Saturday, May 10, 2014

Musing on the New 2014 Increase In CPF Minimum Sums

The news came out just a few days ago, you can read it at this article, The new CPF Minimum Sum has been raised by $8,000 from $148,000 to be $155,000 now. Singaporeans can withdraw from their CPF when they turn 55 years old. The Medisave Minimum Sum has also increased from $40,500 to be $43,000 now, as well.

Some related links:
Withdrawing CPF at 55
CPF Minimum Sum

Medisave Minimum Sum
CPF Life

This means that Singaporeans turning 55 can only withdraw from their CPF amounts in excess of $155,000 + $43,000 = $198,000!

Just how much money would $155,000 be anyway, assuming you have more than $198,000 in your CPF account and you withdrew until the required balance? Well, you would still have the $43,000 required of the Medisave Minimum Sum and you will also then be having the CPF Life annuity plan, with the payout as follows (using an example, of course)

Honestly, $1,200 in today's term a month is pretty good I think! I'm assuming that you already own your property in full (no outstanding payments) that you're going to live in until your deathbed, and you will have no other source of income.

However, the public reaction to this has not been good.

Many people are currently unhappy with this news. In both the taxis that I took in the past 2 days, the taxi drivers were complaining to me about this increase. I really can sympathize with them. How many people actually have CPF in excess of $198,000? If they don't, then they don't receive a dime from their own money (the locked-up CPF) until they reach the age of 65 and the payouts begin. So for most people, early retirement with the view of enjoying and living off your CPF savings when you reach 55 is false! You still have 10 years of living and providing for yourself until you reach 65!

Taken straight from the CPF website, this shows the historical increase in the CPF minimum sum. Add in the recent announce of the new $155,000 and now you have the full picture.

Now, here's the inflation rate of Singapore since 2003.

Now, let me combine these information and make it into a nice and pretty table for you all to see and compare.

Even though I have data from 2003, I don't have a previous year of comparison, so I only used it to calculate the 2004 difference. Since I don't have the 2014 inflation stats yet, so 2014 is of course also excluded. The main error here is the time matching error, since the period of increase starts in July, while inflation is all year round. However, you can see that it does not matter, since the increase in the Minimum Sum is always larger than the annual inflation rate!

Honestly, I am quite shocked. I always through our government to be quite prudent and transparent in their dealings. No doubt, the facts and figures are available and transparent. My concern is how the process in deciding the increase in the minimum sum is calculated, and how can it be justified? If the Minimum Sum increases were 1 or 2 % higher than the annual inflation rate, you can always use margin of error as a good excuse, as well as the real increase in living costs in Singapore. Is an annual extra 3.6% increase justified? I think not.

The biggest shock to me is how large the difference in the geometric total is. Basically, you are required to lock up an additional 50+%, for no reason! Purchasing power is the same, since the inflation figures are there for adjustment. Sure, it is stated that they want a real increase in the CPF minimum sum, hence the continued increase in MS above inflation.... but why? Has basic costs of living since 2003 and now increased by 50% in real terms?

As much as I am a strong supporter of government assisted pension plans and the psychological benefits (and of course, economic benefits) of forced savings, which are tied-up and locked away from hands with temptations, I feel quite strongly against this recent news. The increase in the CPF Minimum Sum is not fair and not warranted in my personal view.

I will be monitoring the massive blow back by the public. More importantly, I will be monitoring the current government's way of handling this and their rationale behind this stark divergence. I will, of course, vote accordingly to express my pleasure / displeasure in the way they manage this in 2016. I urge fellow Singaporeans to be more active and involved in this particular topic, since it affects all of us. If anyone has any opinions, I would love to read your comments.

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