Wednesday, 27 September 2023

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CPF restoration: Good or bad news?

I refer to the report, “CPF contribution to be raised by 1% point this year” (Channelnewsasia, May 1).

It states: “The restoration will be done in two steps.

0.5 per cent from September, paid into the Medisave Account and another 0.5 per cent from March next year, paid into the Special Account”.

The 0.5 per cent top-up to the Medisave Account means that it can only be used for medical treatment and CPF medical insurance and Eldershield premiums.

In this connection, the problem of rising medical costs is perhaps underscored by the latest data that:

“Singaporeans withdrew a total of S$660 million from their Medisave accounts to pay for the direct medical expenses incurred in hospitals, clinics and other healthcare facilities last year.

This was an increase from the S$590 million withdrawn in 2008.

These figures do not include withdrawals for MediShield and ElderShield premium payments which were S$745 million in 2008 and S$875 million in 2009.

52 per cent of the withdrawals in 2009 were to pay for the members’ own direct medical expenses.

The remaining withdrawals were to pay for family members: 17 per cent for spouses, 18 per cent for parents, 12 per cent for children, one per cent for grandparents and others”. (“S’poreans withdrew total of S$660m from Medisave accounts in 2009“, CNA , Apr 26)

What is indeed alarming is that 42 per cent of the Medisave withdrawals was for family members.

What this means is that the current generation is already using up a lot of their Medisave for other generations.

In healthcare funding terms, this is what many countries fear most and try very hard to avoid – that the current generation is paying for older generations and depleting their healthcare funding.

If this trend continues, our current healthcare funding mechanism under the Medisave system may become unsustainable in the future, as the current generation grows older with very little funds left.

The 0.5 per cent to the Special Account may also mean that Singaporeans will only be able to use it when they reach age 65, under the CPF Life scheme which pays a monthly life annuity.

With regards to: No top ups to the Ordinary Account as it’s deemed enough to meet housing needs”, the previous cuts in CPF were from the Ordinary Account (OA). So, by not restoring it back to the OA, it is in essence not really a restoration of CPF, considering that only the OA can be used for housing and education.

The justification for not restoring to the OA, was: “We’ve gone into this in detail. Mr Mah Bow Tan has explained in Parliament and shown examples how people are able to buy flats using just their CPF OA”.

This is probably not the case for many Singaporeans, given that as of September last year, 30,770 HDB Concessionary loans were in arrears over three months, plus an estimated 10,000 HDB bank loans in arrears, about 100 plus foreclosures a month, and an unknown number of forced sales in the open market. (Note: There are no available statistics on bank loan arrears, foreclosures, and forced sales in the open market.)

The explanation given in Parliament is flawed, as it was based on the OA used for housing of existing HDB flat owners and new flat applicants.

Obviously, those who could not afford would not apply, and those who couldn’t pay would have given up their HDB flats, and thus not be reflected in the “OA affordability” data.

Another obvious flaw is the assumption of continuous employment in the flat-owners’ lifetime, without any job loss or pay cuts, over a 30-year mortgage.

What is perhaps telling were the statements: “Workers and employers have to see the total wage package in totality because the CPF is workers’ money and this one per cent is part of the basic wage which will add to the total wage bill for companies. So it has to be fully taken into account in the wage settlements”, “Most of the employers I talked to understand the need to put back some into the CPF but at the same time they are concerned about cost increase so that’s been reflected in our feedback”, and “Both employers and workers should see the CPF increase as part of the total wage package, while balancing overall competitiveness”, as it may mean that employers may reduce wage restoration or increases to balance the one per cent CPF restoration.

The statement: “The National Wages Council (NWC) is expected to factor in the new CPF rate when it releases its recommendations by the middle of this year”, is even more telling, as it may hint that even the NWC’s recommendations may also make an adjustment for the CPF restoration.

Since workers’ real earnings fell by 3.2 and 1.2 per cent, in 2009 and 2008, respectively, I very much doubt that many workers who had their wages cut or frozen, would concur with the remarks like: Workers and union leaders too cheered the move”.

Leong Sze Hian


Headline picture from Straits Times.

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