MPs offer ideas to improve CPF

[HitandRun]

Is it time for a carrot rather than a stick approach?

For the first $200k of your CPF savings (OA+SA+MS), Govt pays 5%. Any savings beyond $200k gets 0%. Member free to invest any balance >200k in any investment products without restriction, including gold, ETFs, stocks, property etc. Can or not?

One other thing, if Govt wishes to increase minimum sum => all increases entitled to the 5% guaranteed return.

[funman168]

I prefer the >200k to be still collecting 2.5%... Sometimes it is gd to collect risk free 2.5%

Is it time for a carrot rather than a stick approach?

For the first $200k of your CPF savings (OA+SA+MS), Govt pays 5%. Any savings beyond $200k gets 0%. Member free to invest any balance >200k in any investment products without restriction, including gold, ETFs, stocks, property etc. Can or not?

One other thing, if Govt wishes to increase minimum sum => all increases entitled to the 5% guaranteed return.

[specuvestor]

I chose to post the article here, as additional input to the discussion. An article from a financial professional (former portfolio manager and financial educator now), and a Singaporean (a stakeholder).

CPF just one part of retirement financing

Much has been written on the Central Provident Fund (CPF). With rising costs of living, Singaporeans need reassurance that retirement security is not a pipe dream.

<snip>

RAISING INCOMES THROUGH EDUCATION, TRAINING

At present, the CPF Education Scheme allows full-time students to use their CPF funds or that of their parents or spouses to finance tertiary education at approved institutions, subject to withdrawal limits.

But part-time students are excluded from the scheme and the Government has reasoned that part-time courses are generally tailored for working adults who are in a better position to pay their tuition fees as they have incomes of their own.

“If they do not have sufficient savings for a part-time course, they can defer it and build up enough personal savings to pay for their course fees later,” says the CPF Board’s website. “Part-time students can therefore plan ahead with greater flexibility to ensure that they can meet the tuition fees.”

The Government has also reasoned that subsidies and financial assistance are already available for part-time students. This is true, but the fact is that full-time students similarly benefit from these. So the playing field remains unlevel and stacked against part-time students, who already have the additional burden of work commitments. ​This seems to run counter to the Government’s rhetoric about the many pathways to success and the need for workers to constantly upgrade themselves.

Many part-time students are adult learners who did not have the chance for full-time tertiary education when younger. We should increase education financing options for them by allowing them to tap into their CPF monies to pay for their studies.

Taking the argument further, the Government should consider allowing CPF monies to be used for skills-upgrading courses under the Workforce Development Authority’s Workforce Skills Qualifications Framework. Existing CPF withdrawal limits and a requirement to have courses signed off by the workers’ (part-time student) employer can prevent abuse and ensure that the courses financed are relevant.

A more inclusive CPF Education Scheme can help more Singaporeans to upgrade skills and improve their chances of securing higher-paying jobs so that they can enjoy greater CPF savings for retirement.

IMPROVING FINANCIAL LITERACY, COMMUNICATION

<snip>

In fact, the less-than-impressive results of CPFIS-Ordinary Account investments from 2004 to 2013 suggest that most CPFIS investors are unable to beat the CPF’s returns and are better off keeping their CPF funds untouched.

From a total-portfolio perspective, it may be useful to view the CPF as one’s “risk-free” investment pot. A larger CPF sum subsequently translates into larger CPF LIFE annuity payouts, which continue for the rest of one’s life — a good guard against longevity risk.

It is much better to use funds with lower opportunity costs (cash or bank deposits that pay significantly less than the CPF) to invest. But before investing, one needs good financial education to make investments that are appropriate for one’s financial standing and goals. For example, younger individuals have more time to ride the market’s ups and downs before reaching retirement, and a greater proportion could be allocated to riskier instruments such as equities that usually give greater returns over the long-term. Older individuals have a shorter investment horizon and it may be wiser to allocate more to lower-risk financial instruments such as government bonds.

For an important and complex scheme such as the CPF, timely and clear communication is key.

<Snip>

The aim should be to help the majority of Singaporeans to retire securely. For those who may fall by the wayside, the Government, together with the community, can work together to help them.

ABOUT THE AUTHOR:

James Chia is the co-founder of Innervative, a financial education firm. A Singaporean, he was previously a portfolio manager.

http://www.todayonline.com/singapore/cpf...epage=true

Pretty good article CF posted, but few comments:

1) People have to agree that CPF is for retirement, other objectives from property to study to investment is ANCILLARY.

So it is prudent that if you use CPF for ancillary reasons, you have to top back up the CPF to where it should be. That is again where people don't understand why they have to pay themselves back 2.5/4% OPPORTUNITY cost because they don't understand the first principle in the first place. CPF is not a saving deposit earning 2.5/4%. It is a retirement fund.

So as per the article's good suggestions, you should be able to use it to fund studies and upgrading, BUT YOU HAVE TO TOP IT BACK is where the author is missing.

2) As per what we have been highlighting and yawnyawn posted, despite all the noise, people in aggregate can't even outperform the miserable 2.5% return. As a fund manager it would be wise to disappear into the shadow that you can't beat a deposit rate and hope no one notices. But popular opinions is all about who is loudest and captures public imagination/ ignorance rather than truths. That is why both sides of the story is always better than one-sided. Government seriously need to improve on their communications. The days of only the Elites know better is over.

3) From a total portfolio perspective I agree with the author that we should just treat CPF as a bond allocation. Equity allocation goes to SRS or our own ILP or investments. Not to mention most people's net worth is in property. So the issue is more than just the "bond return" but how to solve the cash poor situation from massive overweight in properties when one retires?

[sgd]

Can I suggest very simple.

no changes anymore to cpf either the retirement age or dda or minimum sum or changes to interest rates. - so no more excuses

And every 5 years return 10% of outstanding balance in OA to the people it's our money after all. Allow people to logon with singpass create a transfer button there allow people to click and transfer money to their bank account. SA leave it until 55 retirement that's fine.

1) if people see their carrot dangling every 5 years it will be an incentive to work harder and longer and contribute to cpf. It's like getting a fat dividend every 5 years.

2) it will convince serial skeptics like me that the money is there.

[specuvestor]

^^ As per what I highlighted:
http://www.valuebuddies.com/thread-5216-...l#pid84504

and the article CityFarmer posted:
"Singaporeans’ concern over the rising Minimum Sum requirement could be due to confusion over real and nominal dollar amounts. Inflation erodes our purchasing power; what S$1 can buy in the future would be less than what S$1 buys today.

To meet rising future prices, we must set aside more of current dollars so that this can be enough for retirement. In fact, retirement adequacy for most of us requires much more money. The Minimum Sum, as its name implies, is simply a base"

The hard truth is that the MS is barely enough for retirement. Only way is for MS to go UP. I am not a politician so I can say the truth point-blank

And many people don't understand and keep saying they want their money back to know the money is there. Certainly in VB we had discussed many threads on this: you do not need to be afraid of not getting your CPF in SGD back. MAS can print the SGD for you. That is not the issue. Issue is what the SGD is worth ie purchasing power.

[Life is a game]

^^ As per what I highlighted:

and the article CityFarmer posted:
"Singaporeans’ concern over the rising Minimum Sum requirement could be due to confusion over real and nominal dollar amounts. Inflation erodes our purchasing power; what S$1 can buy in the future would be less than what S$1 buys today.

To meet rising future prices, we must set aside more of current dollars so that this can be enough for retirement. In fact, retirement adequacy for most of us requires much more money. The Minimum Sum, as its name implies, is simply a base"

The hard truth is that the MS is barely enough for retirement. I am not a politician so I can say the truth point-blank

And many people don't understand and keep saying they want their money back to know the money is there. Certainly in VB we had discussed many threads on this: you do not need to be afraid of getting your CPF in SGD back. MAS can print the SGD for you. That is not the issue. Issue is what the SGD is worth ie purchasing power.

Agreed. Simple and to the point. But too bad not many ppl will understand this. Which is why financial literacy is so important.

😇天堂与地狱😈就在当下

[CY09]

I totally agree with specuvestor's view where we should treat our CPF funds as bonds allocation. This is similar to the strategy I had suggested previously in Nov 2013.

I am just curious as Singapore investors, is there really a need to invest on bond or bond funds?

Assuming you are an investor who is an employee, part of your wealth is locked up at CPF and CPF is like a bond fund which guarantees you a min interest rate (assuming you dun use the SA to invest) until 65 and beyond. Thus this thinking has shaped my investment thinking, where most of my savings (not in CPF) goes into equities and the remainder acts as a war chest in times of downturns.

Secondly for the CPF MS issue; for the young generation, many of us are actually worried about being unable to meet it at age 55. Why is this so? The current MS amount we have to meet is $198,500 (see post 153 why is this so). Factoring in 30 years of inflation at 3%, p.a, the amount comes out to a staggering $454,153.40 at our age 55. I have done similar projections on scenario analysis and have concluded approx 60% of my cohort* will only meet this magical number w/o the need to pledge our property. This subsequently spurred me to ask if CPF can consider raising the i/r for the first 40k to aid ppl reaching the magical MS number in the future. This is similar to what hit&run has suggested.

The reason why i would prefer the OA i/r to remain status quo is because it is tied to the housing loan and increasing the OA's i/r have the detrimental effect of hurting home ownership affordability. Unless the CPF housing loan's interest is de-linked from the OA rates.

*Do note my sample size was on my friends' and therefore can be biased

[Temperament]

I am not sure what you mean. By being here, most probably i think you have already done better than 2.5%. Or else you will be somewhere watching TV or some other activity.

I prefer the >200k to be still collecting 2.5%... Sometimes it is gd to collect risk free 2.5%

Is it time for a carrot rather than a stick approach?

For the first $200k of your CPF savings (OA+SA+MS), Govt pays 5%. Any savings beyond $200k gets 0%. Member free to invest any balance >200k in any investment products without restriction, including gold, ETFs, stocks, property etc. Can or not?

One other thing, if Govt wishes to increase minimum sum => all increases entitled to the 5% guaranteed return.

[specuvestor]

Agree with CY09 and I quote myself:
"The truth is that the MS will be increased INCREMENTALLY so that EVENTUALLY it will be enough. Guess what would be the backlash if MS was announced to be $200k back in 1980. Anyone who has done a formal financial planning would know that the amount needed to save so that you can have a retirement nest egg that would support a 70% last drawn pay is quite "mortifying" "

[yeokiwi]

Secondly for the CPF MS issue; for the young generation, many of us are actually worried about being unable to meet it at age 55. Why is this so? The current MS amount we have to meet is $198,500 (see post 153 why is this so). Factoring in 30 years of inflation at 3%, p.a, the amount comes out to a staggering $454,153.40 at our age 55. I have done similar projections on scenario analysis and have concluded approx 60% of my cohort* will only meet this magical number w/o the need to pledge our property. This subsequently spurred me to ask if CPF can consider raising the i/r for the first 40k to aid ppl reaching the magical MS number in the future. This is similar to what hit&run has suggested.

Age 55?? The retirement age should be around 65-70 for the current and future generation with 15-20 years in retirement. Therefore, there are 10-15 more years to contribute to your retirement fund.
Age 55 is the age that you can withdraw excess amount of $$$ from CPF if you have it. The contribution does not stop at that age.
With another 10 years of compounding starting at 55, the gap to the minimum sum will shrunk significantly.