Amendments to the CPF Act – did you know?

Leong Sze Hian

I refer to media reports (“Second chance to join CPF Life”, ST, Aug 17) about the amendments to the CPF Act passed in Parliament in August.

CPF savings left unclaimed for six months upon the CPF member’s death will be moved into the Ordinary Account (OA), which pays a lower interest than that for the Special (SA), Medisave (MA) and Retirement (RA) Accounts.

I am somewhat puzzled as to the rationale to pay the OA’s lower 2.5 per cent interest, instead of the higher 5 per cent on the first $60,000 and 4 per cent on the balance, in the RA and MA, of CPF accounts which remain unclaimed.

Why penalize the claimant by paying a lower interest, as it is perhaps already bad enough, that claimants for possibly reasons beyond their control and of no fault of theirs, may in a sense, already be disadvantaged by the delayed claim?

For example, if the deceased CPF account has $200,000, the difference in interest between the OA and RA/MA interest rates, is $25,449, for seven years.

I would like to suggest that the CPF Board reconsider this policy change, as the amount of unclaimed monies is only about $2.4 million a year. This would translate into interest savings of only about $48,000 a year for the CPF Board, assuming an average RA/MA rate of 4.5 per cent on unclaimed monies.

In contrast, every dollar of interest lost due to the reduced interest, may make a difference for nominees who may be widows and orphans from lower-income families.

Auto-inclusion into the CPF Life scheme for those who have less than $40,000 at age 55, but at least $60,000 at age 65, may mean that lower income retirees may have lower monthly CPF payouts at age 65, because the CPF Life annuity monthly payout may be lower than the original CPF Minimum Sum payout.

Based on the projected CPF RA interest of 4 per cent and 5 per cent on the first $60,000, a person with $36,835 or more at age 55, may hit at least $60,000 at age 65.

For those who continue to work and have CPF contributions after age 55 plus the accrued interest, many more of those with less than $36,835 at 55, may also hit the $60,000 cut-off point at age 65.

For example, a person with $25,000 at age 55, and monthly CPF contribution of $122, will grow to $60,000 at age 65.

The amendment in the CPF Act to include CPF contributions after age 55, into the CPF Life scheme, for those who were unable to meet the prevailing Minimum Sum (currently $123,000) at age 55, may mean that less CPF monies can be withdrawn from 55 to 65, and also less bequest to beneficiaries on death, depending on which CPF Life plan is chosen.

As to the option to pay CPF death proceeds to nominees’ CPF accounts, instead of as cash, it may cause some hardship to nominees (beneficiaries), if they have an urgent need for a lump sum of money, such as for a medical emergency, as withdrawals from the nominee’s CPF account are subject to the CPF rules, which are subject to change in the future.

The amendments to the CPF Act, may in totality signal a significant departure from a fundamental principle – that CPF members should be allowed to withdraw at least a minimum monthly payout to enable the member to survive. Historically, and up to now, a minimum monthly payout adjusted for inflation, is given to members, regardless of how little one has in his or her CPF at the draw-down starting age.

However, with CPF Life, the monthly life annuity may be simply pegged to the CPF balance one has, without any consideration as to how little the monthly payout may be.

To illustrate this with an example, $60,000 in CPF at age 65, may pay a monthly life annuity of about $330, when the “minimum monthly payout to enable the member to survive” may be say $850 in 10 years’ time. So, instead of withdrawing $850 monthly for about 7 years, one would get about $330 for as long as one lives under CPF Life. But, how does one survive on just $330 a month?