I was thinking of doing a listicle, a brainless but, hopefully, funny way of conveying information. Except that the CPF review panel’s recommendations have left me brain-dead and I am not feeling terribly funny. Bear with me please because I think this is too big an issue not to destroy some brain cells over.
Now, the panel wants us to leave this gawdawful term “minimum sum’’ alone for the moment and work backwards. Let’s not think about how much money we have in our CPF when we turn 55, it says, but what we hope we will get when we turn 65, when monthly payments kick in.
Here’s how the panel wants the changes framed:
If you are 55 now, in 10 years, you’ll need about $650 to $700 a month. The panel has factored in inflation AS WELL AS rising standards of living. So it’s not just for bread and water, but kaya and kopi as well.
To get this kind of payout means leaving $80,500 in your CPF. That is, if you own your home. Why? You can rent it out if you need money. If you sell it because you prefer to rent a home, the CPF money you used to pay for it will still go back into your CPF – so it’s back up again. (Forget everything that has been said about being able to pledge your property ecetera. Serious.)
If you do not own property, that $80,500 is doubled to $161,000 (Yup, that’s the minimum sum for those turning 55 next year) It means higher payout which is also to cover for expenses like rent, which a homeowner wouldn’t have to worry about.
If you actually want to put in more money into your CPF, you can. Up to $241,500. Now, why would anyone want to do it? Because, hey, the CPF pays better returns than the banks or even commercial insurance companies. And yes, even higher payout of close to $2,000 a month
So that’s why the panel doesn’t want to use the term “minimum sum’’ anymore but RETIREMENT SUM. Besides sounding like a ransom demand, it now applies to three different S/M/L sizes – Basic, Full and Enhanced.
Basic is $80,500
Full is $161,000 (doubled)
Enhanced is $241,500 (tripled)
In case you’ve forgotten everything about what happens at 55…
- You can take out everything in excess of Basic if you own your home. If you don’t even have a Basic, you can take out $5,000. Yup, nothing has changed.
- What’s new: that Basic sum will increase by 3 per cent a year so that you wouldn’t be so suddenly surprised by an announcement when you’re 54.
But quite a lot can happen in 10 years time when you hit 65.
- You can decide to withdraw 20 per cent of the sum you left inside. It’s been accumulating interest after all (and you need to pay for your son’s wedding or your daughter’s overseas education). Remember though that getting a lump sum early means smaller monthly sums later on. So you can expect some incentives from the G to get you to leave your 20 per cent alone. Now, for those with really really low balances, it’s no-go.
- You can decide to leave your money in there because you really don’t need it yet. Instead, you can accumulate even more interest and get a bigger pay-out – about 6 to 7 per cent more – later. You can do this at most for five years. (The CPF isn’t supposed to make your fortune but provide for retirement after all.)
Okay, so far, the panel hasn’t said anything about those with not enough to meet even the Basic. First off, they aren’t going to be penalized or have their homes taken away from them. They will still get an income until they die, albeit a smaller sum. Still, what can be done to help them?
There are some things in place already such as an extra 1 per cent interest for those with $60,000 in CPF balances. Plus there is the Work Income Supplement for the lower paid which also goes into their CPF. (I guess we have to see what the Budget will bring but there is a Silver Support in the offing in which the G is expected to give cash/CPF bonuses to older folk)
The good news is that increasingly over the years, more and more people will be able to meet the Basic sum. Right now, 55 per cent of CPF members can. And by 2020, 70 per cent will be able to do so. Hey, that’s what the panel says okay…!
Those are the panel’s key recommendations but it also raised other matters for the G to consider. For example, the panel…
- Agreed with the NTUC’s suggestion to bring back up the CPF contribution rates of those aged 50 to 55 who are working. This was cut to encourage employers to employ older workers and it’s working well enough already it seems.
- Like the NTUC, it wants the salary ceiling for CPF contribution, which is now $5,000, raised. In two swoops, voila! More CPF money! (Although how employers will react to this I don’t know)
- Wants spouses to be allowed to start CPF Life accounts for their non-working partners.
As you can tell, I am not commenting on the changes because I am still trying to wrap my head around them! At first glance, they seem populist, a bid to satisfy as many differing demands as possible (except the Return my CPF at age 55 lobby). Or it can be framed as a matter of choice and giving people a bit more control over their money. The panel prefers to use the word “flexibility’’. Flexibility is so complicated isn’t it? And that’s just Part 1 of the recommendations. Part 2 will be about “flexible’’ payouts.
Don’t forget that there isn’t just one CPF Life plan, but a few…you pick one. I’ll bet anything that most people have forgotten this.