CPF – What is at stake for you

By Gerald Giam

CPFThe myriad issues surrounding the Central Provident Fund (CPF) Scheme have always been a big concern for Singaporeans. This year the discussion has heated up considerably. Lively debates have taken place in Parliament, in the print media, on social media and even at the Speakers’ Corner. It is one of the national concerns that are very frequently raised by residents during my house visits and outreach initiatives at markets and hawker centres.

Many residents have expressed unease (to put it mildly) about several aspects of the CPF Scheme. Recently retired or soon-to-retire residents lamented that they were unable to access large sums of their retirement savings. Many baulked at the government “controlling” their savings even after their retirement and many also expressed unhappiness with the government for what they perceived to be the government displaying a lack of trust in them to manage their own finances.

The complexity of the various components of the CPF Scheme is bewildering to many of its members. Frequent changes that have been implemented by the government over the years add further confusion to the Scheme. Further, questions are also being raised about the CPF interest rate being lower than the long-term returns on CPF monies that the government earns through its investments overseas.

The Workers’ Party (WP) has stated its views on the CPF Scheme on numerous occasions. The importance that WP attaches to the Scheme is underlined by the fact that a whole chapter in our Manifesto is devoted to scrutinising it!

We believe CPF members should be allowed to start drawing down their CPF from age 60, if they choose to, instead of having to wait until they are 63 or 65 years old. This will provide more flexibility for people who have retired and need to start using their retirement savings. The draw-down age should not be linked to the statutory retirement age or re-employment age, such that it compels people to continue working even in their old age.

We have stated that the main focus of the CPF Scheme should be on providing for retirement and housing needs and that it is not to be used as a tool to manage business costs during economic downturns. In the past, the government has decreased CPF contribution rates during recessions to lower business costs, a move which was to the detriment of many workers.

The government, through some of its investment companies like GIC, has invested our CPF monies and benefited from returns that have been consistently higher than the CPF interest rate that is paid out to members. We believe the government should share some of these gains at periodic intervals with its members.

Since a major part of Singaporeans’ CPF savings are tied up in their homes, we have called for the elderly to be granted maximum flexibility in their options to monetise the value of their homes.

It is apparent that low wage workers, home-makers and people with disabilities may not be able to save enough for their retirement. Our nation should be prepared to shoulder the responsibility of ensuring that these individuals are adequately provided for so that they too will be able to live a dignified life in their later years.

WP Members of Parliament (MPs) have consistently been raising such issues in Parliament and have also queried government ministers about the CPF scheme, adequacy of funds for retirement and investment of CPF monies.

MP for Hougang, Mr Png Eng Huat, in his speech during the debate on the President’s address in May 2014 had expressed concerns that most CPF members may be financially illiterate and may not have in-depth knowledge on retirement planning, and are thus unable to make informed choices about investments. Mr Png called on the government to help such individuals as well as Singaporeans in general to grow their CPF savings.

Mr Png also pointed out that the delay in CPF pay-outs for the elderly, because of the raised draw-down age, could be a cause of undue anxiety and stress, as not everyone will be able to continue working after age 55 or 62. Furthermore, some individuals who are unable to commit to full-time employment and may be working part-time may require draw-downs to supplement their income. He proposed an additional CPF LIFE plan that would allow for an earlier draw-down age of 60, but with no bequest upon death. Such a plan would give workers a choice to slow down their pace of work after turning 60 years of age, if they are unable to cope with normal employment demands.

Mr Low Thia Khiang (MP for Aljunied GRC) asked Deputy Prime Minister and Finance Minister, Mr Tharman Shanmugaratnam, and the Minister for Manpower, Mr Tan Chuan Jin, if the government could allow CPF members to withdraw from their Retirement Account to redeem their housing loans, thereby leaving only a small loan balance of about $20,000 so that they could enjoy savings on the interest for the loan.

I asked Mr Tharman, several Parliamentary questions on how the government invests CPF monies through GIC, the government’s investment company, and what GIC’s returns were after accounting for interest paid to CPF members. I also asked whether the government ever had to draw on past reserves in order to pay CPF interest to Singaporeans.

The debate on the CPF Scheme and the adequacy of plans for retirement will continue. The government has recently set up an advisory panel to study how the CPF Scheme can be enhanced further to make it more flexible to meet the needs of more Singaporeans and provide additional options in retirement. The Workers’ Party will continue to study these complex issues and gather feedback from Singaporeans, so as to provide a voice for your concerns and suggestions.

A brief primer on the CPF

The CPF Scheme is rather complicated because it applies differently to members depending on their age, birthdates and their CPF account balances. We provide below a brief primer on the CPF Scheme. More details are available on the CPF Board website.

The CPF Scheme is a government-managed retirement savings scheme. You and your employer make regular contributions to your CPF account based on a percentage of your income. If you are self-employed, you are also required to make regular Medisave contributions. CPF savings can be used for purchasing a home, paying your home mortgage, medical expenses, paying for children’s tertiary education fees and approved investments. Upon reaching age 55, you may withdraw a certain amount of your savings in your CPF account. All the above-mentioned uses and withdrawals from your CPF account are subject to strict conditions.

Your CPF Account is divided into four components: the Ordinary Account, which can be utilised for housing, insurance, investment or education; the Special Account which is meant for retirement savings and investment in retirement-related financial products; the Medisave Account which can be utilised for hospitalisation expenses and MediShield insurance premiums; and the Retirement Account, which will only be created when you turn 55.

When you reach 55, the government requires you to set aside $155,000 in your CPF Retirement Account and $43,500 in your Medisave Account. These amounts are referred to as the Minimum Sum and Medisave Minimum Sum respectively. (These figures apply only for those members who turn 55 from July 2014 to June 2015, and are subject to upward revision in the future.)

You may pledge your property for up to $77,500 (or half of the Minimum Sum) towards meeting your Minimum Sum. After the required amounts in the Minimum Sum and the Medisave Minimum Sum have been set aside, you are allowed to withdraw any available balance amount in cash. If you cannot meet both these minimum sums, you are only allowed to withdraw up to $5,000 in total from your Ordinary and Special Accounts, but not from your Medisave Account. All remaining funds after the withdrawal of $5,000 will then be transferred to your Retirement Account.

If you have at least $40,000 in your Retirement Account at age 55, or $60,000 at age 65, you will be placed on the CPF LIFE Scheme. This is an annuity insurance scheme, which will provide a monthly payout for the rest of your life. CPF LIFE Scheme premiums are drawn from your Retirement Account in two instalments – up to $77,500 at age 55 and the remainder at age 65.

If you are unable to meet the $40,000 requirement in your Retirement Account at age 55, you will be placed on the Minimum Sum Scheme. Under this scheme you will receive a monthly pay-out for 20 years, starting from age 65 (for those born after 1953) or from the age of 63 (for those born between 1950 and 1951). The payout amount will depend on the existing funds in your CPF account.

This article is reproduced from Hammer Issue 1403.