CPF Questions (minimum sum)

[Perisher]

Anyway, try to keep the discussion rational instead of provoke/taunt each other. Thanks.

 

[BBCWatcher]

This is a new insight. Any facts/evidence to back this up?

The government is quite upfront in explaining how this basic math works, for example when it talks about the fiscal importance of foreigners toward the "old age support ratio" in its population whitepaper.

This insight is not "new." It's just basic math, and it's been a decades long phenomenon, financially fiscally trending in greater favor of citizens. Foreigners don't have the special tax breaks citizens have, they are demographically more heavily concentrated in prime working ages (few of them are elderly), and they don't enjoy very many subsidized or free government services. As a cohort, per capita, they contribute more into government coffers and consume less than citizens. Where's the counter evidence that this is not so?

If some deity could snap her fingers and instantly teleport every non-citizen out of Singapore, Singapore would be hugely less financially comfortable for its remaining humans. The fiscal math would be a lot more challenging. Tax rates would have to go up, a lot, in order to maintain the same government services for the citizen population with the same budget balance. Whether Singapore would be more comfortable overall, well, that's a separate and also interesting question. It would be less crowded, but on the other hand there'd be a lot of Singaporeans struggling with the absence of (for example) nearly 250,000 Foreign Domestic Workers, learning how to clean their own toilets, push their own wheelchairs, and empty their own bedpans. It'd be a stinking mess, literally, at least for quite a while.

 

[LiteHouse]

Singapore has best pension system in Asia: Mercer index

http://www.straitstimes.com/business/banking/singapore-has-best-pension-system-in-asia-mercer-index

SINGAPORE - Singapore topped Asia in providing adequate and sustainable income for retirement but there is room for improvement, said pension expert Mercer on Monday (Oct 23, 2017).

The 2017 Melbourne Mercer Global Pension Index, which looked at 30 countries covering 60 per cent of the world's population, scores pension systems on their adequacy, sustainability, and integrity.

Singapore received an overall B rating with index score of 69.4, up 2.4 points from a year ago, versus a global average of 59.9 points.

 

[BBCWatcher]

Singapore has best pension system in Asia: Mercer index
http://www.straitstimes.com/business/banking/singapore-has-best-pension-system-in-asia-mercer-index

Quoting from the article:

[Garry Hawker, Mercer's Asia zone wealth business coordinator and director of strategic research of growth markets] added: "The overall index value for the Singaporean system could be further increased by reducing the barriers to establishing tax-approved group corporate retirement plans, opening CPF to non-residents who comprise more than one-third of the labour force and increasing the labour force participation rate at older ages as life expectancies rise."

The first suggestion seems awfully self-serving for a company in the group benefits business. I have no idea why general Singaporean taxpayers ought to be paying more tax to offset hypothetical tax breaks for the predominantly affluent beneficiaries of group corporate retirement plans. That doesn't make any public policy sense to me.

I'm not sure what the government is supposed to do with respect to the third idea, or why it would be desirable. Singapore has tremendous wealth, and it's getting wealthier. Older people enjoying some of that increasing wealth is not a problem. Quite the opposite. (How about letting the labor market work, with rising wages to attract more workers who might otherwise retire?) That also seems out-of-step with increasing automation and AI that could profoundly shake up labor markets. Perhaps the government could offer greater voluntary opportunities for older workers who wish to work? (I think the government is already doing that, to some extent anyway.) I also think it'd be a good idea to make employment discrimination (age, race, etc.) outright illegal rather than merely subject to opprobrium. It is possible to have streamlined, effective, speedy, reasonable complaint and dispute resolution forums and processes to combat discrimination. I don't agree with the government's arguments on that point.

 

[crimsontactics]

This is really laughable!

To see why CPF Life is payout is too low (vs the money you put in and your life expectancy), you can go read the detail discussions here which have been back up with detail calculations (not empty talk)!

http://forums.hardwarezone.com.sg/e...ong-cpf-balance-i-have-seen-date-5675375.html

It's not laughable at all.

CPF Life is bad because you guys view it as an investment.

But it's super awesome when you view it as an insurance against longevity.

That's why the government is confident enough to allow you to get out of it if you can find an annuity that match their payout.

If you go to that thread, which I participated in also, it's filled with people having the former view. Nothing wrong with that, but you won't get a fair view of CPF Life as many not only view it as an investment, but are also anti-PAP.

Of course, there is nothing wrong with viewing it as an investment, although doing so will bring you much mental distress.

 

[crimsontactics]

Why can opt out only if we buy another annuity from insurance company? Real stupid right?
Why can't they allow us to create our own annuity by buying bonds that pay 4-5% p.a.?! This will be much better any annuity, including CPF Life!

That's because you can withdraw the principal through the markets or after the lock-down time.

You can't do that with an annuity.

 

[crimsontactics]

So that insurance companies can milk us?!
If they want, very easy, can pledge the principal and cannot sell, just like property pledge lor! It is whether they want or not.

Another problem is not many bonds are perpetual. CPF Life requires the alternative annuities to be able to pay till you die.

But if there is perpetual bonds, then I don't see why not.

Sent from . using GAGT

 

[crimsontactics]

Will never buy perpetual bonds! Stupid to buy perpetual bonds!
We can always buy bond fund that pay about 5% p.a. and as long the principal is there, you will continue to get 5% p.a. "annuity" until you die (and still can get your principal back - not like CPF Life, bequest = $0)!

Bond fund returns are not guaranteed. The government wants you to get something with a guaranteed payout.

 

[crimsontactics]

Insurance companies' annuity payout also not guaranteed wah (not to mention payout rate so low) why government allow?

Even CPF Life payout also not guaranteed because there are footnote telling us that the CPF Board are at liberty to reduce the payout anytime!

In view of all these above, Bond fund returns are actually more stable and more predictable than Insurance companies annuity and CPF Life (and better option for all of us because the bonds purchased by the fund has guranteed fixed % payout by the companies to the fund which is then paid out to us)!

Annuities have a guaranteed portion. Bond funds don't.

 

[BBCWatcher]

However, bond funds obtain coupons that are guaranteed by the companies issuing the bonds (and for relatively low risk you get 4-6% p.a.), so there is better guarantee of good high return (vs low return by CPF Life and insurance annuities!)

Bond funds (investments) are not lifetime annuities (insurance). If you try to compare them or conflate them, it's easy to end up in a ditch somewhere. And you're in a deep ditch already.

 

[RoLanTo]

think the construction of cpf life is to help yourself and use your money to help some other poor ppl.. if everyone can opt out.. where to find money to help those poor ppl?

if i am govt to allow everyone to opt out from this social security program, i probably need to think of some ways to tax your investment income to help fund of it... since poor ppl sure no money invest, only those fairly well to do and have spare cash ppl will invest..

i.e. tax the rich, fund the poor

 

[BBCWatcher]

think the construction of cpf life is to help yourself and use your money to help some other poor ppl.. if everyone can opt out.. where to find money to help those poor ppl?

Ah, no. You have it backwards, actually. This is about individual responsibility, a set of policies to avoid the risk that you will become a burden on the rest of society, insofar as possible.

Everyone can opt out of CPF LIFE. To opt out, go get alternative longevity insurance (of minimum or better payor quality), submit a simple form to CPF, and you're done. You're then free to withdraw all your CPF funds if you wish, with interest, except for your Medisave Account. (Medisave is another societal defense against your becoming a public burden.)

You must protect yourself -- and the rest of society -- from elder destitution, if you can afford to protect yourself. The government insists on that much. But the government doesn't insist that you protect the rest of society specifically using CPF LIFE. You can buy private longevity insurance if you prefer, or somebody else can buy it for you if you're particularly lucky. The government insists you post a bond (contribute to CPF) from your earned income, tax free, but you can get your bond back at retirement, with interest, still tax free, if you have alternative longevity insurance.

You are also free to terminate your Singaporean citizenship or Singapore Permanent Residence, as applicable, and opt-out of Singapore, including CPF. Then you can withdraw all your CPF monies, with interest, including Medisave. Or you can leave those funds on deposit as long as you wish, and they continue to earn interest.

This is all very fair, in my view. You have choices. But you do NOT usually have the choice to transfer risk of your elder destitution onto the rest of society. The government insists that everyone (who can afford it, and who has the right to grow old in Singapore) have at least a small amount of longevity insurance, whether from CPF LIFE or from some other reasonable source, just as the government insists that every automobile owner carry liability insurance. The government insists that you not burden the rest of society, that you take care of yourself, insofar as you reasonably can. That's what this deal is all about. (It's to protect wealthy Singaporeans from political turmoil and rebellion, in truth. Of course there are some wealthy people who don't understand this, maybe because they haven't read enough history books, but a wealthy society with destitute elderly residents usually doesn't end well.)

 

[BBCWatcher]

Bond funds' ownership of bonds pay guaranteed interest....

No, most bonds pay nominal coupons (slightly different), only if the payor, uh, pays (default is possible, with varying probabilities depending on the payor's creditworthiness), and only for a fixed term until maturity (unless they're non-callable consols, which don't exist in Singapore).

and when they mature, bond fund manager invest in other bonds that pay guarantee interest....

No, coupons again. And the yield can be (and almost always is) a new, different yield. There's absolutely no guarantee a particular yield at a particular credit quality will be available. Market interest rates fluctuate for all debt instruments.

...and so bond fund coupons can be make lifetime and perpetual and almost guaranteed payout!

"Almost guaranteed" isn't good enough. CPF LIFE operates to an "except for a big space rock crashing into Planet Earth" standard of assurance. Not, "Sorry, Sally, but bond yields are lower and defaults are higher than we expected this decade. Hope you enjoy cat food!"

Only CPF Life payout is not guaranteed, and that is a fact!

Now you're being misleading.

There is never any absolute guarantee in this business. However, there are many decimal places of difference in financial risks. The relevant standard is whether any individual can, on his/her own, even come close to the lifetime income assurance that CPF LIFE and its AAA-rated sovereign sponsor (the printer of the currency, and with tremendous untapped taxing power) provide. No, there is not.

Yes, if medical science figures out how to boost Singaporeans' average life expectancies to 200 years practically overnight, CPF LIFE might adjust payouts. (Even then, maybe not.) That's "space rock" stuff, the very longest of the long tail risks. That's not even remotely comparable to investments with no insurance characteristics.

 

[BBCWatcher]

By the way, if setting aside S$83,000 with a paid roof (or S$166,000 without, 2017 BRS/FRS figures), tax free, for a lifetime annuity has got you all hot and bothered, then you are tautologically a person with a serious or at least non-trivial risk of being a burden on the public in your twilight years, maybe sooner. And thank goodness the government insists that society protect itself against the "invincible" who could end up a pauper. Speaking on behalf of society for a moment, we're sympathetic (and won't let you starve in Singapore), but we're not idiots.

Only people who consider S$83K to be equivalent to a 10 cent coin lost between sofa cushions (the latter in the perceptions of most) are the people who might make a semi-plausible argument they can self-insure against elder destitution. (Only semi-plausible. Mental illness and financial incompetence can happen to anyone.) And since there might be a grand total of 10 Singaporeans in that rarified category, the government is not going to make an exception for 10 people to the requirement to carry at least a tiny amount of longevity insurance, private or public. Just as the government doesn't make an exception for automobile owners who try to argue they can self-insure. "No way, we're not idiots," says Society.

Carry a tiny bit of genuine longevity insurance, private or public, to protect society against the risk it must bear the burden of your sorry old a**, or give up your right to grow old in Singapore -- and transfer that risk to some other country. That's the deal, and it's a very fair, very pragmatic one.

 

[BBCWatcher]

Good luck to you, Ervino.

 

[leungchunghong]

I hit my Full Retirement Sum $166000 recently, i cannot transfer any money to my Special account anymore.

Now what happens to my monthly contribution & My interest in SA?

 

[naro]

I hit my Full Retirement Sum $166000 recently, i cannot transfer any money to my Special account anymore.

Now what happens to my monthly contribution & My interest in SA?

They will go into your OA

 

[leungchunghong]

They will go into your OA

Thanks for the clarification. ^^

 

[BBCWatcher]

Now what happens to my monthly contribution & My interest in SA?

No, that other response is not correct.

1. Compulsory Special Account contributions continue to flow into your Special Account.

2. If, in addition, your Medisave Account has reached the Basic Healthcare Sum (BHS), then compulsory Medisave contributions will be redirected to your Ordinary Account.

3. SA interest will stay in SA.

Check your online statement just after your next compulsory SA contribution is made, and you should see #1 in action.

 

[hwmook]

They will go into your OA

First time I heard will flow into OA...you better go and find out more.