as the years go by. Although prices of basic items have gone up by less in Singapore than in most other advanced countries, the fact is the cost of living will go up over time.
3. Our daily needs have increased. What we consider to be “basic” has changed over the years. The food we eat is of better quality, the medicine that we consume is more advanced, and technology that we now enjoy didn’t exist before. So our daily needs have increased. This is a good thing, because it means that our quality of life has increased.
Hence, the Minimum Sum has been increasing over time. When we turn 55, we set aside a Minimum Sum from our savings in the Ordinary and Special Accounts (OA/SA) to meet out retirement needs, and we can withdraw any remainder (see footnote).

In 2003, we wanted the Minimum Sum to be able to meet the expenditure needs of a lower-middle income retiree couple. This was why we decided in 2003 to bring the Minimum Sum from $80,000 then, to a target of $120,000 in 2003 dollars. The target was to be reached over a period of 10 years, so that by 2013, a lower-middle income retiree couple could have had their expenditure needs met.

Many have forgotten that this is what we decided to do many years ago and are surprised each year when the Minimum Sum is raised.

In fact, we pushed back the target by another two years to 2015 so as to make the increases more gradual because of higher inflation in recent years.

So remember: The current Minimum Sum for someone turning 55 from July 2014 is $155,000, after adjustment for inflation. This sum will provide about $1,200 per month, for life, through CPF LIFE. This is estimated to be what a lower-middle income retiree household requires to meet their basic daily needs. This is far more than the $230 per month that we would have received if the Minimum Sum had remained at the original $30,000, which was the Minimum Sum in 1987 when we first started the scheme.

PART II – Misconceptions about the Minimum Sum

When I read through some online discussions, I realised that there were a few misconceptions about what the Minimum Sum means. Many are unfamiliar with what is available on the CPF website or some of the clarifications on MOM Facebook and Factually. Encouragingly, some personal finance blogs have helpfully tried to clarify, such as DrWealth, cheerfulegg, DollarsandSense, and SGYoungInvestment.

Let me try to clarify a few main points again.

First, if you did not have sufficient savings to set aside the Minimum Sum at age 55, you do not need to top up the shortfall in cash. You also do not need to sell your property just so that you could meet the Minimum Sum!
Second, only half of the Minimum Sum must be maintained in cash. The savings above that can be used for housing needs. Any contributions into the Ordinary Account after age 55 can also still be used for housing.

Is the Minimum Sum achievable?

Yes it is achievable. Even as the Minimum Sum has increased in recent years, more and more Singaporeans have been able to attain the Minimum Sum. About half of active CPF members are able to now, compared to one third just five years earlier.


Source: CPF Annual Reports (2013′s Annual Report to be published soon), CPF Trends Article Feb 2011

Note: Active members refer to members who have at least one CPF employment contribution paid for them for any of the four months preceding the members’ birth month at 55. The sum of a member’s cash balances and property pledge are used to measure MS attainment in recognition that the member’s property can be used to supplement his retirement income.

We expect even more CPF members to meet the Minimum Sum over time. In a study commissioned by MOM, two local academics, Dr. Chia Ngee Choon and Dr. Albert Tsui from NUS, estimated that about 70% – 80% of new entrants to the workforce would be able to meet the Minimum Sum for their cohort. This is a definite improvement but we should still aim to do better.

Are you in trouble if you do not meet the Minimum Sum?

A number of older Singaporeans are not able to meet the Minimum Sum because they were working when Singapore was still developing and wages were low. These vulnerable Singaporeans may need help if they do not have family support. We will help them. Indeed, we introduced the Pioneer Generation Package so as to help lighten the burden of their healthcare costs.

There are those who do not meet Minimum Sum because they did not work regularly. But many among these may have a spouse or family who are able to support them.

Furthermore, the majority of older Singaporeans own their homes. Many prefer to hold on to their homes and rely on their children for support in their retirement years if their own savings are inadequate. But there are several schemes to help them if they wish to get cash from their homes. Besides renting out rooms, which many do, they can move to smaller flats or make use of the Silver Housing Bonus and the Lease Buyback Scheme.

I know there are also low-income workers who need more help. This is why we introduced Workfare, which pays into the CPF accounts of lower-wage workers. And that is why we pay an extra interest of 1% for the first $60,000 of CPF savings of every Singaporean so that those with lower balances can grow their savings faster. We also raised the amount that employers must contribute to CPF recently, especially for older workers and lower-wage workers.
We are looking into other ways to further strengthen our support for those who might need more help.

In summary

I believe that our CPF is a good system and a fair one. :oIo: It is also a more sustainable system than most other retirement schemes. Your CPF funds are absolutely safe. :kma:

Would we be better off if we dismantled the CPF Minimum Sum and left it completely to individuals to provide for their retirement themselves? It is tricky providing for many years of retirement. We believe it is prudent to set aside a portion of our monies to be managed via the CPF system so as to provide the basic needs of retiree households. Individuals continue to decide how they use the rest of their monies. And the truth is, CPF monies are already being drawn upon for a range of uses. Some have even argued that we should tighten this.


We will continually strengthen our CPF system to improve the assurance we can provide our seniors for their retirement, healthcare and housing needs.
###
Footnote: Those of us who have not met the Medisave Minimum Sum (MMS) from our Medisave savings will first need to top up our Medisave Account to the MMS. More info on this here.

Manpower Minister
Tan Chuan-Jin
[Source]: http://momsingapore.blogspot.sg/2014/05/the-truth-about-our-cpf-and-minimum-sum.html
http://www.tremeritus.com/2014/05/26/minister-tan-the-truth-about-our-cpf-minimum-sum/

Leong: Is the money in your CPF account your money?

May 26th, 2014 | Author: Contributions

We refer to the article “‘Money in CPF account is your money’: Tan Chuan-Jin” (Straits Times, May 26).

“Money in your CPF account is your money”?

It states that “”Money in your CPF account is your money””.

We want transparency and accountability for our CPF?

- Since the “money in your CPF is your money” – Why is it that the excess returns that may be derived from the use and/or investing of CPF money, all these years, not returned to us?

Why is there no transparency and accountability as to the exact paper trail as to what happens to our CPF?

Where does and has it gone to?

What returns were generated?

Where exactly are our CPF – in the Reserves – all of it in the Reserves and where exactly in which entities or funds of the Reserves?

Who exactly are or have been managing our CPF money?

What expenses (total expense ratio) are we and have we been paying on our CPF money?

Lowest real rate of return in the world?

Are there any countries in the world that do what our CPF system does? – Are we historically, the national pension fund that pays or have been paying the lowest real rate of return in the world?

In respect of “And that is why we pay an extra interest of 1% for the first $60,000 of CPF savings of every Singaporean so that those with lower balances can grow their savings faster. We also raised the amount that employers must contribute to CPF recently, especially for older workers and lower-wage workers”

- What is the overall average rate of interest on all the different CPF accounts (OA, SA, Medisave, RA) – about 3 plus %?

CPF helps you pay for housing and healthcare?

As to “Apart from retirement, CPF savings have helped Singaporeans own homes and cover healthcare expenses, said Mr Tan. “Many of us are already using our CPF monies to fund expenses that would otherwise have come from our disposable income.”

Most expensive public housing in the world?

- With arguably the most expensive public housing in the world (using the ratio of price to income) – what are the implications for Singaporeans for their CPF and their retirement?

In this connection, as to “But there are several schemes to help them if they wish to get cash from their homes. Besides renting out rooms, which many do, they can move to smaller flats or make use of the Silver Housing Bonus and the Lease Buyback Scheme” (The Manpower Blog: “The Truth About Our CPF and the Minimum Sum“, May 25)

Schemes that “take away” your HDB value?

- Are there any countries in the world that “takes away” the equity of the homes of particularly its lower-income citizens?

When you opt for the Lease Buyback Scheme – are you not in a sense, giving up the future appreciation of the value of your HDB flat in exchange for a 30-year lease to continue staying in your flat plus a monthly fixed income (not indexed for inflation) for life under the CPF Life scheme?

When you opt to downgrade to a HDB Studio flat – are you not in a sense paying a relatively high price (relative to say a 2-room 99 year lease HDB flat of about the same size) for a 30-year lease which has no resale value?

49% met Minimum Sum?

With regard to “About half of active CPF members are able to now, compared to one third just five years earlier.
Source: CPF Annual Reports (2013′s Annual Report to be published soon), CPF Trends Article Feb 2011
Note: Active members refer to members who have at least one CPF employment contribution paid for them for any of the four months preceding the members’ birth month at 55. The sum of a member’s cash balances and property pledge are used to measure MS attainment in recognition that the member’s property can be used to supplement his retirement income.”

1 in 8 met Minimum Sum?

- Since the statistics appear to refer to only active CPF members including the property pledge – How many Singaporeans who reached 55 in 2013, including inactive CPF members, were able to meet the combined CPF Minimum Sum of $148,000 and the Medisave Minimum Sum of $40,500, entirely in cash in their CPF accounts? Maybe about 1 in 8?

70-80% can meet Minimum Sum in the future?

In respect of “We expect even more CPF members to meet the Minimum Sum over time. In a study commissioned by MOM, two local academics, Dr. Chia Ngee Choon and Dr. Albert Tsui from NUS, estimated that about 70% – 80% of new entrants to the workforce would be able to meet the Minimum Sum for their cohort.“

Real wage growth declines from age 38?

- Why does the graph in the study (page 6) seem to indicate that for “median wage male workers” – their real growth in wages appears to start to decline from around age 38, such that by their age of 65, the real wage growth seems to be only around what they used to earn when they were around age 29?

Income replacement better than OECD countries?
Are there any countries in the world that measure the retirement income replacement ratio such that the conclusion that most Singaporeans are projected to be better prepared for retirement than the average OECD country – is on the basis that there appears to be widespread age discrimination in Singapore, in that real wages seem to decline from age 38 onwards until 65 – when the real wage growth becomes back to around age 28?

More educated – easier to be retrenched – harder to get job?

The article “Degree holders ‘most vulnerable’ to retrenchment” on the same day (Straits Times, May 26) seems to indicate that the more educated you are, the easier it may be for you to lose your job, and the harder and longer it may take to find another one.

So, if you lose your job and have difficulty finding another suitable job – not to mention the widespread age discrimination and competition from foreign workers – and you can only withdraw $5,000 at age 55 because you don’t meet the ever increasing Minimum Sum – life may be hard for you and your family.

Do not spend a single cent on CPF?

Finally, by the way – from a cashflow perspective – does the Government spend any money at all on CPF, HDB and healthcare?

SY Lee and Leong Sze Hian
http://www.tremeritus.com/2014/05/26/leong-money-in-your-cpf-account-is-your-money/

Tan Chuan Jin says "We then make sure this CPF account grows at a reasonable interest rate without risk."

Click to expand...

A return rate that is lower than the inflation rate does not grow the CPF account. It is not the nominal amount that matters, it is the real amount.

Tan should justify why an individual contributing $10,000 annually to the CPF for 30 years is not be able to achieve a sum of $1.3 million? Instead, that guy has only $450k, of which $300k is the principal!

If the CPF can't deliver, then the individual should be allowed to invest in an ETF of the US S&P. He will be able to achieve an average return of 7 percent risk free in the long term. The only way this guy would lose is when the world goes into a depression. When a global depression occurs, even the sinkapore government cannot afford to pay back your CPF.
So, let's hear the minister argue that a 30-year investment period in the S&P is risky.

It is a famiLee business which does not have to report to anyone. We are suppose to trust the integrity of Ho Ching, LKY, LHL,... People who ask too many questions get "fixed".

At least 40% of Sporeans don't trust the PAP & I think even some of the 60% are having doubts

johnny333 said:

It is a famiLee business which does not have to report to anyone. We are suppose to trust the integrity of Ho Ching, LKY, LHL,... People who ask too many questions get "fixed".

At least 40% of Sporeans don't trust the PAP & I think even some of the 60% are having doubts

Click to expand...

But the doubtful "some" still vote for them wor, ironic right

The Cpf is a good system to be made use of like an investment scheme by yourself, like what Ho Ching does to it by 'borrowing' against it. It would reap you tonnes of returns and still have the principal intact ( or what is left of it).

The Cpf was never a system created for your retirement.

For those who know what I am talking of, they will be laughing all the way to the banks instead of pinning their lost hope on a loser called Roy. LoL

This article will restore the confidence of all Singaporeans.

This BG is very long winded, no wonder everyday overtime cannot see kids grow up.

Retirement is up to each individual Citizen of singapore.Nobody got the farking right to tell u when u can retire and when u can use your retirement money.

batman1 said:

Retirement is up to each individual Citizen of singapore.Nobody got the farking right to tell u when u can retire and when u can use your retirement money.

Click to expand...

The PAP does not interfere with anyone's retirement plans. I retired early and not once did the government interfere in any way or form.

Leongsam said:

The PAP does not interfere with anyone's retirement plans. I retired early and not once did the government interfere in any way or form.

Click to expand...

You keep repeating the same old crap but to the Pappies the Sinkie are losers as defined by them. As as you can see from the way they define incomes for these losers, 2/3 of them earn less than $2700 per month and yet the Pappies can define such earners as upper middle income!LoL

soIsee said:

You keep repeating the same old crap but to the Pappies the Sinkie are losers as defined by them. As as you can see from the way they define incomes for these losers, 2/3 of them earn less than $2700 per month and yet the Pappies can define such earners as upper middle income!LoL

Click to expand...

If you go to http://www.bbc.com/news/magazine-17543356 and enter Singapore and $2700 you'll find that it is an excellent salary by international standards.

when someone trying to argue his points by using non specific numbers,data like we are one of the few AAA rating countries,many people...a few people ,many this and many that..then you know he is trying to use half truths to put wool over your eyes...

mojito said:

This BG is very long winded, no wonder everyday overtime cannot see kids grow up.

Click to expand...

yeah lah.

sillypootians being simple minded won't understand what he intend to put across.

just said :
cpf = S$
cpf = govberment
govberment = prints S$
conclusion :
cpf = beri safe , there is not shortage of S$

C J Tan I fuck you don't talk cock, CPF money is not my money, if it is my money why you limit my withdrawal for my diabetic treatment at $400/- one year. How Mr. Cow heart surgery cost only $8/- be more transparent.

makapaaa said:

Click to expand...

Please compare apple to apple. Of cause when you compare with Indonesian, bangala, viet...$2,700 is sky high lah!

Leongsam said:

If you go to http://www.bbc.com/news/magazine-17543356 and enter Singapore and $2700 you'll find that it is an excellent salary by international standards.

Click to expand...

Leongsam said:

If you go to http://www.bbc.com/news/magazine-17543356 and enter Singapore and $2700 you'll find that it is an excellent salary by international standards.

Click to expand...

2700 buckaroos a month and you think one can support oneself including a family at present cost of Sinkie living standards?

Now which moron....err...I mean person here would want to agree with that statement of yours is a very brave and foolish Sinkie indeed? LoL

kaipoh said:

Please compare apple to apple. Of cause when you compare with Indonesian, bangala, viet...$2,700 is sky high lah!

Click to expand...

The bar chart already adjusts for purchasing power parity so varying costs of living are factored in.

soIsee said:

2700 buckaroos a month and you think one can support oneself including a family at present cost of Sinkie living standards?

Now which moron....err...I mean person here would want to agree with that statement of yours is a very brave and foolish Sinkie indeed? LoL

Click to expand...

The problem with sinkies is that they think the luxuries of life are a God given right. They expect a salary that will enable them to live it up. In reality, no government in the world can meet these sorts of expectations. Beyond the basics, it is up to the individual to achieve a higher standard of living.

If a Singaporean has a roof over his head, can feed his family 3 square meals a day and clothe them with neat, basic attire, he should consider himself to be very lucky as there are many places in the world where the basic necessities of life are in short supply.

Those who want to lead comfortable lives where money is never in short supply should read my retirement thread for guidance regarding how to achieve financial independence at an early age.

Leongsam said:

Those who want to lead comfortable lives where money is never in short supply should read my retirement thread for guidance regarding how to achieve financial independence at an early age.

Click to expand...

The so-called art of retirement planning is over-rated. Any ambitious person should simply aim to climb the corporate ladder as high as possible and use all your abilities to the fullest. Other than that, get basic health insurance, term insurance if you have dependents, and be prudent with your investment and spending. There is very little else that needs to be said about retirement planning.