Oldies use yr CPF acct as savings, fixed deposit account

See the low interest rates available in mkt. You get 2.5% minimum with CPF*.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1225421/1/.html

*Terms and conditions apply.))))

If Minimum Sum increase was “moderated”, why not electricity prices?

Last Saturday, it was reported that electricity tariffs will decrease by an average 2.5%  for the next three months, beginning July 1: the price of fuel has gone down. Sounds good to me who doesn’t have a wage increase that compensates for the rise in inflation.

 

But the government’s response to a question on the cost-of-inflation increase in the CPF’s Minimum Sum has me wondering if its formulae for various “automatic’ price adjustments of services etc are not that “automatic”.

 

But shume background first. Uncle Leong (TOC used to carry his articles*, but now they only appear on his website) often asked pointed questions about the way electricity tariffs were calculated. The non-answer response of the authorities was to say ”it’s the formulae”, and imply that it was a mechanical process: there were no attempts to tweak or adjust the formulae without first letting us know.

 

But we now know that the increase in the Minimum CPF Sum was “adjusted”: the formula used was tweaked (see letter below to ST’s Forum from the Manpower ministry). And worse: if a member of the public had not grumbled publicly about the inflation rate used to calculate it, the tweaking would not be publicbecause I don’t recall reading about the “moderated’ change when the new Minimum Sum was announced.

 

Now this “moderation’ raises the following issues:

 

– What other formulae have been manipulated without our knowledge?

– Will we never be told unless we ask? And if so why the secrecy?

– Waz the point of using formulae when they can be adjusted in secret? To con us?

– If the Minimum Sum amount was “moderated”, why wasn’t the electricity tariffs “moderated’ given that world gas prices have collapsed, while S’pore continues to pay above market prices because of long-term contractual obligations, among other reasons?

 

—————

 

CPF MINIMUM SUM

Increase doesn’t fully reflect total inflation

MR YOUNG Pak Nang inquired about the use of the headline consumer price index inflation rate to adjust the Central Provident Fund Minimum Sum (‘CPF Minimum Sum should reflect ‘true’ inflation’; last Friday).

As he noted, increases in imputed housing rentals on owner-occupied homes and certificate of entitlement prices for private cars contributed to higher-than-normal headline consumer price index inflation last year.

For the majority of retirees, these are not items that would lead to increased cash expenditures.

The Minimum Sum is aimed at providing for CPF members’ basic retirement needs.

The original target, adopted in 2003, was for the Minimum Sum to increase in real terms to $120,000 (in 2003 dollars) by 2013.

Further, besides this real increase, the Minimum Sum has to keep pace with long-term inflation trends.

The Minimum Sum has therefore been increased each year to meet the required real increase and to take into account inflation.

However, this year’s Minimum Sum increase was moderated, and hence did not fully reflect the consumer price index inflation that occurred over the last year.

This year’s increase in Minimum Sum, by $8,000, was one-third less than it would have been if we had followed the usual formula for Minimum Sum adjustments. With the moderated increase, we have stretched out the 2013 target to 2015.

Some of the factors that have led to higher consumer price index inflation in the last year are cyclical, and likely to even out over the long term.

For example, imputed housing rentals on owner-occupied homes have significant short-term impact on the consumer price index, but tend to even out over time.

Over the 15-year period from 1996 to last year, which like most such periods saw the property market fluctuating in both directions, headline consumer price index inflation averaged 1.6 per cent.

This is comparable to the average inflation of 1.5 per cent over the same period if imputed rentals on owner-occupied homes were excluded.

We thank Mr Young for his useful query.

Farah Abdul Rahim (Ms)

Director, Corporate Communications

Ministry of Manpower

*Update after posting: Juz found out via S’pore Surf that TOC carried an article from Uncle Leong dated 2 July. Funny not among the Main Stories.

Government right on need to raise retirement age

The issue of changing the rules on the access to our CPF funds is one that upsets many S’poreans, even those who support the PAP. The imposition of Minimum Sum and CPF Life are lazy solutions to a problem that needs to be addressed: longevity.

But while we should, disagree and row with him on the access to our money, we should not be in denial that we (me excluded) have to retire only in the 60s. The issue is longevity, not the amounts we have in our CPF accounts and how the cost of housing erodes the amounts left over for retirement, or access to our money.

According to a new report from the OECD, increases in the official retirement age are planned or underway in 28 out of its 34 member countries. As can be seen from the chart in the link, pensionable ages have failed to keep pace with longevity http://www.economist.com/blogs/graphicdetail/2012/06/daily-chart-5

Not quite correct, Tharman

(Or “Wrong, Minister”) (Updated at 9.20 am to explain the “premium”)

“The bequest goes to your loved ones, not to other CPF members and not to the Government. You get all of your capital back either through your monthly payouts or in a bequest that you leave to your family and loved ones.”

Err you don’t. What about the “premium”* that one pays to ensure that one is covered for life? This is “lost” if one dies too early to benefit fully from the annuity. The “premium” amounts to 10% of the amount in the Retirement Account (at age 55) for the Basic Plan and 30% for the old Balanced Plan. Both are not “peanuts”.

BTW1, I was not one of those who criticised or raised an eyebrow at Tharman’s remark that one could earn only $1,000 a month and still buy a HDB flat.

BTW2, I know that Tin Pei Ling is not helping to create sound-bites for Tharman, juz as she isn’t helping Vikram Nair with his jokes, Hri Kumar Nair with his research and MoE with gathering data on FT government scholars. She is focusing on helping the uncles and aunties in her self-styled SMC. By all accounts, she is doing a good job.

——-

*”Premium” is the amount that a CPF holder has to pay from his minimum sum in order to get life-long “assurance” of an annuity till death.I put the word “assurance” within quotation marks because technically if the CPF Plan that one is in goes bust, one’s annuity payments ceases. Taz the law.

Using yr CPF OA as a savings account

If you are in a position to withdraw money at age 55 from your CPF accounts, given the pathetic S$ interest rates offered by the banks, you may want to use your CPF Ordinary Account as a savings account that pays higher than S$ bank or finance company fixed deposit rates.

But make sure you know how often a year you can withdraw your money if you want to use your OA as a savings account, or more accurately as a “betterest” way of managing your cash. The laziest way to find out is to call up the CPF help line.

You also have to be aware of the following: http://www.asiaone.com/News/AsiaOne+News/Singapore/Story/A1Story20110715-289391.html.

THE scheme is stated in the Central Provident Fund (CPF) website.

But Mr Jerry Low, 58, was not aware of it.

So the retired bank trader got a surprise when the CPF Board transferred $10,000 into his Medisave Account (MA) without his permission, after he applied to withdraw $37,000 from his Ordinary Account (OA) in June this year.

Mr Low had chosen to not withdraw all his money from his OA when he turned 55.

He opted for a partial withdrawal, leaving some money in his OA as the CPF interest rate of 2.5 per cent was higher than what the banks were offering.

He could do this as his Medisave Account and Retirement Account (RA) had the required amount.

Since 2008, Mr Low had used his Medisave to pay for some medical expenses, whittling away his Medisave Required Amount (MRA), which was $14,000 as of Jan 1, 2008.

However, the required amount was raised to $27,500 as of Jan 1 this year [2011].

Said Mr Low: “I was shocked to find that $10,000 from my OA had been moved to my MA without my approval.

“I did not even know that the money was moved, let alone the amount moved.”

As to the danger of the government not allowing you to withdraw your money by changing the rules yet again, assess the risk of the government taking this action in the light of it only getting 60% of the popular vote in the May 2011 GE, and it’s determination to win back Aljunied. Besides, the government actions, so far, on CPF issues, are never retrospective.

As to the CPF being or going bankrupt, remember that Tan Jee Say (25% of voters voted for him at the 2011 presidential election and he was once a senior civil servant specialising in economic matters) doesn’t worry about the solvency of the CPF system. To him, the S$60bn he proposed spending on his plans was “small change”. So the CPF amount due to members, as of August 2011, S$204 billion, cannot be an issue, despite what the SDP (his ex-party) and his supporters at TR and Singapore Election Watch say. Reminder: they say that the CPF is bankrupt because of the losses at Temasek and GIC. Hence the introduction of the Minimum Sum and CPF Life Plans schemes.

Did you know that until a few years ago, once you reached 55, the staff there hassled people to withdraw their surplus funds? It happened to a friend in 2004. He told them he as a Nantah graduate and retired central bank employee, trusted the S’pore government.

Now, the staff encourage people to keep funds they don’t need in their OAs.

Aftertot 5th December 2011 at 12.55pm

See abc’s comment below. He has a point on Medisave increases. My counterpoint is that Medisave account sure to be used and anyway it attracts 4% interest a yr.

Related post: http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/

 

CPF system like this meh?

If SDP members had a sense of humour (which they don’t, Danny the teh tarik Bear excepted)*, the SDP could use this joke to illustrate its view of how the CPF system works.    

A Scotsman goes into a brothel in Amsterdam one night and finds himself a nice-looking prostitute.

He asks her, ‘How much dae ye charrrge forrrr an hourrr?’

‘£100,’ she replies.

So he asks, ‘Okay, dae yee dae it Scottish style?’

She says ‘No!’

He then asks her, ‘I’ll gie you £200 to dae it Scottish style – please?’

She then says, ‘No’, not even knowing what ‘Scottish style’ was!

So he then offers her £300. Again she declines his offer.

So, finally he says, ‘I’ll gie ye £500 to gaun Scottish style wi’ me!’

Finally she agrees, thinking, ‘Well, I’ve been in the game for over 10 years now. I’ve been there and done that, had every kind of request from weirdos from every corner of the world. How bad could Scottish style be?’

So she goes ahead and has sex with him, doing it in every kind of way and in every possible position. Finally, after several intense hours they finish.

Exhausted, the hooker turns to him and says, ‘That was really fantastic. I’ve never enjoyed it so much. But I was expecting something perverted and disgusting. Where does the ‘Scottish style’ come in?’

The Scotsman replies, ‘I’ll pay ye next week…’

————————-

*To be fair, none of the political parties have a sense of humour. They are all too earnest and straight laced for my taste. Oh for Wayang Party.

Best CPF Life Plan?

 CPF Life Plans

CPF LIFE Plans (With Refund)	Monthly Payout	Bequest
LIFE Basic	Low	High
LIFE Balanced	Medium	Medium
LIFE Plus	High	Low
CPF LIFE Plans (Without Refund)	Monthly Payout	Bequest
LIFE Income	Highest	No bequest

Source: CPF Board

From 1 January 2013, those turning 55 will have to opt for one of the CPF Life Plans. They will no longer have the choice between the Minimum Sum scheme (payouts for about 20 years from age 65) or the CPF Life Plans. ”With rising life expectancy, 1 in 5 Singaporeans is expected to be aged 65 and above by 2030. Out of which half can expect to live beyond 85. Therefore, an income for life to help you meet your basic retirement needsis very important,” is what the CPF Board says.

Various people (self included, a retired senior bank executive, and a scholar working in a GLC ) who have the choice of choosing between the CPF Life Plans and the MS scheme, have opted for the latter because the CPF Life Plans’ calculations are in a black-box. As a financial planner pointed out, “The CPF Life Plans come without a benefits illustration, something the law requires insurance agents and financial planners to show life insurance buyers”. The plans could be better, but we just don’t know.

The CPF Life Plans are also more risky.  There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the MS scheme, where account holders are legally entitled to the monies in their CPF accounts. Though accessing the monies in one lump sum after 55 is an issue.

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it?

Of course those who opt for the MS assume that in the event they are still alive in their late 80s and even 90s, they can support themselves financially, or have children and grandchildren that will support them

If

– longevity* runs in your family and you think you can live well past 80; and

– ‘you think you will run out of money in your 80s,

you are probably better off with a CPF Life Plan.

If you choose a plan, or have no choice to choose a plan, you may want to opt for the “Basic” plan. This is the closest to the MS scheme. In fact, Doctor Money, Larry Haverkamp (whose views I respect) thinks it is superior to the MS scheme.

 Remember, if you don’t opt, the default is the “Balanced” plan. In this, the annuity element starts from age 80, while in the “Basic” plan the annuity starts from age 90. Hence one of the reasons why your beneficiaries should get more under the latter plan. Another is that the latter attracts a smaller premium, 10% versus the former’s 30%.

—————————-

*Some useful statistics (from a 2008 Department of Statistics paper based on 2006 preliminary data) on how long you have live:

– If male aged 65 – can expect to live another 17.2 years – 82.2

– If female aged 65 – can expect to live another 20.6 years. — 85.6

– Proportion of Singaporeans aged 65 expected to be alive at age 85 is

      — Male 39%

      — Female 55%

CPF and Alice’s Adventures in Wonderland

I’ve been reading shumething by Lewis Carroll and came across Sylvie and Bruno. Am surprised that the Young PAP and that unemployed chap running the Facebook page on “Fabrications about the PAP” are not defending the CPF system in the terms below what with the compulsory minimum sum scheme and the CPF Life Plans were introduced, and promises of better rates of interest in exchange for monies being locked up beyond 55.

But then maybe they don’t read and appreciate the works of Lewis Carroll of Alice’s Adventures in Wonderland fame? They can only read and understand our nation-building, constructive local media and Petir?

From his Sylvie and Bruno:

“How much is it, this year, my man?”… “Well, it’s been a doubling so many years, you see,” the tailor replied, a little gruffly, “and I think I’d like the money now. It’s two thousand pound, it is!”

“Oh, that’s nothing!” the Professor carelessly remarked … “But wouldn’t you like to wait just another year, and make it four thousand? Just think how rich you’d be!”  …  ”But it; dew sound a powerful sight o’ money! Well, I think I’ll wait–”

“Of course you will!” said the Professor. “There’s good sense in you” …“Will you ever have to pay him that four thousand pounds?” Sylvie asked as the door closed on the departing creditor.

“Never, my child!” the Professor replied emphatically. “He’ll go on doubling it, till he dies. You see it’s always worth while waiting another year, to get twice as much money!

The novel was published in 1889 and in 1987 or 1988, Ralph Wanger (a then leading investment fund manager, now retired) told author John Train that the sum would have grown to £1 followed by 33 zeros. The magic of compounding on funds not drawn on. No wonder Lim Swee Say has a special monthly CPF statement so that he can see every month how much his millions are compounding. 

Coming soon http://feed.theweek.com/article/index/221651/retirement-is-80-the-new-65?

How we fund our SWFs

This piece is an attempt* to answer,”If Singaporeans are not “hard-driving and hard-striving”, where did GIC and Temasek get so much money to lose?”: a posting on a Temasek Review article in late 2009.

The answer parroted mindlessly by the government is that government budget surpluses mean that GIC and Temasek get money to invest with.

A more detailed explanation has to start with how the surpluses arise.

As about 43% of the working population  don’t pay income tax, and VAT and other taxes are relatively low: one way the surpluses are generated is by a government being thrifty (government’s view) or mean (view of many netizens).

Economists in the private sector, and the Reform Party (the sec-gen was once an economist and he has a first-class degree from Cambridge) have argued that rather than accumulate large surpluses that are then invested abroad, the government should spend more building up Singapore’s human capital. By spending more on things like education, healthcare and consumer protection, the returns generated will be better than the returns on overseas investments.

This is an argument that has excellent academic credentials. China is often asked by eminent economists ,”Why do you export so much when you, in return, use the surplus lend to the Americans so that they can buy more from you?” The economists advise that China should invest more locally.

The government’s view is that Singapore needs the reserves as an emergency fund should things go badly wrong. The late Dr Goh Keng Swee talked of spending the reserves in a recession (as has happened recently). Dr Goh and others could also have quoted the example of Kuwait. When Kuwait was invaded by Iraq, the reserves were used to help pay for the war. And afterwards for the reconstruction of the country. They could also have cited Iceland and Dubai as countries that got into trouble because they ran out of $, when they could not borrow any more.

The second reason why surpluses occur is that our CPF monies are invested in special government bonds. The $ from the bonds flow into the government’s Consolidated Fund together with revenues from taxes etc. All government expenses are paid out from this fund. If there is a surplus (as there usually  because the government is thrifty or mean depending on who is doing the talking) part of that surplus can go to GIC and Temasek. The government argues that because all the monies in the fund  is fungible (cannot be separated), one is wrong to argue that CPF monies are invested abroad.

Technically and legally the government is correct, but so what is the retort? The financial effect (though not the legal consequences) is the same as if our CPF monies are directly invested abroad.

And these special bonds are the reason why S’pore is up there on a  list that the local media does not ever publicise. S’pore has the 8th highest public debt to GDP ration (113.10%) in the world. Greece is 7th with 113.40. Other countries on the list above us are Zimbabwe  (champion), Japan (second), Lebanon and Italy. Iceland is 9th (106.7) while Ireland is at 36 (57.7).

(Aside, could this high debt to GDP ratio be the reason why the govmin wants to force-feed GDP growth through immigration? I may explore this issue in future and I hope RP will explore the issue as something the electorate should be educated upon.)

Singapore is unique among the countries with the largest sovereign wealth funds. The other SWFs are effectively funded from oil revenues. In the case of Singapore, it could be reasonably argued, by government critics, that the funding results from the “hard-driving and hard-striving” Singaporeans who are forced to save and lend the money to the government; and from less than optimal government spending.

So the quote at the beginning of this piece has elements of the truth. And worse: one could reasonably argue that the government makes something for itself from “hard-driving and hard-striving” S’poreans.  One noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns.

*What with an election coming, I tot I should revise (and repost) a piece I did in December last year. The revision has been pretty extensive.

Where GIC and Temasek gets their $

“If Singaporeans are not “hard-driving and hard-striving”, where did GIC and Temasek get so much money to lose?”: a posting on a Temasek Review article.

Not quite correct because the money that GIC and Temasek invest comes from government surpluses. As about 43% of Singaporeans don’t pay income tax, this means that the surpluses are generated by being thrifty (government’s view) or mean (view of many netizens).

Economists in the private sector, and the Reform Party (the sec-gen was once an economist and he has a first-class degree from Cambridge) have argued that rather than accumulate large surpluses that are then invested abroad, the government should spend more building up Singapore’s human capital. By spending more on things like education, healthcare and consumer protection, the returns generated will be better than the returns on overseas investments.

This is an argument that has excellent academic credentials. China is often asked by eminent economists ,”Why do you export so much when you, in return, use the surplus lend to the Americans so that they can buy more from you?” The economists advise that China should invest more locally.

Now MM Lee’s view is that Singapore needs the reserves should anything go badly wrong. He could have quoted the example of Kuwait, which surprising he has not. When Kuwait was invaded by Iraq, the reserves were used to help pay for the war. And afterwards for the reconstruction of the country. He could have cited Iceland and Dubai (which again he hasn’t) as countries that got into trouble because they ran out of $.

BTW, one noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns.

For the technically minded, our CPF monies are invested in special government bonds. The $ from the bonds flow into the government’s Consolidated Fund together with revenues from taxes etc. All government expenses are paid out from this fund. If there is a surplus (as there usually is)  part of that can go to GIC and Temasek. The government argues that because all the monies in the fund  is fungible (cannot be separated), one is wrong to argue that CPF monies are invested abroad.

Technically the government is correct, but so what is the retort? The financial effect is the same as if our CPF monies are invested abroad.

Finally, Singapore is unique among the countries with the largest sovereign wealth funds. The other SWFs are effectively funded from oil revenues. In the case of Singapore, it could be reasonably argued, by government critics, that the funding results from the “hard-driving and hard-striving” Singaporeans who are forced to save, and from less than optimal government spending.

So the quote at the beginning of this piece has elements of the truth.