MPs offer ideas to improve CPF

[Temperament]

i also don't understand why people who are happy and contented with CPF need to join in this CPF forum. And makes people who are not so happy with some aspects of CPF suspect something is amiss with people who are happy with CPF.

Actually, I don't intend to rely on CPF fully for my retirement and I tend to treat CPF as a riskless reserve.

What I don't get are the illogical arguments I see. I also deliberately (as a social engineering exercise) posted many redundant comments along the lines of "but you can use CPF to do precisely what you accuse CPF of not allowing (higher returns)" and I've been generally ignored.

I think that this CPF Return issue is just a stalking horse for people to complain about the government or perhaps to avoid the real issue - that they really want the CPF money now.

"but you can use CPF to do precisely what you accuse CPF of not allowing (higher returns)"

i agree many can fall or have fallen into illogical arguement

On the other hand, i think only about 15 % of CPFIS investors make more than 2.5% return from OA. On many of those who have fallen into illogical arguement, most of them have lost or made less than 2.5% from their OA.
So these group of people wonder why our G can't gives more then 2.5% in OA? Why can't OA interest equal to SA OR RA?

i am in sympathy with them though i manage to belong to the 15% group. Actually i also think CPF scheme has more pros than cons only if you manage to be in the 15 % group of CPFIS.

In other words, people who are investment savvy and can plan for long term ROI, who don't have cash flow problem, have benefited from CPF in general.
But how many % of the people again?
Only about 15 %.

So can't our G think of something how to help the rest (85%?) do better.
i think that's the gist of discontentment in our CPF scheme.

[HitandRun]

Actually, I don't intend to rely on CPF fully for my retirement and I tend to treat CPF as a riskless reserve.

I think you hit the nail on the head and I would like to make some observations:

1. In fact, all the folks that I know do not solely rely on CPF fully upon retirement.
2. People who rely solely on CPF to fund their retirement, I suspect @ < 10%.
3. X years ago when one can fully withdraw 100% upon reaching 55, we hear stories of folks squandering away their money. However, I have never seen Govt giving a % of that but I suspect that number is < 10%.
4. Given points 1, 2 and 3, why does Govt have to then punish the rest of us when only the minority are irresponsible, tyranny of the minority?
5. Govt hit a watershed year in 1984, losing 12% of popular vote, due to Howe Yoon Chong's report on raising CPF withdrawal age to 60.
6. Govt thought that by changing it to a minimum sum, voters will feel less emotional and CPF becomes a non-issue.
7. However, due to the inflation in the past few years, minimum sum inflation also quite high.
8. Current response to CPF topic shows that a lot of emotions still at play.
9. Given point 4, why Govt wanna lose votes over something not so important ah...?

[Freenasi]

Pls do not forget that if non-citizen are exempt from contributing to cpf, they will be "cheaper" than us by abt 20%. Who do you think the local companies will prefer to hire?

Assuming that all unit labors are equivalent and that you can interchange people and jobs with perfect matches, yes I agree that the non-payment of CPF by foreign talents will disadvantage Singapore citizen workers, and 20% is a significant number.

I am happy to pay higher cost for everything, if the government is willing to step up and put everyone into the same system (i.e. CPF). Does that solve the issue? How about the following questions:

1. Why are they having the same interest?
2. Why are they allowed to take out the money when leaving?
3. Why are they matched the same 16% as citizens?
4. Why are their contributions tax deductible for employers
5. Why are they allowed to invest in the same non-CPF instruments as citizens?

How about just taxing all companies 20% extra for all foreigner headcount? I think that's a great idea that will completely level all playing fields between Singaporeans and foreigners. Actually something like 40% would be good as well because that accounts for the tax differences between some foreign jurisdictions and here - after all they are all having a great time sheltering under Singapore's low tax system and sucking high salaries while being here.

Everybody will pay; maids, childcare teachers, bangalas, whatever - you name it the government will tax it.

Then distribute all the proceeds into the CPF accounts of Singaporeans (citizens only, PR not included) as extra interest. Kill two birds with one stone - great solution?

Wouldn't a simple withholding tax do? Just retain x% of whatever that is withdrawn by PRs leaving Singapore, with x% being a function of purchasing power parity?

I believe if they want to, there s a lot the gov can do. Perhaps they are held back by 1) u-turning previous decisions may mean admitting mistake 2) cannot give in too much, as it may portrait a soft stance.

Policies and system should be reviewed regularly to better meet the objectives. There are loopholes that people, including our dearest PRs/FTs, have found.

[Caelitus]

So can't our G think of something how to help the rest (85%?) do better.
i think that's the gist of discontentment in our CPF scheme.

Raising financial literacy is key. Else no matter how much money you throw at the problem, it will not be solved. Launched in 2003, how many people out there have visited?

[Riderr2000]

I have quite a different take on this, with the caveat that I am looking at this from the point of view of hiring a white collar worker.

In my experience, CPF has never been a deterrent in hiring a Singaporean over a foreigner.

Lets say you are looking for a staff to support you - will you hire someone simply based on the salary? I would assume that, following the principle of value investing, you will look for the best resource you can find, at a reasonable price. I wont say cheapest price, because if its a capable person, he / she wont come cheap.

I run a small business in the professional services space, and when I hire, I hope to hire someone most suited for the job, at a wage that the business can justify.

A minor correction to the points raised in the two posts: To hire a foreign worker, you need to pay the foreign worker levy which can be around 10% of the salary. When you factor in the hassle of getting the work permit / e-pass, the savings you get vs a 16% CPF is not significant enough to entice me to hire a foreign worker over a Singaporean.

Frankly I prefer to hire a Singaporean because that person is more rooted to the country, and is easier to assimilate into the work culture. A huge consideration is that the foreigner is looking to use your offered employment as a stepping stone into a larger organization in Singapore, which is quite common, and is a far bigger consideration for me than the savings in CPF.

As an employer, I dont feel that the environment biases me towards foreigners. Perhaps the environment is different in other sectors. I do note, however, that we are operating in a global environment, and talent is highly mobile. Talented foreigners may be coming here to take our jobs, but talented Singaporeans are also going elsewhere to take others' jobs...

Pls do not forget that if non-citizen are exempt from contributing to cpf, they will be "cheaper" than us by abt 20%. Who do you think the local companies will prefer to hire?

Assuming that all unit labors are equivalent and that you can interchange people and jobs with perfect matches, yes I agree that the non-payment of CPF by foreign talents will disadvantage Singapore citizen workers, and 20% is a significant number.

I am happy to pay higher cost for everything, if the government is willing to step up and put everyone into the same system (i.e. CPF). Does that solve the issue? How about the following questions:

1. Why are they having the same interest?
2. Why are they allowed to take out the money when leaving?
3. Why are they matched the same 16% as citizens?
4. Why are their contributions tax deductible for employers
5. Why are they allowed to invest in the same non-CPF instruments as citizens?

How about just taxing all companies 20% extra for all foreigner headcount? I think that's a great idea that will completely level all playing fields between Singaporeans and foreigners. Actually something like 40% would be good as well because that accounts for the tax differences between some foreign jurisdictions and here - after all they are all having a great time sheltering under Singapore's low tax system and sucking high salaries while being here.

Everybody will pay; maids, childcare teachers, bangalas, whatever - you name it the government will tax it.

Then distribute all the proceeds into the CPF accounts of Singaporeans (citizens only, PR not included) as extra interest. Kill two birds with one stone - great solution?

[yawnyawn]

i also don't understand why people who are happy and contented with CPF need to join in this CPF forum. And makes people who are not so happy with some aspects of CPF suspect something is amiss with people who are happy with CPF.

Actually, I don't intend to rely on CPF fully for my retirement and I tend to treat CPF as a riskless reserve.

What I don't get are the illogical arguments I see. I also deliberately (as a social engineering exercise) posted many redundant comments along the lines of "but you can use CPF to do precisely what you accuse CPF of not allowing (higher returns)" and I've been generally ignored.

I think that this CPF Return issue is just a stalking horse for people to complain about the government or perhaps to avoid the real issue - that they really want the CPF money now.

"but you can use CPF to do precisely what you accuse CPF of not allowing (higher returns)"

i agree many can fall or have fallen into illogical arguement

On the other hand, i think only about 15 % of CPFIS investors make more than 2.5% return from OA. On many of those who have fallen into illogical arguement, most of them have lost or made less than 2.5% from their OA.
So these group of people wonder why our G can't gives more then 2.5% in OA? Why can't OA interest equal to SA OR RA?

i am in sympathy with them though i manage to belong to the 15% group. Actually i also think CPF scheme has more pros than cons only if you manage to be in the 15 % group of CPFIS.

In other words, people who are investment savvy and can plan for long term ROI, who don't have cash flow problem, have benefited from CPF in general.
But how many % of the people again?
Only about 15 %.

So can't our G think of something how to help the rest (85%?) do better.
i think that's the gist of discontentment in our CPF scheme.

To go more in-depth, i managed to browse through CPF Iinvestment Scheme (CPFIS) profits and losses for FY2011.
This is the latest FY that the CPF board provided more in depth analysis of the P&L.

To summarise,
About 399,700 members (45% of total CPFIS-OA investors) made realised losses.
About 152,100 members (17% of the total CPFIS-OA investors in FY 2011) made net realised profits > 2.5%.
About 344,300 members made realised profits =/< than 2.5%.
The total number of CPFIS-OA investors who realised profits or losses in FY 2011 increased slightly to 896,100 from 894,300 in FY 2010

I also noted that under the CPFIS, number of members who are invested in insurance products is the highest at 406,900, with equities and unit trusts coming in 2nd and 3rd at 228,100 and 151,500 respectively.

I believe the reason behind the large number of member having realised lossess it is due to them selling out their insurance products and unit trusts.
From the p&l statement, "the amount invested in insurance products also saw a decrease of about $905.9 million (-5.6 %) and $477.3 million (-8.2%) under CPFIS-OA and CPFIS-SA respectively. The amount invested in unit trusts under CPFIS-OA and CPFIS-SA decreased by about $307.6 million (-6.7%) and $128.0 million (-9.0%) respectively."

CPF members that had invested in Gold had also outperformed but they are a minority with cost of investment at $19m.(figure 1)
Members investments' in equities and unit trusts are $4.3b and $4.4b respectively as compared to $15.3b for insurance products.(figure 2)

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To conclude, i think the CPF investors in general are not that investment-savvy to put most of their money into insurance products. Insurance products like endowments, annuities and ILPs have high expenses and are for the long-term, 10 years min for the compounding effect to work out. There was little take up rate in investment in ETFs which i felt was quite surprising.

[yawnyawn]

I decide to quote a title of PM Lee's speech a few years back, "An inclusive society which leaves no man behind. It is one where everybody benefits from the progress of the nation."

My personal thoughts-
it is paramount to help the less well off as Singapore moves forward. It is good if the Govt ponders over offering a higher x% rate of return for the first $Y amount in OA+SA, preferably to the SA since SA is used for retirement planning.

Reasons
- Allows the less well-off/financial illiterate citizens to build up their retirement nest quicker. IIRC, most citizens failed to meet the minimum sum at 55 years.
- A govt that is caring to its citizens, good story to tell in the next election
- with inflation around 3-4% p.a., a return of 3.5%/5% on first $60k in OA/SA seems too paltry.

[Temperament]

i think STI ETF is just liberalised for CPFIS not long ago.

I decide to quote a title of PM Lee's speech a few years back, "An inclusive society which leaves no man behind. It is one where everybody benefits from the progress of the nation."

Alas as with all Gs and things in this world,

" 相佛容易刻佛難" or "看花容易
繡 花 難."
Or something worse than the above.
We all can't escape the perpetual struggle of "The Spirit is Willing but The Flesh is Weak"
If only our Spirits triumph most of the times.
Shalom.

[CityFarmer]

I decide to quote a title of PM Lee's speech a few years back, "An inclusive society which leaves no man behind. It is one where everybody benefits from the progress of the nation."

My personal thoughts-
it is paramount to help the less well off as Singapore moves forward. It is good if the Govt ponders over offering a higher x% rate of return for the first $Y amount in OA+SA, preferably to the SA since SA is used for retirement planning.

Reasons
- Allows the less well-off/financial illiterate citizens to build up their retirement nest quicker. IIRC, most citizens failed to meet the minimum sum at 55 years.
- A govt that is caring to its citizens, good story to tell in the next election
- with inflation around 3-4% p.a., a return of 3.5%/5% on first $60k in OA/SA seems too paltry.

A similar way of extra % for less well-off is the topping up of CPF fund, which have been done regularly

I do agree the return is too low for inflation. I don't have solution, but taking it as a real issue to be solved.

[CityFarmer]

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.

Prime Minister Lee Hsien Loong has announced that the Government will study how to improve the CPF LIFE annuity scheme’s payouts to keep pace with inflation. This is welcome, given Singaporeans’ greater life expectancy, particularly among women. It is especially important for lower-income workers, for whom the CPF may be their only retirement fund. Similarly welcome are the committed support measures for MediShield Life that seek to keep healthcare insurance affordable for Singaporeans, and the Pioneer Generation Package, which provides financial support for our pioneer generation for life.

More fundamentally, how do we help Singaporeans maintain a healthy balance in their CPF for retirement? A simple answer is to raise incomes, especially for the lower-skilled and lower-income workers. This can be done by expanding the use of CPF monies for education purposes to upgrade workers’ skills and improve their employability.

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

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.

We need to effectively educate Singaporeans to understand the CPF and its role in personal financial management and retirement planning. Except for the lowest-income (who need targeted financial assistance), most Singaporeans should recognise the CPF as merely one component of retirement financing.

At the individual level, financial literacy and good money management matter.

Singaporeans must utilise the CPF Investment Scheme (CPFIS) more prudently. The CPF currently offers a risk-free annual return of 2.5 to 4 per cent, meaning the opportunity cost of using CPF funds to invest in other financial instruments is very high.

CPFIS investments have to beat the CPF’s 2.5 to 4 per cent return, after transaction costs, to make the investment worthwhile. While some are able to make sound investments that beat the fund’s returns, this may not be true for the majority, certainly not on a long-term basis.

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. Notwithstanding the commendable efforts by the Government through online platforms such as Factually, MoneySENSE and CPF Board’s Member education schemes (IM$avvy etc), more can be done in public education.

For the older generation, it would be useful to adopt the communication strategy used in explaining the Pioneer Generation Package (e.g. spreading the message using dialects).

For young working adults, digital delivery of messages — through social media, mobile apps and gamification would be more effective. Greater efforts have to be invested in tailoring messages for different age groups. The recent modification of the CPF website, including FAQs on its homepage, is a commendable first step.

At the macro level, the Government and policymakers need to fulfil their end of the bargain, through effective and prudent policy that generates economic growth and keeps inflation in check.

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