CPF – What's Going On?!

cpf building
 
Two ministers spoke about the current state of the CPF system during this past month. What makes this unusual is the fact that the system has already been in place for over twenty years and we're only recently been told about the ins and outs of its function as a part of the national discourse. Do we have Roy and his impending lawsuit to thank for this? We don't know for sure but it has to be said that the attempts at explanation have been a long time coming. More and more Singaporeans are starting to question the reasoning behind the increases to the CPF Minimum Sum.
 
The G has been on a media blitz as it has repeatedly tried to explain things. The problem is that the G's explanation isn't going to reach most of the people it is trying to engage. REACH, the government's feedback arm has reported that while 8 in 10 know of the CPF system, most of them don't actually know how the pension fund/statutory board actually works. 1/2 of the 1000+ people polled don't even know that CPF Life will give them a monthly payout once they hit the age of 65. No one seems to have cared about this little tit bit because none of them have ever received a bad cheque from the CPF board. In fact the CPF continues to send out payments to retirees like clockwork. So why is there a huge kpkb fest over it now?
 
To put it simply: It's because people want access to our money when people want it or worse need it. People think that they are mature enough to know how to handle their own retirement plans. There's also the fact that people want all of their savings to themselves for their own personal use instead of having it locked away in some invisible "untouchable vault".
 
The announcement of the increase in the Minimum Sum to $155,000 was probably what caused the issue to bubble to the forefront yet again. Here's the thing that people need to remember/know: The Minimum Sum announcements only affect those who turn 55 in the year the announcement is made. In other words the Minimum Sum of $155,000 only affects people who turn 55 in the year 2014. It doesn't apply to other people who have yet to hit 55. That's the good news about the Minimum Sum announcements. The bad news? The Minimum Sum will keep getting higher thanks to inflation and the continuous rising cost of living.
 
Why does the Minimum Sum have to increase annually? Because your CPF is your retirement fund and according to G estimates, you need to have between $1,000 to $1,200 after retirement just to be able to survive. Key word here being survive. The Minimum Sum does not provide Singaporeans with the means to be comfortable. The implicit message that no one wants to say is this: we all need to save a lot more if we want to retire comfortably and take those around the world vacations that we dreamed about in our youth.
 
The G has tried to tell Singaporeans that they shouldn't be panicking at the $155,000 figure thanks to the property pledge. The problem that the G seems to be forgetting is that many people don't understand the property pledge and how it works. What happens to our pledged property if something happens that causes us to lose all our CPF cash? Does our property get "repossessed" like banks do with people who default on their mortgages? Or does the pledge provide us with some wiggle room to liquidate our homes for cash? It's something that the G really needs to explain and they have to do it in such a way that non financial professionals are able to comprehend what they're being told. 
 
Here's some other interesting statistics about the CPF issue that were released during this month:
 
a. 20% of last year's group of folks who turned 55, that's about 12,000 Singaporeans, didn't withdraw their excess Ordinary Account even though they were able to do so. Why didn't these people they take out their money? It's probably because they decided they had enough money to spare and decided that the CPF interest rate was a better investment than what could be currently found in the market.
 
b. 10% of people 55 years and older are still using their CPF to service their mortgages (presumably this is from their Ordinary Account). It's disconcerting to know that there are those among us who haven't finished paying off their homes by the time they hit the age of 55. Moral of the story: Don't be greedy. Buy a home within your means. 
 
c. Every year, about 500 of the people above 55 ask to be able to use their Retirement account to service mortgages because they've exhausted their Ordinary Accounts. About 2/3 of these requests are approved. The remaining 1/3 are given other financing/housing options. Moral of the story? Don't be greedy. Buy a home within your means.
 

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