CPF

[CY09]

Thanks egghead. So in a way, for every 6.5%, we get 3.6 with govt takes 2.9 as 'fee' for taking investment risk, channelling 50% of 2.9 into our budget as revenue to spend, can we term this 50% as tax?

Did I miss out anything?

Yes, you did.

We put our money into CPF, tax free, to get 3.6% (your calculations). We get to use all of our own money plus 3.6% guaranteed and compounded; plus allowing us to withdraw anytime for property, investment, hospitalization, etc. To meet these requirements, CPF board places most of the money on SSGS. How else to guarantee? GIC/Temasek not going to guarantee. GIC/Temasek can get money from the market much cheaper than what CPF is asking.

As fellow VBuddy specuvestor mentioned before, it will be different if CPF members are willing to accept that their accounts will go up and down. But you know too well the NIMBY mentality don't you? Do you want to be the one to be withdrawing when you turn 55 and the return is -20% for that year? If not, then how? No deal again.

In short, we cannot demand for the 2.9% (much less claiming that is your tax payment) as CPF member because that is GIC's return for taking risk. The good thing is that these returns are used to supplement the annual budget which benefits lower/middle income Singaporeans more than the higher income; and also to grow the asset to generate larger return.

Hi Egghead,

Good point you have pointed out on the negative returns. If so, one way is to smooth the returns over the long term. Using 6.5% p.a as benchmark, it is possible for the govt to "promise" returns in the range of 4.5-5.0% returns aka providing a weighted average return of 4.75%. Insurers have done similar methods, where they make approx 7% from proceeds by investing and subsequently return policyholders in the range of 3.1-4.75% (past track records). However, in the process of doing so, insurers make billions out of it. I am hoping the govt can adopt a similar method albeit at lower or even no profits.

How then can we use this weighted avg return increase to benefit the low/middle income more than high income? Well for one, we can increase the additional 1% to 2% for the first $60,000 of the combined balances. The second way is instead of bumping up the weighted avg from 3.6% to 4.75%, excess investment proceeds are used to top up CPF balances of low income workers straight away instead of promising higher returns.

With lesser investment channeled to the budget as a result, one way to offset is to increase taxes in the sin category or slightly higher income taxes for the rich.

This solution provides allows Singaporeans to know they are able to meet the min sum adequately, thus alleviating the current problem. Increasing the annual returns by 1% is a lot, especially when compounding it over 40 years

[egghead]

Uh... Can just Google for the differences between pledge and mortgage.

You would rather Google than ask CPF which holds your money? I'll leave that to you.

[egghead]

If so, one way is to smooth the returns over the long term. Using 6.5% p.a as benchmark, it is possible for the govt to "promise" returns in the range of 4.5-5.0% returns aka providing a weighted average return of 4.75%. Insurers have done similar methods, where they make approx 7% from proceeds by investing and subsequently return policyholders in the range of 3.1-4.75% (past track records). However, in the process of doing so, insurers make billions out of it. I am hoping the govt can adopt a similar method albeit at lower or even no profits.

How then can we use this weighted avg return increase to benefit the low/middle income more than high income? Well for one, we can increase the additional 1% to 2% for the first $60,000 of the combined balances. The second way is instead of bumping up the weighted avg from 3.6% to 4.75%, excess investment proceeds are used to top up CPF balances of low income workers straight away instead of promising higher returns.

With lesser investment channeled to the budget as a result, one way to offset is to increase taxes in the sin category or slightly higher income taxes for the rich.

This solution provides allows Singaporeans to know they are able to meet the min sum adequately, thus alleviating the current problem. Increasing the annual returns by 1% is a lot, especially when compounding it over 40 years

I'm sure all your ideas can be considered. If insurance can really solve this problem, why didn't NTUC volunteer to take it up? I suspect not so easy.

Anyway, for all you know, Govt is crunching the numbers now so that PM can unveil the changes to CPF come 9 Aug.

[piggo]

piggo, Zelphon

Could you write to CPF and ask them if pledging your property for the minimum sum means you are mortgaging your property? I don't want to do their job.

Already did, they need 48 hours to reply.

I'm asking them what's the difference between pledging my property to make up the minimum sum VS mortgaging my house for similar top up to savings to pay premiums for one of those regular savings/insurance/investment plans.

Just a random thought, it's nice to be a fund manager to have guaranteed inflow of funds to manage + long lock in periods.

So in a way, for every 6.5%, we get 3.6 with govt takes 2.9 as 'fee' for taking investment risk, channelling 50% of 2.9 into our budget as revenue to spend, can we term this 50% as tax?

Did I miss out anything?

As a government, it should be a non profit enterprise... so it's 2.9% as taxes with half of it becoming budget 'surplus'.

[egghead]

Already did, they need 48 hours to reply.

I'm asking them what's the difference between pledging my property to make up the minimum sum VS mortgaging my house for similar top up to savings to pay premiums for one of those regular savings/insurance/investment plans.

Great! Please share with us what you got from CPF.

Just a random thought, it's nice to be a fund manager to have guaranteed inflow of funds to manage + long lock in periods.

You should really wonder why no fund manager is keen in this "lucrative" deal.

[tanjm]

Great! Please share with us what you got from CPF.

Just a random thought, it's nice to be a fund manager to have guaranteed inflow of funds to manage + long lock in periods.

You should really wonder why no fund manager is keen in this "lucrative" deal.

Actually, its not quite a "long lock in period". You should realize that CPF has to maintain sufficient liquidity for members who withdraw CPF for housing, investments and such. This cash is on-demand. No doubt, with a large member base, the CPF board can forecast withdrawals with reasonable accuracy. But it still stands to reason that a large amount of cash has to be sitting around.

On a related note, most members CPF funds are actually not as balances in CPF. In many (or most?) cases, most of the members CPF money is locked up in housing!

[tanjm]

Guess this is the reason why people are selling off their HDB at age 54 so as to get some cash on hand before everything gets locked up and transferred to RA at age 55...

Would you care to substantiate your statement? Or are your smileys indicating irony?

[Zelphon]

Guess this is the reason why people are selling off their HDB at age 54 so as to get some cash on hand before everything gets locked up and transferred to RA at age 55...

Would you care to substantiate your statement? Or are your smileys indicating irony?

Well, that is what I heard...

Just did some googling and this is wat I found..

http://www.propertyguru.com.sg/question/...-i-sell-my

http://mycpf.cpf.gov.sg/CPF/my-cpf/buy-house/BH7.htm

http://www.sengkang.com/forum/viewtopic....c951e902ea

I guess for people keen to upgrade or prevent money being locked up in RA..

One way is to sell the house before age 55 and the subsequently use the proceeds to buy another house...Once u hit 55, you can no longer do that...

AHh..

I found the answer right here...

http://www.theonlinecitizen.com/2010/03/...-you-sell/

[specuvestor]

I wouldn't dismiss immediate on the comment of fairer wealth distribution, but we need a sustainable solution, rather a populist policy

As for the "Wealth tax", I would like to share one small story I heard recently below. Although the story is for US, and should be applicable to Singapore, with a little twist.

--------
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’declared the sixth man. He pointed to the tenth man,’ but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

Academics and economists in the US or in general are split into two camps - the right leaning ones who tend to be Republicans, and the left leaning ones who tend to be Democrats. The Republican types call for less taxes for the rich and support trickle-down economics. This has largely been the dominant model since 80s Reagan and responsible for the state of the rich-poor divide and inequality today.

I've seen this being quoted many times. I do agree that the wealthy will get bigger ABSOLUTE break but should not be % break. Buffett contention is that his secretary gets taxed at higher rate than him. Thats one salient point missed as pointed out by GPD

Secondly the logical question to ask is: why is the guy willing to stick with the other 9 when he is paying half the bill. It could be he is philanthropic but thats probably not the context here. IMHO he derived certain benefits from this community, from political to social to economical. We are assuming the opportunity set for the rich is better elsewhere.

PAP will tell the old lady to sell her landed property and downgrade to
5 rm HDB, if not enough downgrade to 4rm, 3rm, 2rm, and finally
1rm ...

Handsome

So your point is that the Govt should help the old lady equally regardless whether she owns $5 million or $200k worth of property? Does your position change if instead of owning property, she has all that assets in the form of cash in bank or stocks instead?

P.S. Just to avoid any misunderstanding, I am not a Govt hater or supporter but I have voted opposition all this while.

Whether she has a million dollar or having multiple assets is irrelevant here...

She has money in CPF...
She is already 76 years old..
She cannot touch her money because CPF shifted the goal post...
So is she entitled to collect her own CPF money?

Give back our CPF, we will be on the government's side, says Ng Leng Hui
https://www.youtube.com/watch?v=tfQjKJtIbfg

To mr ng and those asking for cpf back:

Assuming the government give back all the money. Naturally some will use it to fund their retirement and some will spend it all. For those who do not have much left when they are old and sick, do they then expect the government to take care and foot their bills?

If your answer is yes, then most people will never want to save up for retirement because they know the government will step in to help. And where does the money come from? Its from the tax-payer. As a tax-payer, do you want your contribution to be spent in this manner?

There are already many aged with no CPF because they were odd job labourers...

Now in the twilight years, they are trying to cope with excessive inflation and forced to work because they are unable to retire..

These are the pioneer generations...

They tolled hard as Singapore leaped from 3rd world to 1st world..

Should the govt take care of them??

So I'm trying to understand your logic:

1) it doesn't matter if the society helps the poor or rich. Singapore's utility rebates for example should be uniform across the board?

2) we are entitled to get our CPF back... So you are proposing that we should get our money back but if we failed to manage our retirement the society should take care of us?

3) she is 76 years old, shifting of goal post in the past 14 years probably didn't affect her at all

[piggo]

Great! Please share with us what you got from CPF.

Just a random thought, it's nice to be a fund manager to have guaranteed inflow of funds to manage + long lock in periods.

You should really wonder why no fund manager is keen in this "lucrative" deal.

Actually, its not quite a "long lock in period". You should realize that CPF has to maintain sufficient liquidity for members who withdraw CPF for housing, investments and such. This cash is on-demand. No doubt, with a large member base, the CPF board can forecast withdrawals with reasonable accuracy. But it still stands to reason that a large amount of cash has to be sitting around.

On a related note, most members CPF funds are actually not as balances in CPF. In many (or most?) cases, most of the members CPF money is locked up in housing!

Cash reserve ratio for banks is around 20%. CPF is probably not subjected to such regulations and with less frequent withdrawals can maintain a much lower ratio. Housing is not "cash on demand" but more of a revolving loan facility, you'll need to repay every cent you borrowed from yourself on top of accrued interests... Which is basically, to CPF, a secured loan with significantly higher interests rates than current market rates.