the way the govt tinkers with our cpf how can we ever have
enough for our retirement or get to see our cpf money!
Unanswered questions about CPF changes
By Leong Sze Hian
Posted by theonlinecitizen on August 24th, 2007
This is in reference to media reports that the CPF Special,
Retirement and Medisave accounts' rates will be modified next
year.
The question that may be in every Singaporean's mind is whether the
peg to "an appropriate long term bond rate" may result in a higher
or lower average rate, compared to the 4 per cent fixed rate
now?
Channelnewsasia reported Manpower Minister Ng Eng Hen as
saying:
"
the new rates will be lower initially than the current rate of 4
percent but it should do better than 4 percent over time."
(link)
What is the basis for the statement that "the new rates will be
lower initially than the current 4 per cent but it should do better
than 4 per cent over time"?
Bonds fluctuate and are dependent on various factors like interest
rates, default risks, etc,and have no correlation to the future
"should do better" than the present.
The only answer to this question is nobody knows.
Since "the new rates will be lower initially than the current rate
of 4 percent but it should do better than 4 percent over time", why
not wait until the new rate is better before un-pegging it?
Why give 1 per cent more on the first $60,000 in CPF, and then
announce two days later, that the 4 per cent rate will no longer be
guaranteed?
Most Singaporeans may not benefit
Since most Singaporeans use the bulk of their CPF for housing in
the early years of their working lives, many may only enjoy the
extra 1 per cent on very small CPF balances. In contrast, as the
Special, Medisave and Retirement accounts cannot be used for
housing, most Singaporeans may have much larger balances, which may
end up earning less than 4 per cent.
I would like to ask how much of the average of about $45,000 in CPF
members' accounts are in the three accounts affected, compared to
the balances that are able to earn the extra 1 per cent?
Has any study been done to estimate the net effect on CPF
members?
Will some or most Singaporeans be better or worse off?
Contradiction
As to "the one per cent additional bonus interest for the CPF will
be put into the Special account and not the Ordinary account" (as)
"this additional bonus will enhance the CPF's existing risk-free
framework", (CNA) I find this to be somewhat contradictory, because
isn't removing the 4 per cent fixed rate increasing the risks of
"the CPF's existing risk-free framework" much more than the small
sums from the bonus interest?
Pooling of risks?
With regards to every CPF member having to set aside a compulsory
amount from their Minimum Sum, as a pooling of risks, so that those
who are alive after age 85 will be able to receive a monthly
annuity for life of between $250 to $300, I believe Singapore may
have achieved another world first and history first.
We are the first and only nation to compulsorily have all citizens
contribute towards providing for the annuity payouts of those who
live longer.
Those who die before age 85 may receive little or no benefits from
the compulsory annuity scheme, as is being proposed now.
In any case, I think it may be quite difficult for anyone to live
on just $250 to $300, from age 85 and beyond.
As the compulsory annuity will only apply to those below 50 years
old now, the first annuity payout at age 85 will be in 2042.
Assuming 1.5 per cent inflation, the $250 to $300 monthly annuity,
is equivalent to $149 to $178 today.
Wasn't raising the GST supposed to help the poor?
As we have more than $250 billion in Temasek and the Government
Investment Corporation, why are Singaporeans being required to pay
for those who live beyond age 85?
As the reason given to raise GST was to help the poor, isn't the
additional estimated annual $1.5 billion revenue enough to provide
for Singaporeans who are over age 85 and destitute?
Since the economy is expected to grow at 4 to 6 per cent in future
years, to what extent will the increasing GST revenue be able to
provide for the increasing over 85 destitutes' aging
population?
One of the key focus of the the Prime Minister's National Day Rally
speech, was reducing the income gap.
As one gets older, earnings tend to decline?
According to the Ministry of Manpower, for workers aged 55 and
above, 18,600 earn gross monthly income of under $500, 64,000 earn
less than $1,000, and 46,400 earn below $1,500. This means that 42
per cent of elderly workers earn less than $1,000.
The statistics indicate that the older one gets, the larger is the
proportion who earn less. For example, those earning less than $500
and $1,000, jumped from 8,600 and 36,600 to 18,600 and 64,000,
respectively, from age 50-54 to age 55 and above.
This means that those who crossed from age 50-54 to age 55 and
above, who earned less than $500 and $1,000, increased by 116 and
75 per cent respectively.
Why is it that it would appear that as one gets older, earnings
tend to decline?
How long has this trend been persistent?
Two policies affecting older workers
The proportion of older workers who are in menial jobs is quite
high. 54,300 age 55 and above workers are cleaners, labourers and
related workers, and 35,600 are plant and machine operators and
assemblers. About 49 per cent of workers aged 65 and older are
cleaners, labourers and production line operators.
For these lower-income elderly Singaporeans, two policy changes may
affect them more adversely, than the general population.
The first, is the gradual phase-out of the 50 per cent CPF Minimum
Sum (MS) withdrawal starting 1 January 2008. From 2013, those with
less than the then prevailing MS of $120,000 at age 55, can only
withdraw $5,000.
The second, is the compulsory purchase of a deferred to age 85 life
annuity, with the premiums deducted from the MS. This will reduce
the monthly MS payout from age 65 to 85.
I would like to suggest that the above policies be reviewed,
perhaps along the lines of Workfare, that is to help to increase
the ultimate total disposable income of older lower-income
Singaporean workers.
The reduction in CPF cash-flows due to these two changes, may
further strain their meagre income sources, after age 55.
Minimum Sum
The above CPF cash-flow issue is perhaps exasperated by the CPF
Board's statistics that "The percentage of active members who met
the required MS when they turned 55 declined from 57.1% in 1996 to
36.4% in 2006
The proportion of members aged 55 years and above
displayed a four-fold jump from 5.5% in 1985 to 22.9% in
2005″.
The MS which started in 1987 has increased by 232 per cent from
$30,000 to $99,600 now. This is an annual compound rate of increase
of 6.2 per cent.
To what extent has the 6.2 per cent rate of increase, relative to
inflation of only 2 per cent, contributed to the CPF cash-flow woes
and corresponding total disposable income of lower-income
Singaporeans when they cross age 55?
Also, to what extent will the one per cent increase in CPF interest
rate, one-off CPF bonus for those affected, and higher workfare for
older workers, offset the reduced CPF cash-flow sources described
above, in the light of the increasing trend of more elderly
Singaporeans in menial jobs earning less wages?
