MPs offer ideas to improve CPF

[kagemusha]

I think the root of the issue is the government do not trust its people to be able to build retirement fund by themselves.
To a certain extent, this is true. How many times do we see in the news, old uncles and old aunties kena con into giving up their monies for crooks.
What happen to these folks after that? They may not have retirement fund to tide them through the rest of their life.

Many of us will have to be considered savvy enough to build our own nest eggs. But for every single one of us, there could be thousands out there who don't.
Taking care of the masses is what government do. So while I know I am able to make better use of my own money, unfortunately, I don't belong to the majority.

While that being said, the demographics in Singapore is changing. More people are now savvy enough to manage their own money, but bear in mind, even savvy folks can lose money.
Do we then want to pay higher taxes for higher social security safety net? in anticipation for more needy folks?
The money has to come from somewhere, you know.

I do not ask for much, just an increase in interest rate to counter inflation.
And do not keep increasing the minimum amount.
If really not enough money, just move our asses out of Sg to other countries with lower cost of living as per our dear Mr KBW said, with our small change....

[sgd]

1 of my neighbors whom I hardly know I met in the lift today, he seemed pre-occupied we greet and the first thing that comes out from his mouth is the CPF issue we talk a little on the way down I ask what's wrong? he tells me 'its gone already' I said 'how can it be'? his reply 'why else would they keep changing the rules'?

I think to many people it matters little to them how good we balance out our budget but on the other hand they see their money locked away time and again not all will want to invest and if some really need the money for medical reasons what then? is the government being very selfish here? if in the early years they were helped by using cpf as seed money to grow and build their current investments up till now, so now that they don't need it they should return it to people. Wouldn't it go to reducing the liabilities on their balance sheets?

Another view of cpf


[Image: smell-your-cpf.jpg]

http://www.theonlinecitizen.com/2014/05/...g-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.

[thefarside]

How about GIC? I suppose most of the Government Securities fund will be diverted to GIC for management but I doubt that forms all the investment fund of GIC.

Cash realised from land sales flow into GIC funding. I believe the assets are held at cost, meaning the historical cost of capital injected into GIC. The actual end value of assets held at GIC is likely to be higher, if you consider growth etc. However the GIC assets are not completely liquid, so there exists a need to hold a cash surplus at MoF to fund ongoing expenditure taking into consideration also seasonality and risks to tax revenue profiles.

MAS reserves are separate - they are a function of the capital account surpluses run by the Singapore nation as a whole.

tanjm has pointed out the reason for the existence the special government securities. Those who think there are shenanigans involved should look at his explanation. The question of whether the government should invest on behalf of CPF, and therefore retaining part of the investment returns, is a separate issue.

[cfa]

Many prefer to invest by themselves to achieve high returns, otherwise inflation will eat into the purchasing power of the money.
Is inflation rate at 2.5 to 4 % annually ?

[Caelitus]

Another view of cpf

http://www.theonlinecitizen.com/2014/05/...g-monster/

By SY Lee and Leong Sze Hian

....

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?

....

Two points to clarify which I thought Mr Leong Sze Hian should step forth to assuage the 'fears' of the general population instead of pursuing that track.

I thought the Minimum Sum is increasing faster than the inflation rate because it needs to catch up to the original target of S$120,000 (in 2003 dollars). When the minimum sum was S$80,000 back then in 2003, if it had just kept pace with inflation, it would have maintained parity with S$80,000.

Next, with medical advancements, the cost of medical care will increase as more sophisticated procedures/medications come on-line. Keeping pace with inflation would not be sufficient.

We will also have to factor in that the life expectancy of the Singaporean is increasing with better nutrition and access to medical care.

If we take the above 3 points, we will understand the need to work longer (hence the gradual increase in retirement age), stay healthy, and to make our monies work for us. I like the idea of forced savings as it ensures that the less-disciplined amongst us do not tax those who have squirreled away monies.

[fat al]

So while I know I am able to make better use of my own money, unfortunately, I don't belong to the majority.

Should it be "fortunately"?

[thefarside]

Have no one there thought that the government is taking actually taking a fairly "extremist" position on minimum sum, from a survival probability perspective? In addition, the "self reliance" thing is taken entirely too far down the road?

The following is from Singstat

Age range / number / ratio of each age group to 60-64
60-64 214k
65-69 129k (60%)
70-74 104k (49%)
75-79 68k (32%)
80-84 44k (21%)
85+ 34k (16%)

For those who managed to get to 65 years old (start of minimum sum payout for later generations), you have less than 1/5 chance of outliving your minimum sum payout period. This group as of now, constitutes < 1% of the resident population. Less than 2% in terms of working population. Is it a good idea to force a minimum sum that can payout $1k a month until 85 for the entire working population so that they don't have to do anything even to help the last 1%? What is all this talk about rainy day reserves about?

Also, is it fair to force everyone into CPF Life just to mitigate the tail risk of this last 1%?

How about an aging population? Just for reference, the government has published a paper in 2012. In that paper they have quoted an "elderly population of 900,000" by 2030 - which I assume to be older than 65. Applying the same ratio, those aged 85+ would number about 90,000 (c. 10% of overall people classified as 65+, c 5% of total working population in 2030 which is 1.9 mil people ). A $500 (2013$ equivalent) per month state pension for this group of people (85+), escalated @ 5% inflation out to 2030, would cost c. S$1.4 bil p.a in 2030.

If you widen it to 80+, it is S$2.9 bil
If you widen it to 75+, it is S$5.4 bil

Numbers are gross without some means testing which could maybe reduce the amount by 20%, if you assume the top 20% households will not need this. Yes at some point the thing becomes quite costly and trade offs start to become more material. But there are better policy options that I think the government has chose not to use, in the name of not compromising on the nation's ability to balance the budget and save based on just ongoing revenue / expenditure.

[yeokiwi]

For those who managed to get to 65 years old (start of minimum sum payout for later generations), you have less than 1/5 chance of outliving your minimum sum payout period.

I think the way you calculate the chance is a bit strange..

Assuming that the average future expectancy of the nation is 85 years old, we will need most of them to hit beyond 85 in order to hit an average of 85.

Given a cohort of around 50,000 per age group. We should expect to see more than half to hit beyond 85.
Therefore, at least 25000 of the same age cohort will see 85 and beyond.

However, along the way, some people die early(one toddler death will need multiple oldies to pull up the average) and therefore, when the left over group hit the age 65, their probability of going beyond 85 is even higher.
So, if you can hit 65, technically, you will have more more than 50-60% probability of going beyond 85?

[tanjm]

Have no one there thought that the government is taking actually taking a fairly "extremist" position on minimum sum, from a survival probability perspective? In addition, the "self reliance" thing is taken entirely too far down the road?

The following is from Singstat

Age range / number / ratio of each age group to 60-64
60-64 214k
65-69 129k (60%)
70-74 104k (49%)
75-79 68k (32%)
80-84 44k (21%)
85+ 34k (16%)

For those who managed to get to 65 years old (start of minimum sum payout for later generations), you have less than 1/5 chance of outliving your minimum sum payout period.

Your calculations are wrong. These numbers are birth to death statistics. If you have a 50% chance of reaching XX at birth, then once you reach 65, you will be part of a population who's average lifespan is going to be greater than XX. You need to use conditional probability (please google it, I probably will flub the explanation).

According to http://www.singstat.gov.sg/publications/...e08-13.pdf

your life expectancy at birth for the 2003 cohort is 82.5 (chart 1).

But your life expectancy when you reach 65 for the 2003 cohort is 20.6 years (chart 2), which means you have a good chance (not 50% but substantial - not likely to be gaussian distributed) of living more than 20.6 years if you survive to 65.

If I use your numbers (and if I remember my JC math correctly), I get an average lifespan at birth somewhere within the 65-69 age group. But the conditional probabality that I would live past 85 given that I've hit 65 is around Prob(live past 85 at birth)/Prob(deceased by 65) = 31.8%. This number is lower than the SingStat number, but the SingStat number is for people born in 2003.

If you take your numbers from a much earlier cohort, I'd expect the lower numbers. If you did, then 31% seems like a substantial number to me even for that generation.

[tanjm]

This link, http://www.singstat.gov.sg/statistics/vi...Birth.html

Shows the life expectancy, at birth, for people born in 1957 to be about slightly over 60, and for people born in 1970 to be about 66. So I'm guessing your numbers are from around 1970 cohort or slightly lower.