# CPF Minimum sum: Retirement scheme, or money hoarding monster?

By SY Lee and Leong Sze Hian
We refer to the announcement by the Ministry of Manpower and the Central Provident Fund (CPF) board that the CPF Minimum Sum will be raised to \$155,000 from July 1. (press release)

It states that the Minimum Sum will be raised to \$155,000 for CPF members, up from \$148,000 for those turning 55 between July 1 last year and June 30 this year.
The ministry goes on to explain that the Minimum Sum is increased to account for inflation, in order to maintain its real value over time.

Consumer Price Index (CPI) for 2013 averaged 2.4 per cent. So why is it that the minimum sum is being increased by 4.7%?
Similarly, why is the Medisave Minimum Sum being increased by a whopping 7.4%, from \$40,500 to \$43,500?
With the increase of Minimum Sum and the Medisave Minimum Sum, one would need a total of \$198,500 in the CPF account at the age of 55 this July onwards before any money can be drawn out.
The evolution of how the CPF Minimum Sum is derived
On 25th August 1986, Mr Lee Yock Suan, Acting Minister for Labour announced the CPF Minimum Sum to be set aside at age 55 is \$30,000 for subsistence living after age 60 and  the scheme was implemented on 1st January 1987. He said in his speech,

The sum of \$30,000 is arrived at after careful study. This amount, set aside by a member at age 55 plus interest earned, will provide him with a regular income of about \$230 per month from age 60. The income will be available for about 20 years depending on the interest rate.
As inflation and rising standard of living will inevitably force up the cost of living, in time to come the \$230 per month will have to be adjusted so that it continues to provide sufficient income for subsistence living. The minimum sum of \$30,000 will also have to be adjusted accordingly. This figure will be reviewed every three to five years to ensure that the real value of \$30,000 is retained.

On 11th March 1993, Dr Lee Boon Yang, Minister for Labour said in parliament,

My Ministry will raise the Minimum Sum gradually to the target amount of \$80,000. We will make the adjustment over the next 10 years. For a start, the Minimum Sum will be raised to \$40,000 on 1st July 1995 and subsequently by \$5,000 a year until it reaches \$80,000 on 1st July 2003.
The schedule of the increase is as shown in Table 1, which I understand the Clerk of Parliament has already circulated to Members. I wish to remind the House that the increase in the Minimum Sum includes adjustments for inflation over the next 10 years.
In fact, if we do not revise the Minimum Sum Scheme but only carry on with the annual adjustments for inflation, by the year 2003, the Minimum Sum would be about \$46,000, ie, if we just carry on with our current practice of adjusting the Minimum Sum annually for inflation, and this assumes that our low rate of inflation of about 3% per annum remains for the next 10 years. Hence, the proposed adjustment to the Minimum Sum is not as dramatic as it sounds.

On 28th August 2003, The then Prime Minister, Goh Chok Tong made a speech on the CPF, “Returning the CPF” and touched on the issue of raising the Minimum Sum,

Raise CPF Minimum Sum to \$120,000
The CPF Minimum Sum gives CPF members a monthly payment after their retirement at age 62 a certain sum of money. It is the nest egg that will see them through their old age.
The current Minimum Sum is \$80,000. Half of this can be in a property pledge. So most CPF members have only \$40,000 in cash in the Minimum Sum. This will fund a monthly payment of only \$252 from age 62 to 80. It is a small fraction of most workers’ last drawn pay, and is not enough for their basic needs.
We will, therefore, increase the Minimum Sum from \$80,000 to \$120,000 in today’s dollars. As before, half of this can be in a property pledge. The other \$60,000 in cash will yield a monthly payment of \$378. This is still not much, but more adequate than \$252 presently.

The presented table for the minimum sum shows the projected values from 2003 to 2013, raising from \$80,000 to \$120,000 which has not been adjusted for inflation.

Double inflation in the adjustment of Minimum Sum
If you noticed, there has been a drastic change in how the minimum sum is derived and not to mention how it is justified. When the minimum scheme was first introduced, it was a minimum sum of \$30,000 adjusted for inflation over the years with no change to the initial minimum sum. Subsequently, it became a value that is increased each year with inflation taken into account and now we have the minimum sum increased every year and again adjusted for inflation! Is it not a double increase of what one is asked to save up to?
How much Minimum Sum for subsistence living

Since inflation was about 70% from 1986 to 2014 – the \$30,000 minimum sum adjusted for inflation is about \$51,000 today.
So, is the increased “standard of living” in Singapore to account for the difference of \$104,000 (\$155,000 minus \$51,000)?
Also, since the original objective of the minimum sum of \$30,000 in 1986 to provide a monthly income of \$230 from age 60 for 20 years, was to provide “subsistence” living – why has the minimum sum arguably evolved to become an all encompassing retirement income scheme which only an estimated 1 out of 8 Singaporeans are able to meet at age 55.
With \$155,000 now providing \$1,200 monthly for life – are we saying that \$1,200 is the level for “subsistence living”?
In view of the above, I think Parliament needs to have a debate as to whether the minimum sum should adhere to its original objective of providing “subsistence” living, or a retirement income scheme which only 1 in 8 Singaporeans can meet.
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