CPF is really a big headache!

The controversy over this CPF issue is hogging main stream media and alternative news sites in cyberspace. The debates for or against CPF is still raging unabated and sweeping across the heart landers as MPs and Ministers keep coming out to explain their official position. But it seems that the more they try the worst it gets. Even the PM had to circulate an article from The Irish Times which berated Apple for using business jargon in one of its ads, the PM said that he had circulated the article to remind his colleagues to be “simple and direct when we communicate with the public.” Link

“Whether it is an informal conversation, a speech, or a press statement, say what you mean. Avoid management speak or big words which will not impress anyone. Use simple language which people can understand.”

Think the recent MP’s open dialogue on CPF with his residents turned into a PR disaster when one old lady begged for the return of her CPF. She was belittled and even highlighted the fact that she is staying in a landed property. What about the public verbal sparring between that MP and the Reform Party chief?

Now, we got a senior Cabinet Minister writing to the press to seek clarification of what he actually said about the CPF. He felt that he was misquoted by the main stream media.

Isn’t it quite obvious that most citizens spend their CPF on housing, healthcare and education? I believe most don’t speculate on shares. Only a certain limited amount is allowed to speculate on shares provided you have extra in your CPF. The problem lies in the ever increasing housing, medical and education costs that are eating away your CPF savings when our wages are not rising as fast.

Since the CPF hornets’ nest was kicked, there has been much speculation and debate amongst the heart landers. To be fair, the CPF institution is an excellent system to cater for our retirement needs. It also caters to our housing and medical needs. Nobody is faulting these uses in the CPF system. They are only more concerned about the minimum sum which keeps increasing year after year until they feel that they will not get part of their CPF when they hit 55 yrs.

Let me illustrate by giving two examples. In the first case, if he has $100,000 in his Ordinary Account(OA) after having satisfied the Special Account(SA) of $148,000 and MediSave of $42,000 when he reaches 55 yrs, I’m sure he will have no issue at all. He could just withdraw all the $100,000 from his OA anytime. What is he going to do with that $100,000 cash? If he deposits in the bank, the interest is less than 1%. Will he spend all his life savings of $100K at one go? Maybe, he will spend a little like going for his Haj if he is a Muslim, renovate his house a bit or go for that dreamt vacation tour. Still he will have some left over. Isn’t it better to leave it in the CPF earning much more interest than the bank. After all, he could always withdraw some CPF money on his birthday every year.

At the age of 55 yrs, I’m sure he will still continue working as per normal cuz the official retirement age is currently 62 yrs with option to continue till 65 yrs. If he is fit and healthy, I’m sure he would want to carry on working on his job to earn more CPF money. By the time he really retires at 65 yrs, he would have built up his nest egg in the Retirement Account far exceeding the minimum sum. Let’s not forget CPF pays 4% in the Retirement Account and 2.5% in the Ordinary Account. 4% of 150K is about $6,000. 2.5% of 100K is about $2,500. With total of $8,500 interest, it could easily cover the yearly increase in the minimum sum. It auto generates to cover the minimum sum. Whatever he earns as he continues to work will add extra to his RA.

There are many such Singaporeans of the above example. They usually work in the civil service or in statutory boards. From my conversation with them, they told me that they got no issue with the interests paid by CPF. They have complete faith in the CPF system. Some of them are past 55 yrs but still working accumulating more and more savings in their Retirement Account (OA+SA). They are satisfied with the current system. No need to explain to them about the CPF system.

But on another personal note, they did confide to me that they are worried that their savings could turn into worthless banana currency like the Zimbabwe currency. They keep printing money until they break the world’s record by a having a piece of Zimbabwe 100 Trillion dollars face value which is equivalent to only US$10! Link

Look at our neighboring countries’ currency. Their currency value keeps dropping whereas ours keeps increasing! If you think that this is the act of God, then I’m afraid you are making a big mistake! For a barren island without any natural resources where oil, gas and water – the essential ingredients in any modern economy – need to be imported, yet we are having the strongest currency in the world is by no accident. Many of us are so used to it that we take it for granted without realizing that our Sing dollar is much sought after by foreigners and the sheer amount of things we could buy when we cross over to neighboring countries! Most of those in the first quoted example do not want to “rock the boat!” They prefer the status quo and hope that our economy remains strong and robust maintaining it’s currency value. Link

The next group of people having issues with our CPF system are those not able to meet the minimum sum. Those are the people making such a ruckus and are extremely dissatisfied with the government.

Like I said in my earlier blog …

“To arbitrarily impose a minimum sum (currently is $148,000) across the board for all Singaporeans is illogical and unjust. Those earning $1,000 to those earning more than $10,000 also subject to the same minimum sum simply doesn’t make sense at all. It is not justifiable at all given the fact that it is our own money. If it belongs to us, then we should be given an option. But as it is, there is no option at all. The government decides and justifies it without even bothering to seek your consent. Is it your real money? If it is really your money and the money really belongs to you, then you should be able to decide for yourself. Not someone decides for you and still insists that it is your own money. What sort of logic is this?”

Link

Imagine when that person reaches 55 yrs and he only got $140,000 in his Retirement Account (OA+SA) and he is entitled to only $5,000 cash-out of his $140,000 in CPF. How would he feel? Will he be happy? Isn’t it cruel to him? After all, that is his money right? So we need to strike a balance and reconcile between his current urgent needs and future retirement monthly payout. Like what Encik Tan KL suggested maybe a third of whatever Retirement Account ought to be given back to him when he reaches 55 yrs. With the reduced amount in his RA, he will obviously get a smaller monthly payout when he retires. That will at least mitigate his sense of injustice if he is denied all his life savings in his CPF (except able to withdraw only a third of his CPF.)

According to statistics, there are many laypersons who could not manage large sum of windfall. Overnight they became rich with so many thousands of dollars, they started spending indiscriminately finishing their money fast. After all, they wanted back their CPF money so that they could spend. Definitely not to withdraw his CPF just put it in a bank earning interest below 1%? Once their money is gone, they will look for handouts. Whoever promises them the most handouts will get their votes without thinking where the money is going to come from? If money could just be printed 24/7, then the Zimbabweans would not be in such miserable situation.

However, if some of their life savings are still with CPF (having taken a third out), they would think twice about their future and their children’s future. Do they want their savings to go the Zimbabwean way? If we as a country spend more than we could earn, then the “Zimbabwean Day” may come soon within their life time. Now you understand why someone ever said “they will vote against the government if they don’t have money!”

Let us hope that the government could refine and tweak the CPF system to address this second group of disgruntled citizens fast. Let’s not drag it any more and allow it to fester cuz it’s getting more confused and divisive. It is in every one’s interest to resolve it once for all.

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