Trust in CPF?

[BBCWatcher]

It doesn't really matter to me how many accounts there are. My only concern is that CPF should go back to what it was originally meant for: retirement and retirement only....

You're making many of the arguments the particular minister who broached this idea likely has in mind.

In terms of public policy, something like this formula would make a great deal of sense to me:

(a) Halt new compulsory and voluntary OA contributions, and thus boost every worker's take home pay;

(b) Close out the Ordinary Accounts. If the member has met the Full Retirement Sum, all OA funds are returned automatically. If not, a substantial portion of the OA funds would be automatically returned, calculated based on age and how close the member is to the FRS. The member could choose to deposit funds in SSBs up to normal limits ($100,000/person) but without oversubscription constraints. Housing and education funds flow back into OA per normal existing rules and then are automatically returned partially or fully per these new rules.

(c) Take the tax savings associated with the reduced tax relief that OA contributions enjoyed, and shift that to increases in HDB grants for low and moderate income/wealth Singaporeans.

(d) If SSBs are oversubscribed in the regular monthly market, fill all orders up to $10,000 (even if that means increasing the SSB issue), then cut off the rest per normal oversubscription rules. SSBs are going to get really silly if you can only get $500 per buy, so let's prevent that problem before it happens.

(e) Consider increasing MA contributions and limits to go along with an expansion of MediShield Life to include a new, compulsory ElderShield Life. ElderShield Life would start from birth and would pay $1,000/month (2018 dollars, automatically adjusted every 3 years for inflation) for those who meet a 2 out of 6 Activities of Daily Living (ADL) disability test ("Class A") and 50% of benefits for a "Class B" disability (i.e. significant mental impairment). The Class B benefit would also be paid to each surviving minor child when a parent dies (or suffers a Class A or Class B disability), for as long as that child is a minor (and the parent is dead or collecting ElderShield Life benefits). Benefits would not be means tested but would be subject to ordinary progressive income tax, tax free for the vast majority who don't rise above the 0% bracket. ComCare would be adjusted (i.e. decreased in budgetary terms) to fill any remaining gaps. Like MediShield Life, premiums would be subsidized for low income/low wealth Singaporeans. Premiums would be deducted from MA. Overseas Singaporeans would be able to opt out of ElderShield Life only if they maintain acceptable disability coverage (governmental or private) that is at least as good as ElderShield Life, and those who opt out of ElderShield Life can only reenter if they pay a special reentry premium and if disability has not occurred prior to their return to Singapore. Those who wish to buy more ElderShield Life coverage would be able to do so, on a straight percentage basis up to 300% and using cash, and subject to certain moral hazard safeguards. Benefits would be coordinated for NSmen, and they would be bumped up to 200% coverage free of charge for as long as they are in active NS.

(f) MA funds can no longer be used for pay the difference in cost between an Integrated Shield private hospital plan and the insurer's highest level Integrated Shield public hospital plan (typically public hospital A ward). Those who choose the private hospital plan would have to pay the premium uplift in cash, but they could still use MA to pay a portion of the plan cost (the portion up to the cost of the same insurer's best Integrated Shield public hospital plan). That'll help conserve MA funds for ElderShield Life premiums and also tame escalating private hospital costs a bit.

....So, right now for those age 35 to 45 the Ordinary Account contributions (employer and employee) are adding up to 21 percentage points of the 37% total. Eliminating all 21 percentage points would drop the maximum contribution rate to 16% (employer and employee). Bump it back up to ~20% to cover the higher MA/ElderShield Life, smooth out the contribution and allocation rates across age ranges (making them much simpler), and there you go, you've got a better CPF, more focused on retirement and basic financial security needs while housing is more heavily subsidized for those who need the help, and every worker has more take home pay (and less skew in favor of foreign workers who aren't subject to CPF contributions).

 

[swordsly]

You're making many of the arguments the particular minister who broached this idea likely has in mind.

... ...

A lot of information to digest; not particularly good with these stuffs.

But more importantly, which minister is it? If you cant share publicly for some reason, pm me? Thanks.

 

[w1rbelw1nd]

And let it allow capital flight?

Whats the concern with capital flight?

 

[BBCWatcher]

But more importantly, which minister is it?

Sorry, it's an economist's idea. See here for some of the reporting.

I agree with the article: it's a sound idea. But the problem is that huge numbers of Singaporeans, including many politicians, are heavily invested in real estate. If the government stops effectively forcing people to stash a big chunk of their paycheck away specifically for housing, then housing prices will moderate, which is a good thing, especially for younger Singaporeans. (And, I would add, the tax expenditure savings associated with CPF OA can be/should be redirected toward more generous HDB grants for low/moderate income Singaporeans.)

Moreover, there are some people who argue rather persuasively that all this "navel gazing" around property investing is taking lots of energy and effort away from more sustainable entrepreneurship and business expansion. Singapore really doesn't need any more real estate "tycoons," but it does need more biomedical innovations, high technology breakthroughs, and so forth -- new, growth-oriented business endeavors that leverage Singapore's strengths. If the brightest minds are trying to figure out how to improve rental yields from 1.85% to 1.86%, or whatever, that's not helping Singapore become more prosperous, more productive, and more competitive in the global economy. It's a related argument to the hyper-financialization in many developed countries, where the best and the brightest are really not adding much value sitting at trading desks and the like. (Efficient capital allocation isn't all that complicated and shouldn't be as GDP-expensive as it is.)

CPF OA is really pretty badly designed, actually, if you're trying to help low and moderate Singaporeans get into their first homes. The tax relief is highest for those with the fattest incomes and lowest for those with modest incomes, exactly backwards. And the fact OA can be tapped even for private properties is just bizarrely bad, in public policy terms.

Anyway, I'm generally sympathetic to the idea, but the way I'd address the howls of protest is simply to return most of the OA funds automatically, which of course would be wildly popular.

 

[Toni90]

The fact is Singapore has one of the highest house ownership. It shows that CPF policy is working. No need any big change. Little bit here and there is OK.

 

[swordsly]

Sorry, it's an economist's idea. See here for some of the reporting.

Oh him. Yeah I read his views.
I knew it was too good to be true; a minister making such radical suggestions.
You brought my hope up and crushed it

Moreover, there are some people who argue rather persuasively that all this "navel gazing" around property investing is taking lots of energy and effort away from more sustainable entrepreneurship and business expansion. Singapore really doesn't need any more real estate "tycoons," but it does need more biomedical innovations, high technology breakthroughs, and so forth -- new, growth-oriented business endeavors that leverage Singapore's strengths. If the brightest minds are trying to figure out how to improve rental yields from 1.85% to 1.86%, or whatever, that's not helping Singapore become more prosperous, more productive, and more competitive in the global economy. It's a related argument to the hyper-financialization in many developed countries, where the best and the brightest are really not adding much value sitting at trading desks and the like. (Efficient capital allocation isn't all that complicated and shouldn't be as GDP-expensive as it is.)

I do share the same view as well.
So much focus on wealth building that doesn't add value to the nation. Sure our GDP goes up, then what?
While other countries have moved forward, churning out new/improved services and solutions, we stay stagnant as a "financial hub" and one-step behind, always playing catch up.
But I digress.

 

[BBCWatcher]

The fact is Singapore has one of the highest house ownership.

Is that a good thing?

In Switzerland, the home ownership rate is about 43%. Yet the Swiss are, on average, much wealthier than Singaporeans, and that's counting their home equity and CPF balances.

By the way, Singaporeans don't actually own their HDB units. They own leaseholds on their HDB units. Everybody living in HDB is a renter. Some have longer leases and different payment terms than others, but everybody is renting. It's "only a financial construction."

I think a focus on home ownership as a goal in and of itself is misguided. The focus ought to be on greater wealth, prosperity, health, happiness, and avoidance of destitution. To the extent home ownership contributes to those overarching goals, OK, fair enough, but the Swiss are doing quite well with about half as much home "ownership."

 

[peterchan75]

If TS is a salary earner, a percentage of salary + a percentage from employer goes to CPF whether TS trust CPF or not. Once TS reach 55, then TS has a choice to withdraw what is in the OA. RA and MA untouchable. Trust is a very personal thingy.

 

[Toni90]

Is that a good thing?

In Switzerland, the home ownership rate is about 43%. Yet the Swiss are, on average, much wealthier than Singaporeans, and that's counting their home equity and CPF balances.

By the way, Singaporeans don't actually own their HDB units. They own leaseholds on their HDB units. Everybody living in HDB is a renter. Some have longer leases and different payment terms than others, but everybody is renting. It's "only a financial construction."

I think a focus on home ownership as a goal in and of itself is misguided. The focus ought to be on greater wealth, prosperity, health, happiness, and avoidance of destitution. To the extent home ownership contributes to those overarching goals, OK, fair enough, but the Swiss are doing quite well with about half as much home "ownership."

Singapore people think that it is a good thing. Gov here don’t care about What u think or what Swiss people think.

 

[BBCWatcher]

Here's an interesting question: if you're going to force somebody to save a portion of their paycheck, why are you forcing that person to save a portion specifically for housing?

For retirement, there's some sensible, strong logic. That's a pure time shift, humans aren't very good at that (the empirical data is really, really clear on that), there's a serious risk of outliving savings, and civil society simply isn't going to tolerate too many too destitute elderly citizens. You can choose to finance longevity insurance through compulsory individual savings, general taxation, or some of both, but longevity risk is real and important to solve.

Disability, same thing. A civil society needs to insure that. (Singapore has much more work to do here.)

Medical, same thing. Civil society isn't going to allow its citizens to bleed to death on the streets.

But housing specifically in the form of 99 year (or less) leaseholds? Well, OK, homelessness is bad, and the government has a proper role in preventing that. But homelessness is solved with income (such as wage subsidies), subsidized housing for low income/wealth Singaporeans (e.g. bigger HDB grants), and temporary homeless shelters. Why should the government be effectively forcing people to allocate their capital to home equity specifically?

If you're going to complain about CPF "tyranny," how about complaining about that? The biggest chunk (by far) of your CPF compulsory contributions is for OA. Here's the percentage of your compulsory CPF contributions (and voluntary "all three" top-ups) that goes into OA, up to your 55th birthday:

Age 35 and below: 62.2%
Above 35 to 45: 56.8%
Above 45 to 50: 51.4%
Above 50 to 40.5%

It's not until you reach age 50 that MA+SA combined represent over 50% of your contributions. And these percentages are somewhat undercalling the problem because MA is capped. Once your MA hits the Basic Healthcare Sum, that portion of your compulsory contributions can jump into your OA, if your SA has reached the Full Retirement Sum. OA (primarily for housing) isn't capped.

This is bizarre! And why is a 50+ year old still chucking over 40% into OA anyway? To make a down payment on her first home? That makes no sense!

OK, to an extent you can manually fix this problem if you want your CPF to behave more like a pure retirement account, and I think you should. You can convert OA funds to SA every month. The only problem is you can only do that until your SA hits the Full Retirement Sum. If your CPF contributions are streaming in at about $20,000/year, let's suppose, you can run that OA to SA conversion play for about a decade. Then that play won't work any more, and you'll have to accumulate some OA funds.

 

[BBCWatcher]

Singapore people think that it is a good thing.

Yes, I know many Singaporeans do, but is it a good thing?

Not being homeless is good. Stable neighborhoods are probably good. Expensive homes, and people with the vast majority of their personal wealth concentrated in their homes? Are those good things? Effectively forcing people to save to accumulate home equity -- is that a good thing?

 

[Toni90]

U want majority of Singaporean living on rented flat? Then later living in a cage like in Hong Kong? It is the policy u think is the best for people?

 

[mummy1234]

Here's an interesting question: if you're going to force somebody to save a portion of their paycheck, why are you forcing that person to save a portion specifically for housing?

For retirement, there's some sensible, strong logic. That's a pure time shift, humans aren't very good at that (the empirical data is really, really clear on that), there's a serious risk of outliving savings, and civil society simply isn't going to tolerate too many too destitute elderly citizens. You can choose to finance longevity insurance through compulsory individual savings, general taxation, or some of both, but longevity risk is real and important to solve.

Disability, same thing. A civil society needs to insure that. (Singapore has much more work to do here.)

Medical, same thing. Civil society isn't going to allow its citizens to bleed to death on the streets.

But housing specifically in the form of 99 year (or less) leaseholds? Well, OK, homelessness is bad, and the government has a proper role in preventing that. But homelessness is solved with income (such as wage subsidies), subsidized housing for low income/wealth Singaporeans (e.g. bigger HDB grants), and temporary homeless shelters. Why should the government be effectively forcing people to allocate their capital to home equity specifically?

If you're going to complain about CPF "tyranny," how about complaining about that? The biggest chunk (by far) of your CPF compulsory contributions is for OA. Here's the percentage of your compulsory CPF contributions (and voluntary "all three" top-ups) that goes into OA, up to your 55th birthday:

Age 35 and below: 62.2%
Above 35 to 45: 56.8%
Above 45 to 50: 51.4%
Above 50 to 40.5%

It's not until you reach age 50 that MA+SA combined represent over 50% of your contributions. And these percentages are somewhat undercalling the problem because MA is capped. Once your MA hits the Basic Healthcare Sum, that portion of your compulsory contributions can jump into your OA, if your SA has reached the Full Retirement Sum. OA (primarily for housing) isn't capped.

This is bizarre! And why is a 50+ year old still chucking over 40% into OA anyway? To make a down payment on her first home? That makes no sense!

OK, to an extent you can manually fix this problem if you want your CPF to behave more like a pure retirement account, and I think you should. You can convert OA funds to SA every month. The only problem is you can only do that until your SA hits the Full Retirement Sum. If your CPF contributions are streaming in at about $20,000/year, let's suppose, you can run that OA to SA conversion play for about a decade. Then that play won't work any more, and you'll have to accumulate some OA funds.

Maybe because our government needs a cheap source of funds to borrow from like CPF and SSB? I think it indirectly helps to keep our currency strong too. Which is a good thing.

 

[BBCWatcher]

U want majority of Singaporean living on rented flat?

I (most probably) want Singaporeans to be able to choose freely whether they buy 99 year leaseholds or not. I don't understand why the government should pressure them, through forced savings, to buy homes. This is a question about forced savings that (effectively) must be pushed into home equity (and tied up there), not about whether Singaporeans can or cannot buy homes if they voluntarily choose to do so.

Now, as it happens, if you stop forcing people (including those who don't want to) to buy houses, some people won't buy houses. That means the price of houses for everyone who does want to buy houses will go down some. So the Singaporeans who want to buy houses will be better able to afford them, and more Singaporeans who cannot afford houses will also be able to buy them, if they wish.

If you're going to force somebody to save a certain way, it better be for a damn good reason. How about just give Singaporeans voluntary opportunities to save for housing? How about a voluntary HA (Housing Account) that pays the 10 year bond rate (currently about 2.7%) and allows up to $15,000/year/person? (To replace SRS.)

CPF did not allow funds to be used for housing for most of its history. That's a relatively recent "innovation." But it has gotten out of hand.

 

[mummy1234]

U want majority of Singaporean living on rented flat? Then later living in a cage like in Hong Kong? It is the policy u think is the best for people?

No,would hate living in cages like HK.

 

[mummy1234]

I (most probably) want Singaporeans to be able to choose freely whether they buy 99 year leaseholds or not. I don't understand why the government should pressure them, through forced savings, to buy homes. This is a question about forced savings that (effectively) must be pushed into home equity (and tied up there), not about whether Singaporeans can or cannot buy homes if they voluntarily choose to do so.

Now, as it happens, if you stop forcing people (including those who don't want to) to buy houses, some people won't buy houses. That means the price of houses for everyone who does want to buy houses will go down some. So the Singaporeans who want to buy houses will be better able to afford them, and more Singaporeans who cannot afford houses will also be able to buy them, if they wish.

If you're going to force somebody to save a certain way, it better be for a damn good reason. How about just give Singaporeans voluntary opportunities to save for housing? How about a voluntary HA (Housing Account) that pays the 10 year bond rate (currently about 2.7%) and allows up to $15,000/year/person? (To replace SRS.)

CPF did not allow funds to be used for housing for most of its history. That's a relatively recent "innovation." But it has gotten out of hand.

Because most people will not save due to lack of discipline. Forced saving for retirement is good.

 

[BBCWatcher]

Maybe because our government needs a cheap source of funds to borrow from like CPF and SSB?

CPF OA isn't particularly cheap when you factor in the tax preference it gets. The government can raise funds less expensively on the debt markets.

No, I think the primary reason OA is so huge (and stays that way, so far) is that property owners, landlords, and agents -- and that includes many political leaders -- really, really like the idea of near-universal forced savings that effectively must be spent on housing. It's well designed if you're trying to jack up home prices.

If you're into conspiracy theories, CPF OA is a conspiracy organized by the property industrial complex, borrowing from the late Dwight Eisenhower a bit.

 

[BBCWatcher]

Because most people will not save due to lack of discipline. Forced saving for retirement is good.

Yes, that's retirement, agreed. Either that or raise general taxation to provide every Singaporean a guaranteed, inflation-indexed, basic income in retirement. But the Singapore government prefers the "individual responsibility" approach, so there you go.

So why forced savings for housing? That's the lion's share of CPF, and you cannot explain CPF without explaining that.

 

[mummy1234]

CPF OA isn't particularly cheap when you factor in the tax preference it gets. The government can raise funds less expensively on the debt markets.

No, I think the primary reason OA is so huge (and stays that way, so far) is that property owners, landlords, and agents -- and that includes many political leaders -- really, really like the idea of near-universal forced savings that effectively must be spent on housing. It's well designed if you're trying to jack up home prices.

If you're into conspiracy theories, CPF OA is a conspiracy organized by the property industrial complex, borrowing from the late Dwight Eisenhower a bit.

Much of Sgpn's wealth is tied up in property and perhaps in future we will need to think of housing as a roof over our head first. I don't believe that prices will go up forever like the reports say. Already from 6.9 mil now they talk about 6.3 to 6.5 mil by 2030 prob as more businesses move out from Sg. Prices have already run up too much and out of reach for many. That is why even some enbloc sellers choose to rent instead of buy.

If HDB resale prices come down, it will ultimately also affect the private property market won't it?

4G leadership is yet untested, I would rather take profit and diversify first.

 

[hwmook]

Singapore people think that it is a good thing. Gov here don’t care about What u think or what Swiss people think.

Don't think you are qualified to speak for Singaporeans. Who are you anyway? I personally think it's great idea to abolish OA and make everybody pay cold hard cash for property. In that way people will not always think of squeezing every cent from their OA by buying property.