Economics Business Music Politics Altruism : The Great Singapore CPF (pension) Discussion.

Source: CPF.GOV.SG

Dr. TOH Chin Chye as a pioneer batch of PAP ministers spoke in parliament in 1984 that "The fundamental principle is this. The CPF is really a fixed deposit or a loan to the government, which can be withdrawn at a fixed date when the contributor is 55 years old." It ought to generate more questions about his reason for this passionate statement on CPF and went to far as to say "It is as simple as this, that the CPF has lost its credibility, the management of it. This is fundamental."

I am happy to say that current government still recognizes the gravity of this fundamental as 55 years old withdrawal lamp post is still there but might not shine as brilliantly as in the past.

For the fortunate few that can meet both the special and medisave minimum sums ( which will be S$155,000 and S$40,500 for special and medisave account respectively as 1st July2014 ), it is not that bad as they can still withdraw remaining amount above the minimum sums. They can collect the minimum sum when they hit 65 years old not as a lump sum but as a monthly annuity. Previous rule allows full withdrawal.

For others who do not meet these minimum sum requirements, the government has made a good gesture in allowing withdrawal up to S$5,000 or whatever is in your CPF if your balance is less than S$5,000.

On the reverse, the government has also liberalized the usage of CPF for home purchases ( both public and private ), various types of investment, education and healthcare. From a funding standpoint, I disagree with Dr. Toh's analogy of equating CPF to a fixed deposit. With such liberalizations, CPF have a more challenging and less predictable cash flow that on all reasonable counts must lead to a lower rate of return.

The government might want to consider shifting the annuity payout age to 55 to coincide with the magical number as oppose to the current 65. My guess for the 55 and 65 reference points are these. Firstly, population is aging rapidly compounded by sharp fall in birth rate. Secondly, life expectancy has also increased with better healthcare.

Shaving 10 years off an annuity will result in lower monthly payout but it will cover more members. The current average life expectancy of 80.2 and 84.6 for men and women respectively is an AVERAGE and does not show its distribution. Some might not live to 65 to enjoy the payout. Perhaps DOS should release this information.

If we put these two counter weights on a balance, it might not be so bleak. However, I do take issue with the almost unilateral bull dozing manner in it's implementation and the failure to explain the rationale and facts more succinctly.

In retrospect, CPF might have served its purpose as a retirement fund if kept purely as such without allowance to fund housing, healthcare and education. We are too deep into it making. Even if CPF wants to change course, grandfathering will be difficult and complex even if the heart is willing but the soul is weak.

Peter Lye aka lkypeter

lkypeter@gmail.com

Safe Harbor. Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Peter Lye