CPF reform

[lb95010]

If one can work from 24 yo and earn 3k monthly, one will contribute 930 (to OA and SA) and work for 8 year, one can have 89280. Why not allow to put this amount at 32 in annuity and allow to withdrawn at 52?
Of course need to find another source for house but one get the money at fix age.

 

[edwinttt1978]

Inspirational extract from 'Committee of Supply Speech by Mr Tan Chuan-Jin, Minister for Manpower, 09 March 2015, 2:05 PM, Parliament' on 'Retirement Adequacy for Younger Cohorts'.

Let me try to reassure younger Singaporeans by using the example of Ben, a 25 year old polytechnic graduate who has just started work, with a starting salary of $2,200. The median starting salary for a polytechnic graduate today is about $2,400 but I thought, let’s be a bit more conservative and take the rates which were applicable a few years ago. Now that he has a job and is earning an income, Ben is thinking of proposing to his fiancée and is looking around the market to purchase a home. I hope he decides to purchase a home within his means – there is no better deal than a HDB BTO flat if he qualifies for one. Let’s say Ben decides to buy a 4-room BTO in Punggol with his wife-to-be, and both of them use their CPF savings to pay for their home. As this is their first flat, they will enjoy a substantial housing grant. It is likely they will be able to fund their housing needs without needing to draw on cash.

Ben works regularly, and his salary grows over time. He and his employer contribute on a consistent basis to his CPF account – let’s assume that he only works for 32 out of 40 years, between the ages of 25 and 65. So 8 years, here and there, he takes time off, changing jobs. By age 50, it is estimated that Ben would have fully paid off his home loan, and by age 65, he would have accumulated sufficient CPF savings to purchase a CPF LIFE policy that will give him a monthly payout that is roughly 60-70% of what he used to earn before retiring.

How are we able to do this? Many people will wonder. A lot of it has to do with the effect of compounding on our CPF savings. Let me illustrate with a simple example. For someone with a salary of $2,200, he and his employer will contribute $130 per month into his CPF Special Account alone. This contribution will grow up to $250 per month as more gets allocated to his Special Account as he gets older. Let’s assume that he works, similar to Ben, only 32 out of 40 years. And I will not include any wage increases that he is likely to enjoy over the course of his lifetime. If these contributions were to be set aside in a Khong Guan biscuit tin under his bed, what would the amount be by the time he reaches 65? $55,000, that’s what you will get when you consistently save that $130 to $250. But it is not in the Khong Guan biscuit tin. It is in the CPF Special Account. It is “special”, because his monthly contribution earns interest of up to 5% before age 55, and up to 6% thereafter. Adding the interest earned, what do you think would be in his CPF SA at age 65? $165, 000 – three times what he put in. If he works 36 out of 40 years, the $60,000 he would have accumulated would grow to $180,000. And this is solely looking at what he put in his SA. This is not magic, it is just math. This is a very conservative estimate – it does not even account for wage growth or whatever savings he has accumulated in his Ordinary Account after paying off his flat. If you add those, clearly he would have even more.

My point in sharing this example with you is to highlight that the retirement picture for younger Singaporeans is healthy, and most Singaporeans who work regularly and make prudent housing choices should have no worries meeting their retirement needs.

 

[henrylbh]

It is “special”, because his monthly contribution earns interest of up to 5% before age 55, and up to 6% thereafter.

Is above true?

Firstly, 5% is applicable to first 60k only.

Secondly, extra 1% making it 6% is for those above age 55 and it is only applicable on first 30k. Meaning the next 30k will be 5% and 4% for above 60k.

All the above rates are based on current SMRA rate of 4% which is not guaranteed, though it is fixed to end of 2015. Thereafter, it will float to follow 10YSGS plus 1% or min of 2.5%.

 

[chopra]

you are very right. it is the black box model and the lack of choice that i hate.

Yet force insurance company to list out commission %.

Ownself only give a black box calculator and shut our mouths.

We want the formulae!

 

[havetheveryfun]

Inspirational extract from 'Committee of Supply Speech by Mr Tan Chuan-Jin, Minister for Manpower, 09 March 2015, 2:05 PM, Parliament' on 'Retirement Adequacy for Younger Cohorts'.

Let me try to reassure younger Singaporeans by using the example of Ben, a 25 year old polytechnic graduate who has just started work, with a starting salary of $2,200. The median starting salary for a polytechnic graduate today is about $2,400 but I thought, let’s be a bit more conservative and take the rates which were applicable a few years ago. Now that he has a job and is earning an income, Ben is thinking of proposing to his fiancée and is looking around the market to purchase a home. I hope he decides to purchase a home within his means – there is no better deal than a HDB BTO flat if he qualifies for one. Let’s say Ben decides to buy a 4-room BTO in Punggol with his wife-to-be, and both of them use their CPF savings to pay for their home. As this is their first flat, they will enjoy a substantial housing grant. It is likely they will be able to fund their housing needs without needing to draw on cash.

Ben works regularly, and his salary grows over time. He and his employer contribute on a consistent basis to his CPF account – let’s assume that he only works for 32 out of 40 years, between the ages of 25 and 65. So 8 years, here and there, he takes time off, changing jobs. By age 50, it is estimated that Ben would have fully paid off his home loan, and by age 65, he would have accumulated sufficient CPF savings to purchase a CPF LIFE policy that will give him a monthly payout that is roughly 60-70% of what he used to earn before retiring.

How are we able to do this? Many people will wonder. A lot of it has to do with the effect of compounding on our CPF savings. Let me illustrate with a simple example. For someone with a salary of $2,200, he and his employer will contribute $130 per month into his CPF Special Account alone. This contribution will grow up to $250 per month as more gets allocated to his Special Account as he gets older. Let’s assume that he works, similar to Ben, only 32 out of 40 years. And I will not include any wage increases that he is likely to enjoy over the course of his lifetime. If these contributions were to be set aside in a Khong Guan biscuit tin under his bed, what would the amount be by the time he reaches 65? $55,000, that’s what you will get when you consistently save that $130 to $250. But it is not in the Khong Guan biscuit tin. It is in the CPF Special Account. It is “special”, because his monthly contribution earns interest of up to 5% before age 55, and up to 6% thereafter. Adding the interest earned, what do you think would be in his CPF SA at age 65? $165, 000 – three times what he put in. If he works 36 out of 40 years, the $60,000 he would have accumulated would grow to $180,000. And this is solely looking at what he put in his SA. This is not magic, it is just math. This is a very conservative estimate – it does not even account for wage growth or whatever savings he has accumulated in his Ordinary Account after paying off his flat. If you add those, clearly he would have even more.

My point in sharing this example with you is to highlight that the retirement picture for younger Singaporeans is healthy, and most Singaporeans who work regularly and make prudent housing choices should have no worries meeting their retirement needs.

How is this inspirational? Median salary for fresh poly grad 2.4k ? Wad a joke seriously, only shows how much touch he has lost with the ground... a fresh local u pass degree grad would already b happy to get 2.5~2.8k today

 

[havetheveryfun]

Also he should not use 2.2k salary as example, he should use 1k instead since one guy said 1k enough to survive in sg n buy house

 

[lzydata]

It is “special”, because his monthly contribution earns interest of up to 5% before age 55, and up to 6% thereafter.

Is above true?

Firstly, 5% is applicable to first 60k only.

Secondly, extra 1% making it 6% is for those above age 55 and it is only applicable on first 30k. Meaning the next 30k will be 5% and 4% for above 60k.

All the above rates are based on current SMRA rate of 4% which is not guaranteed, though it is fixed to end of 2015. Thereafter, it will float to follow 10YSGS plus 1% or min of 2.5%.

Here's the background of this policy of floating the SMRA rate. It was decided many, many years back and has already been delayed once. In fact, one assumption of the policy - that there is no 30-year SGS, so the government will just take the 10-year SGS yield and add 1% - is already quite out of date, because the government went ahead and issued a 30-year ordinary SGS in 2012.

So this policy, like all other elements of CPF, can be changed. Judging from recent policymaking trends and future needs, do you think the government is going to cut the SMRA rate? After adding this additional 1% interest for 55-year-olds, and pledging to increase their contribution rates further? So I predict this planned-but-never-implemented policy will also be revised. You can quote me on it.

There is always uncertainty about the future and about public policy. Contribution rates will change. Interest rates will change. Even the statutory minimum interest rate of 2.5% can be changed - you just change the law. It's not even the constitution (which can also be changed easily ). But we have to assume something for long term planning, so take the status quo policy.

But here's something interesting. Scenario: guy earns $2,200 per month and never gets a raise. Works from age 25 to 55 - 30 years, so I assume a working life even shorter than the minister's 32 years. The applicable contribution rates are as follows:

Special Account (% of wage)
35 & below 6%
Above 35-45 7%
Above 45-50 8%
Above 50-55 10.5%

I also ignore the extra interest rate on total balances >$60k and the new extra interest up to 6% for 55-year-olds and above. Let's apply a flat interest rate of 4% pa. His balance at age 55? About $108,600. At age 65, this balance would have grown to $160,700.

What if the SMRA rate is only 3% pa for all 30 working years? I am not even talking about current 10-year SGS yields + 1% = about 3.45%, I am taking the current 30-year SGS yield, 2.97%. His balance at age 55 will be $92,800. Age 65, $124,800.

We do not need gratuitous assumptions to show the broad conclusion - most people will have no problems meeting at least the Basic if not the Full Retirement Sum, so they have a healthy CPF LIFE payout. In fact, it takes gratuitous assumptions to prove the contrary. Don't be a sceptic, just work it out for yourself in Excel.

 

[lzydata]

How is this inspirational? Median salary for fresh poly grad 2.4k ? Wad a joke seriously, only shows how much touch he has lost with the ground... a fresh local u pass degree grad would already b happy to get 2.5~2.8k today

From POLYGES 2014, the polytechnic Graduate Employment Survey, the median Gross Monthly Salary for Post-NS Graduates and all courses is $2,400. Granted, the median salary for fresh graduates is $2,000.

http://www.polyges.sg/downloads/GES2014PR.pdf

Are you more in touch with the ground than a survey of 15,000 people?

 

[havetheveryfun]

From POLYGES 2014, the polytechnic Graduate Employment Survey, the median Gross Monthly Salary for Post-NS Graduates and all courses is $2,400. Granted, the median salary for fresh graduates is $2,000.

http://www.polyges.sg/downloads/GES2014PR.pdf

Are you more in touch with the ground than a survey of 15,000 people?

No, because anyone with half a brain will know to take these surveys with a pinch of salt. Just like the recent one abt local u grad median starting pay 3.2k

 

[havetheveryfun]

Here's the background of this policy of floating the SMRA rate. It was decided many, many years back and has already been delayed once. In fact, one assumption of the policy - that there is no 30-year SGS, so the government will just take the 10-year SGS yield and add 1% - is already quite out of date, because the government went ahead and issued a 30-year ordinary SGS in 2012.

So this policy, like all other elements of CPF, can be changed. Judging from recent policymaking trends and future needs, do you think the government is going to cut the SMRA rate? After adding this additional 1% interest for 55-year-olds, and pledging to increase their contribution rates further? So I predict this planned-but-never-implemented policy will also be revised. You can quote me on it.

There is always uncertainty about the future and about public policy. Contribution rates will change. Interest rates will change. Even the statutory minimum interest rate of 2.5% can be changed - you just change the law. It's not even the constitution (which can also be changed easily ). But we have to assume something for long term planning, so take the status quo policy.

But here's something interesting. Scenario: guy earns $2,200 per month and never gets a raise. Works from age 25 to 55 - 30 years, so I assume a working life even shorter than the minister's 32 years. The applicable contribution rates are as follows:

Special Account (% of wage)
35 & below 6%
Above 35-45 7%
Above 45-50 8%
Above 50-55 10.5%

I also ignore the extra interest rate on total balances >$60k and the new extra interest up to 6% for 55-year-olds and above. Let's apply a flat interest rate of 4% pa. His balance at age 55? About $108,600. At age 65, this balance would have grown to $160,700.

What if the SMRA rate is only 3% pa for all 30 working years? I am not even talking about current 10-year SGS yields + 1% = about 3.45%, I am taking the current 30-year SGS yield, 2.97%. His balance at age 55 will be $92,800. Age 65, $124,800.

We do not need gratuitous assumptions to show the broad conclusion - most people will have no problems meeting at least the Basic if not the Full Retirement Sum, so they have a healthy CPF LIFE payout. In fact, it takes gratuitous assumptions to prove the contrary. Don't be a sceptic, just work it out for yourself in Excel.

do you know the reason why so many ppl are angry and upset over the CPF even though sometimes it makes logical sense when everything is put out in numbers?

Because the CPF is unnecessarily complicated as can seen from this thread alone. CPF should be something that is straightforward and easy to understand for everyone. If even young people like us have to read so much and debate to understand fully, how to expect the older generation (which some dont even understand English) to understand?

The needless and unnecessary complications only serve to make people even more skeptical about the CPF. and because its too complicated, it takes time for ppl to digest the changes, and by the time ppl have digested the changes and realized they are not happy with it, they come up with some more changes, and people have to read up and digest again. to the point that they are pissed off and dont care about it anymore and just think that the govt wants to steal their monies. Thats where the real problem lies. and the qn is, why does it have to be complicated? with their "talent", they should be able to think up of a simpler CPF reform that works for everyone and also easy to understand for everyone, right ?

 

[lzydata]

do you know the reason why so many ppl are angry and upset over the CPF even though sometimes it makes logical sense when everything is put out in numbers?

Because the CPF is unnecessarily complicated as can seen from this thread alone. CPF should be something that is straightforward and easy to understand for everyone. If even young people like us have to read so much and debate to understand fully, how to expect the older generation (which some dont even understand English) to understand?

The needless and unnecessary complications only serve to make people even more skeptical about the CPF. and because its too complicated, it takes time for ppl to digest the changes, and by the time ppl have digested the changes and realized they are not happy with it, they come up with some more changes, and people have to read up and digest again. to the point that they are pissed off and dont care about it anymore and just think that the govt wants to steal their monies. Thats where the real problem lies. and the qn is, why does it have to be complicated? with their "talent", they should be able to think up of a simpler CPF reform that works for everyone and also easy to understand for everyone, right ?

I would be very interested to see any suggestion from you that will make it simple and easily understandable AND ALSO will please everybody.

 

[havetheveryfun]

I would be very interested to see any suggestion from you that will make it simple and easily understandable AND ALSO will please everybody.

pay me the same salary as them then i will. if not why should i even bother ?

note that i am not against the CPF, i think it is really required because i have frens n close relatives who cant save for nuts and i cannot imagine their life after 55 if they do not have CPF at all and also no savings in their banks.

i also dont need them to please everybody, but at least if they want to make it complicated, make it easier for ppl to understand. the first time i wanted to transfer some $ from my OA to SA, I had to search high and low before I found how to do it.

 

[havetheveryfun]

the first thing they should do is to put every calculator required BIG BIG on their CPF homepage

cpf contribution calculator
cpf allocation calculator
compound interest calculator
CPF life payout estimator calculator
a calculator that can count their interest rate based on the so many different % per 30k,60k, blah blah together
etc

maybe also CPF allocation rates to OA/SA/MS per age group

so that at least even if ppl don understand the CPF completely, they still at least know where their monies are going to. of cos, all these calculators are actually on the website, but they are always hidden somewhere and not that easy to navigate to

 

[teerance85]

the first thing they should do is to put every calculator required BIG BIG on their CPF homepage

cpf contribution calculator
cpf allocation calculator
compound interest calculator
CPF life payout estimator calculator
a calculator that can count their interest rate based on the so many different % per 30k,60k, blah blah together
etc

maybe also CPF allocation rates to OA/SA/MS per age group

so that at least even if ppl don understand the CPF completely, they still at least know where their monies are going to. of cos, all these calculators are actually on the website, but they are always hidden somewhere and not that easy to navigate to

It's not difficult to navigate.

Front page -> Calculator/Games.

Thats all

 

[lzydata]

Medisave Contribution Ceiling to be renamed; Medisave Minimum Sum to be scrapped | TODAYonline

Now the Basic Healthcare Sum will be cohort-based like the retirement sums, and there is no minimum amount one has to keep in the MA. This is a significant concession to those people who fear that they will be forced to keep ever growing amounts in there.

 

[tiny]

Since there is no more Medisave Minimum Sum. Won't people rather top up SA instead of MA?

 

[rayleigh]

No, because anyone with half a brain will know to take these surveys with a pinch of salt. Just like the recent one abt local u grad median starting pay 3.2k

How much do you know about this survey? Can share how is the survey being implemented and discharged? Who administer this survey? What is the targeted min number of responds from graduates required? Share with us what you know and I will share mine. That will certainly clear all doubts.

 

[havetheveryfun]

How much do you know about this survey? Can share how is the survey being implemented and discharged? Who administer this survey? What is the targeted min number of responds from graduates required? Share with us what you know and I will share mine. That will certainly clear all doubts.

unless u are the ones in the office who planned these surveys and also tabulated the results, no doubts will be cleared. because even if you were one of them, I doubt you are supposed to leak those information out to the public.

I don't know much about the diploma one but for the local uni one, there were actually many repetitive questions, and a few which keep repeating about your current pay. not every grad will do the survey and those who are underemployed or jobless may not even bother. well u could also say that the (no of underemployed or jobless) and the (no of grads who earn a lot more) maybe be ard the same no so they cancel each other out. there isn't much incentive for ppl to spend their time to complete the survey anyway except for a lucky draw

the other thing is that a lot of fresh grads put their expected salaries based on the past salaries done by this survey in the past, and most of them got shot down hard

in a way, you could also say that the survey is fair. because take for example the recent one about local uni last year, they did report saying only 89.x% of grads who took the survey found a job within 6 months after graduation, but they emphasized more on the median salary instead. now here is some of the ??? regarding this-

- why 6 months ? the survey did have a section asking how long did they find a job after graduation. the mentality ingrained into undergraduates have been that they could easily find a job upon graduation

- what about the 10% who haven't found a job within 6 months? if the survey is not done by ALL grads, and already 10% have difficulty finding jobs, you can imagine the number may be a LOT more

- lets say if a grad puts himself as working a temp job or part time job because he had difficulty finding a job, is it included in the 89% or not? no one knows

 

[djchris]

I'd definitely prefer to top up the SA over MA if I am planning for that sum of money for retirement. We can argue about CPF policies all we want, but end of the day, we have to plan according to these changes and be flexible in our retirement plans. After all, CPF should only be 20-30% of my retirement portfolio.

At least that's what I think.

 

[lzydata]

Since there is no more Medisave Minimum Sum. Won't people rather top up SA instead of MA?

Hmm. Right now people will top up the MA until they reach the MCC and/or top up the SA until they reach the prevailing MS. Both subject to the overall CPF annual contribution cap. Don't think the MMS will be part of the consideration. In any case, if one hits the MCC or the future BHS, the excess new contributions and interest will go to the SA.