Major CPF policy shift on the way

[greengiraffe]

Ongoing listening process to stay in the job... tough job really in a transitioning Singapore amidst transitioning global economic/geopolitical environment...

http://www.businesstimes.com.sg/premium/...y-20140818

PUBLISHED AUGUST 18, 2014
NATIONAL DAY RALLY
Major CPF policy shift on the way
Govt to allow partial withdrawal in lump sum for those 65 and above

BYLEE U-WEN
leeuwen@sph.com.sg @LeeUWenBT

application/pdf iCONNational Day Rally: The highlights
[SINGAPORE] The government plans to allow those aged 65 and above to withdraw a portion of their Central Provident Fund (CPF) savings in a lump sum.
The exact cap will be revealed at a later date, but Prime Minister Lee Hsien Loong said that the amount to be taken out "cannot be excessive". One possibility he mentioned was limiting it to 20 per cent of a member's total CPF funds.
Outlining this major policy shift for the country's compulsory savings scheme for workers, Mr Lee said that he made the decision after considering it for "a long time" and discussing it with his colleagues.
"We should allow people the option to take out part of their CPF savings in a lump sum, if they need to, subject to limits . . . it should only be during retirement, (that is) 65 and beyond," he said at the National Day Rally last night.
He stressed, however, that people must be fully aware of the trade-offs of making such a withdrawal, for this would mean having less in their accounts for the future and a smaller monthly payment.
Speaking at the Institute of Technical Education College Central campus in Ang Mo Kio, Mr Lee shared two views on the purpose of CPF funds. One is "I want to be assured of a steady stream of income in my old age" and the other is "I want a lump sum now because I need money urgently".
"My view is that the core purpose of the CPF should still be providing a steady stream of income in old age," said Mr Lee, adding that he understood why some had expressed the desire to take more money out of their accounts.
"They have been saving up over a lifetime of work. They want to use some of these savings to do something they have long wanted to do, such as go on a journey or a Haj, fulfil a lifetime dream or deal with some family emergency."
Some observers that BT spoke to noted that allowing a partial withdrawal would go some way towards appeasing those who want a portion of their CPF savings in cash.
"The policy is definitely going to meet some of the short-term frustrations of those people," said Nanyang Technological University assistant professor Walter Theseira. "But giving people money in hand isn't necessarily going to give them the ability to have adequate money for retirement."
Mr Lee also announced that the CPF Minimum Sum will be raised next year to S$161,000 for those turning 55 from July 1, 2015 to June 30, 2016. This is up from S$155,000 for CPF members turning 55 from July this year to next June.
The Minimum Sum was set at S$80,000 in 2003 and has been raised gradually each year to account for inflation. Those who cannot meet the Minimum Sum for their specific cohort can withdraw only S$5,000.
Mr Lee said that next year's increment would be the final one for now, and there was "no need" for any further major increases to the Minimum Sum.
"But we will still need to adjust the Minimum Sum from time to time, as incomes go up and our basic spending needs increase, and as we live longer and need to provide more money for a longer retirement."
Noting that changes to the CPF scheme are "very complicated", Mr Lee said that the Manpower Ministry would form an advisory panel to study the various issues, including a review of the Minimum Sum beyond 2015. Details of the panel will be announced soon.
He also said that the government would extend the Lease Buyback scheme to include four-room flats, which would cover more than half of all flat-owners in Singapore. The scheme, currently only open to three-room units or smaller, allows homeowners to sell part of their flat's lease back to the government for cash.
In another effort to help the low-income elderly, Mr Lee said that they would receive a new Silver Support bonus each year, starting from the time they turn 65. This is "something extra" to help them with their living expenses and cost of living, and is on top of other government and community support that they receive. More details of this bonus will be shared at next year's Budget.
Mr Lee said that while the CPF and home ownership schemes, the twin pillars of retirement adequacy, have worked well for the majority of Singaporeans, they should not be seen as "one-size-fits-all" policies.
"They offer different choices for people of different circumstances. We are improving them further, to better support lower-income elderly who need more help, and to make the schemes more flexible for all Singaporeans."

[specuvestor]

It would be a mistake if govt doesnt claw back CPF use in housing together with this 20% payout. People should remember the sad stories when we used to have 50% withdrawal allowed. Nothing new under the sun

As we discussed in the CPF thread, $161k is not an ideal minimum sum yet. With 20% withdrawal we probably need closer to $250k as min sum. But this is not politically acceptable until people can do their own maths.

NB reverse mortgage of HDB is long overdue... optimal way of solving the asset rich cash poor situation

[Temperament]

What is the truth or current picture now? How many have been able to reach the MS now(at 55) without pledging half of it with their property. Especially those who don't know how to invest in the market or worse, lost money in the market. If they use CPFIS and lost money, it is the worst case. How to retire? Sad!

Presuming more than 70% or 80% can meet their MS now, i don't think Pinky(Blue shirt now) or our G bother to talk so much on CPF. And the people won't cow father , cow mother so much either. You happy, i happy?

[specuvestor]

What is the truth or current picture now? How many have been able to reach the MS now(at 55) without pledging half of it with their property.

I think this is a common misconception. If you use CPF money to fund your house and pledge can be construed as part of your minimum sum, then even if you cannot use CPF to buy house, you will have the CPF minimum sum in cash in your CPF account

[Temperament]

Some one had said an ideal pension or retirement fund should be just that and nothing else. But nothing is so simple. Who is or are going to pay for Health care, Housing, etc....?

[Freenasi]

One thing is clear though, under pressure from public and social media, adjustment is made. As usual gov will only make small adjustment one at a time, and monitor the reactions. If the reaction is still bad, there
could be a more aggressive change coming soon.

[specuvestor]

Actually we can see the softer style of LHL, even when anecdotal evidence suggest that the CPF system is generally good and working, but needs tweaking... his dad would ask you to fly kite

But which is better for the long term vision of the country? What is the policy changes based on? Long term strategic interest or short term populist measures? Time will tell.

This is actually not that different from bowing to short term shareholders' demands than to focus on longer term business strategy. Personally I always quietly tell companies who ask for opinions, that they should seek opinions of long term vested interests rather than short term shareholders. There is a difference

[flinger]

I think maybe that is one way to look at it but I will disagree with you.

If a system is good and working well, why would you want an aggressive change? just because people who don't understand or making noise?

If that is the case, I wouldn't vote for them because they can be moved so easily.

I think after listening to lots of feedback, they get a common theme across and thus come up with a scheme that would have these specific circumstances.

One thing is clear though, under pressure from public and social media, adjustment is made. As usual gov will only make small adjustment one at a time, and monitor the reactions. If the reaction is still bad, there
could be a more aggressive change coming soon.

[wsreader]

If CPFB has continue to use the same formula to adjust MS, the inflation rate for 2014 has to hit about 2% in order for MS to be adjusted to $161k wef 1 Jul 2015.

According to singstat, the inflation rate for first half of 2014 was 1.7%. If the inflation rate for the 2nd half of 2014 continues to be subdued, then the MS was overly adjusted.

OTOH, if the inflation rate for the 2nd half 2014 goes up such that the inflation rate for the whole year is >2% (it was 2.4% for 2013), then the "from time to time" adjustment of MS can be expected to happen quite soon.

[egghead]

I think the Govt learnt something here.

When they announced raising the MS from $80k to $120k in 2003, they were thinking of adjusting it yearly after the CPI for the previous year becomes available. This however caused the perceived "shifting of goal posts" and "lack of transparency of MS calculation" problems yearly. Imagine paying the political costs 10 times for 1 policy.

Lesson learnt - there is no need to be absolutely correct in adjusting the MS for each cohort based on actual CPI. Roughly correct based on an estimated CPI is good enough.