How CPF locks up Singaporeans’ money
Whilst idly surfing the Web one night, I came across a blog post titled Can you really retire with CPF, Singapore’s plan? I learnt a startling revelation: In 2008 only a third (or 33.8%) of Singaporeans who turned 55 that year met the Minimum Sum requirement. That’s a shockingly low proportion.
The statistics may be obtained from CPF Board’s website here:
Among the active members who turned 55 in 2008, about one-third (33.8%) met the required MS (Chart 2). This is a drop from 57.1% in 1996, and could be attributed to the increase in the required MS from $40,000 in July 1995 to $106,000 in July 2008, and cuts in CPF contribution rates in 1999
The CPF Minimum Sum, if one recalls, is the minimum sum of money a CPF depositor has to retain in his/her account whilst being able to withdraw the rest. And get this, only a third of Singaporeans have this amount in their account when they turn 55. To make things worse, if it’s not bad enough, Singaporeans who have more than the Minimum Sum of S$117k in their account but less than S$195k may only withdraw up to 40% of their money in both the Ordinary and Special accounts:
|Q:||Can I be exempted from setting aside the Minimum Sum if I have an annuity policy that I bought using cash?|
|A:||If you reach 55 between 1 July 2009 and 31 December 2009, the following rules apply:
*The Retirement Account is created when a member reaches age 55.
**The CPF Minimum Sum for members turning 55 between 1 Jul 09 to 30 Jun 2010 is $117,000. The Board will announce the CPF Minimum Sum figure (adjusted for inflation) in June each year.
From 1 January 2009, members who reach 55 can only withdraw 40% of their Special and Ordinary Account balances, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Required Amount in the Medisave Account. This percentage of withdrawal will go down by 10 percentage points each year until the year 2013.
Please click here for the percentage of the Ordinary and Special Account balances that can be withdrawn at age 55.
From 1 January 2013, members who reach 55 can withdraw their Special and Ordinary Account balances only after setting aside the CPF Minimum Sum and Medisave Minimum Sum. However, members can still withdraw the first $5,000 from the CPF account at age 55.
So we know from CPF Trends that only 33.8% of Singaporeans met the Minimum Sum. Now, it goes without saying that even fewer of them would have more than S$195k in their accounts. These people who have more than the CPF Min. Sum but less than S$195k would be allowed to withdraw only 40% of their savings. It makes you wonder if their CPF funds belong to themselves or the state.
Now, there exists some exceptions whereby one may be exempted from the CPF Minimum Sum scheme. This occurs when one has purchased annuity policies from CPF which pay out a sum which exceeds the one guaranteed by the depositor’s CPF Life scheme. Sounds like a great way to evade the Minimum Sum scheme, don’t you think? Except there is a major requirement hidden in the fine print:
Yes, you may submit your cash annuity policy/policies for CPF Board’s consideration if your policy/policies was/were bought from approved insurance companies. However, the annuity policy/policies must satisfy the following conditions:
1) The annuity payment(s) must be for life and will only cease upon your death. The annuity payment(s) must be payable when you reach the Minimum Sum draw-down age, currently age 62.
2) For full Minimum Sum exemption, the annuity payment must not be lower than the monthly payment payable by CPF Board. If the annuity payment is lower than the monthly payment payable by CPF Board, partial exemption will be granted. You will then be required to set aside a reduced Minimum Sum. This reduced amount may be in the form of cash or a property pledge.
<sarcasm>Wow, so many to choose from! I’m spoilt for choice! </sarcasm> This is yet further evidence that Singapore is an ultra-authoritarian nanny state. Remember the CPF Investment Scheme? The scheme which supposedly allows Singaporeans to invest their CPF funds? Well, you’re free to choose what you’d like to invest in! Free to choose from a CPF-approved list of financial instruments that is. And that is after you’ve set aside S$30k in your Special account and S$20k in your Ordinary account. You may now invest the balance (if there’s any substantial amount left). It doesn’t take more than plain common sense to realise that people grow more risk-adverse when they get older (and most prefer to invest when younger anyway), and despite their larger CPF balances at a fairly mature age they may not want to invest the remainder of their money. Seen from this perspective, this may be considered another trick by CPF to dissuade investments and for its coerced depositors to stick to a paltry 2.5% rate (which again is downright pathetic compared to other countries)
Returning back to the topic on Minimum Sum, CPF Trends has a chart on how fewer and fewer Singaporeans are able to meet the Minimum Sum requirements over time as the Minimum Sum is revised upwards yearly(even for lame reasons this year):
To add insult to injury, the document concludes that the steady increment of Minimum Sum through the years is precisely meant to lock away more and more of Singaporeans’ savings:
From 1 January 2009, members who reach 55 can only withdraw 40% of their Special and Ordinary Account balances, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Required Amount in the Medisave Account. This percentage of withdrawal will go down by 10 percentage points each year until the year 2013. With this, CPF members will be able to have more savings set aside in their Retirement Account.
Here’s a historical look at past CPF Min. Sum requirements: