Will S’poreans “feel rich” too in retirement?

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Leong Sze Hian / Columnist

In the Channel NewsAsia report, "Labour chief says Singapore's slide into recession unavoidable" (Channel NewsAsia, 11 October 2008), NTUC Chief Mr Lim Swee Say was reported as having said the following:

"Every month, when I receive my CPF statement, I feel so rich and the best part is, I know the CPF money won't run away. CPF will still be around for a long, long time to come... Not only is it earning good interest, my capital is protected."

First of all, I think the CPF Board issues CPF statement half-yearly, and not monthly. Or perhaps Mr Lim checks his CPF statement – diligently – online every month. But if he did, he shouldn’t have used the word “receive”.

Lets take a closer look at the CPF and see if it would make other Singaporeans, besides the minister, feel “rich” too.

Lesser, later?

I refer to the article “Easier to top-up loved one's CPF” (Today, Sep 17).

Whilst I applaud the changes to encourage Singaporeans to top-up their CPF for retirement, other changes to the CPF may deter some from contributing more to their CPF.

Also, with the tax relief remaining at $7,000 per year, some may inadvertently top-up more and lose out on the tax reliefs that may otherwise be available if one staggers the top-up over the years.

Minimum Sum = minimum sum at retirement?

In this connection, the CPF Minimum Sum (MS) has been increased to $ 106,000, on 1 July 2008, and the phasing out of the MS 50 per cent withdrawal rule will start from 1 January 2009.

By 2013, the MS would have increased to $ 120,000, and the Medisave Required Amount (MRA) to $ 25,000.

This means that CPF account holders with less than $ 145,000 in 2013, can only withdraw $5,000 at age 55.

*($ 120,000 CPF Ordinary Account (OA) + Special Account (SA), plus $ 25,000 MRA)

Those who do not meet the MRA will be required to transfer any OA/SA in excess of the MS, to meet the MRA.

According to the Longevity Insurance Committee (LIC), 60 per cent of CPF account holders are projected to have at least $ 67,000 in their CPF OA and SA in 2013, and 25 per cent are projected to have less than $ 40,000.

Therefore, how many are expected to have less than the MS + MRA requirement of $ 145,000 in 2013 ?

Will more Singaporeans be financially stressed from age 55 to 65, which is the deferred CPF life annuity starting age, under the new CPF life scheme ?

Why increase minimum sum by 6.4% per cent?

This year’s MS increase from $ 99,600 to $ 106,000 is an increase of $ 6,400 or 6.4 per cent. In previous years, the increase was also about $5,000 per year.

Since historical inflation in Singapore is only about 2 per cent, why has the MS increased by 6.4 per cent ?

According to the LIC, the MS in 2013 is projected to be $ 134,000 after adjusting for inflation.

So, is the MS $ 120,000 or $ 134,000 in 2013 ?

At its current rate of increase, does it mean that Singaporeans like my daughter, who is 23, may only be able to withdraw $ 5,000 when she reaches 55, as the MS may have increased to about $ 280,000 by then ?

After using CPF for their HDB flat, how many Singaporeans will have more than $ 280,000 in their CPF when they reach 55 ?

How much will the MRA be by then - about $ 105,000, at its current quantum of increase at $2,500 a year ?

So, will the MS and MRA for my daughter be about $385,000 when she is 55?

Selling properties

From next year, there will be a change in the policy on the sale of property by those age 55 or older.

The CPF plus accrued interest will have to be returned to one's CPF account to make up any CPF Minimum Sum (currently $105,000) shortfall.

So, particularly for lower-income Singaporeans who may have to downgrade their HDB flat to monetise the value of their HDB flat for retirement, there may not be sufficient funds available to buy a smaller flat, as any Minimum Sum shortfall may reduce the net flat sale proceeds available.

So, how many Singaporeans will, as the minister without portfolio does, feel rich when they are in their old age?

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