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UPDATE (12-12-2016).
State pension schemes in a number of countries are under tremendous stress. We try to look after our old people but in a sustainable way.
A very down to earth message from a reader, JQ, to ASSI's readers:
"Think of CPF as money that can be used for meaningful purpose than a windfall that you can splurge. If you looked at the flip side, for CPF, you contribute a certain amount, your companies topping up on top of your contribution and the government gives you a nice interest on it, so now whose money is it anyway? entirely yours?" JQ
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Hi JQ,
I liked a certain female politician from the opposition but when she shouted "Whose money is it, anyway?" during her rally, I dropped her from my favorite list.
After so many years blogging about financial matters, CPF or not, there is one group of people I have given up entirely. These are people who are ignorant, opinionated and stubborn.
If they are rich, they will manage somehow. If they are poor, well, I hope they win the lottery.
AK
12-12-2016
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Anyone who is in favour of the CPF would have to be very brave to speak up in Hong Lim Park today. Some netizens who were at the protest estimated the turnout to be between 3000 to 6000 people! This is truly mind boggling.
The speakers included Tan Kin Lian, Kenneth Jeyaratnam and the now very famous Roy Ngerng. I checked twice to make sure I got his surname right.
There is a whole lot of unhappiness. There is a whole lot of distrust. There is a whole lot of work for the government to do to diffuse this time bomb.
Yes, I feel that it is a time bomb.
If not handled sensitively and in a timely manner, it could turn out badly. I am sure no matter whether we are for or against the CPF, we do not wish for the country to sink into anarchy. Think Thailand.
Here are some photos netizens shared on FB:
Read a rather sterile report by Channel NewsAsia: here.
"... distrust is something so emotionally charged that it is guided by its own perilous logic and propelled by its own alarming momentum. It has already widened the original disconnect between the PAP and the people into an almost unbridgeable chasm." Catherine Lim.
Read the full impassioned plea by Catherine Lim: here.
Regular readers know what I think of the CPF and how I believe it could work for us.
The CPF is a good tool if we know how to make use of it.
However, if people no longer trust the system, then, it is almost impossible to even make them listen.
Related post:
Achieving level one financial security.
Bloggy Award
44 comments:
I think we are very lucky in life if we can afford to use CPF as a tool. There are definitely those who are less fortunate and who will not live to see their CPF monies. There are also some who are unfortunately enough to lose their roof and go hungry while starring at a full CPF.
The ironic thing about this protest is that those who want to take out all their CPF at 55, are precisely the same people who should not opt out of CPF life in the first place.
If you could not manage your wealth well in your 30s-55s, such that you are desperate for the CPF at 55, the probability is very high that you will also use up the CPF very soon.
I agree with Buggery. While I believe CPF is good, it is too inflexible for those who really need the cash.
Those who really view CPF is a good tool are ppl like us..who are spoilt for choice in investment instruments and come to a conclusion that its best for us to keep the money there.
And seriously, with news such that GIC is investing in china debt....this is really gambling to some.
The govt should spend less time and effort debating about the merits and demerits of the system.
Spend time making the connections to the right people. Those who don't trust the system. Intellectual exchanges are meant for the elites.
It's time to go on the offensive, so that it won't be time bomb, advertisements and blogging on minister Facebook are not going to work. Those that post in Facebook understand the flaws of the system, but they understand. Reach out to the misinformed.
Please... PAP, reach out to the heart of this group, not the head, listen and make some compromises that are valid.
I am uncertain if it is an accounting practice for CPF or Government, but perhaps they could reflect interest earned on a monthly basis or quarterly.
If members can see for themselves how much their balances are earning, they may be less inclined to withdraw and maybe more trusting.
At the moment, we have to wait till 3 Jan 2015 to know how much did we earn with 4% in SA, 2.5% in OA etc.
I guess it is a little too late now!
Hi Buggery,
It is true that there are those amongst us who are rather unfortunate. However, it is also true that many amongst us are lacking in financial prudence.
Whether people are less fortunate or lacking in financial prudence, forced savings will do them good. These are people who need a paternalistic hand in ensuring that they have spending money in their old age.
However, the system could be a bit forgiving, I agree, and cut some slack for those genuine cases that need help sooner than later.
I must say that there should be strict criteria for such allowances to be given and to prevent abuse. Also, such allowances should be viewed as a temporary measure as more permanent solutions to these CPF members' woes be offered. Otherwise, their CPF savings won't last very long.
Hi Kelvin,
Yes, I hear you and I am inclined to agree with you.
Realistically, there will always be these people around and I have a feeling that they form the majority or at least a big portion of the population.
I just have to look around me and I can say quite easily that more than half of my friends, family and extended family members are not financially prudent.
Forget about talking to them about financial literacy. Prudence should come first.
The argument that CPF money is ours and we should have total control over it is a persuasive one. This is something which anti-establishment people have waved around often enough.
Perhaps, the government could consider giving in to the requests of these people and make them sign an undertaking that if they should squander all their CPF money away, they will receive no help from the State.
This is almost like removing air bags from cars and instead introduce visible spikes in their place. People might think twice about driving recklessly then.
Hi pf,
When I first started my life as a working adult 18 years ago, I was not spoilt for choice. I was pretty cash strapped back then.
I tried my best to do the right things to ensure that I will have enough in my old age.
Now, 18 years on, I am spoilt for choice because of the tough choices I made in the past.
We cannot have our cake and eat it at the same time. There will always be opportunity costs.
Having said this, some people are naturally unlucky and life dealt them a bad hand of cards. With genuine cases that need help, I agree that the system could be more forgiving. However, more permanent solutions should be found to help this group of people to help themselves. I do not wish to see Singapore become a welfare state.
Hi Mike,
I agree with you. We must have both the hardware and the heartware. The latter is lacking.
A stitch in time saves nine. Now, it seems that nine stitches are unavoidable. The PAP government should start stitching soon. -.-"
Hi Veronika,
Answers are found here:
CPF Interest Rates.
"CPF interest is computed monthly, then compounded and credited annually to your respective accounts."
Yes, it would be nice if the interest earned is shown monthly. :)
A concession should be made in due course after the promised review of the system. For now, we wait.
Lol why u care if ppl no longer trust the system when the pap doesnt even care?
the authoritarian pap built this time bomb & many other time bombs, & one day the chicken will come home to roost.
i look foward to such a day hahahaha!
CPF - The working capital of GICs....
CPF is a great tool - for those who have abundance, for those who do not know what to do with the abundance, and for those who know very well what to do with most of their abundance....
CPF is a nightmare - for those less fortunate, under privileged, and those having problems making ends meet daily....
You can beg, you can cry, you can threaten, you can do everything you possibly can, but nothing will change, not CPF Act, not any policy, as long as this government is still the government....
So what can you do next? Embrace it, learn to live with it and make the best of it....
For myself, I have already transferred most of my OA into my SA to the maximum amount in order to earn the higher interest, and I will continue to transfer until my OA is zero....
When I reach 55 in a few years time, I will decide at that time what to do next....
If My health is manageable and I have nowhere else to park my extra cash, I will consider topping up my MS and MMS, firstly to earn higher interest of course, and also receive a higher monthly payout at my DDA with CPF Life Stadard Plan....
If my health is deteriorating and I can foresee I need all the cash I can get my hands on, I will just leave things as they are. If I get to live past my DDA, I can start receiving money. If I pass on, my wife gets a big lumpsum of cash to make her life easier....
In conclusion, CPF is a win-win to us, if I can't live to enjoy the rewards in my lifetime, at least I can rest in peace knowing that my family is well taken care of....
In my opinion, CPF isn't the problem. It is only the symptoms of deeper problem, that is "income inequality".
As long as the disparity continue to widen, we wont see these protest going away.
Hi AK63,
I agree with you and this reminds me of the analogy I shared with my friend recently about how the CPF is like his mother-in-law. ;p
Indeed, embrace the CPF since it is here to stay. Learn to make use of it to help secure our retirement finances. The options to do this with are available and, for many of us, it is a question of whether we want to play the game well.
For those who genuinely have trouble making the CPF work for them either through their own misadventures or misfortune, the system could consider being a little bit more forgiving.
Hi JLee,
Income disparity will always be there. I guess it is a matter of how much disparity is considered acceptable by the public at large.
In more advanced economies, income disparities are a bigger problem. So, as our country's economy advances, this problem is likely to become more pronounced.
Hi AK,
I am for CPF and I believe that it will work for those who are financially savvy. it is very sad that some people are making use of such populist statements to drive their agenda.
First of all, not everyone recognize that they may not be financially savvy. just look at the poor M'sian lady who lost 1miilion dollars in less than a year.
There are various reasons why the poor remain poor in many countries.
first of all, they do not want to upgrade themselves to take on more high valued jobs.
They may be unlucky in whatever jobs they are in.
They have very poor financial skills to manage their money.
many more reason.....
IMO, these ppl who are making such statements must stand by their words. In the event the govt returns these ppl their CPF, these ppl must take care of all those singaporeans who withdraws from CPF. the rest of Singapore should not be paying them if they lose all their CPF...
Hi AK,
I do not understand why ppl distrust the govt so much. to me, the govt had not betrayed us since Singapore gained independence.
PPL like Roy making such irresponsible populist speeches are trying to get ppl into trouble.
if the govt really allows ppl to withdraw their CPF. I hope it is done with the disclaimer that the rest of Singapore will no longer be responsible for these ppl if they lose their CPF. go look for Roy.
Hi Julian,
Yes, I agree with you. Precisely because of the reasons you have listed, we should have a paternalistic hand with regards to our CPF money.
I was told by a good friend that when his grandma passed away, his mom and 2 of her siblings shared $300K from the sale of the 2 room flat. His uncle got the lion share of the money. $120K. In less than a year, he was knocking on their door asking to borrow money. -.-"
It would have been better to ration out the money to his uncle. Even with an allowance of $2K a month, it would have given an elderly man a comfortable life and $120K would have lasted him 5 years even if not invested for higher returns.
Now, CPF Life is actually better It is an annuity that grows at 4% per annum and will pay us a monthly allowance till the day we die.
Having said all this, it is hard for the government to get through to anyone who no longer trusts the system. The government needs to do a better job of communicating with these people and to regain their trust. -.-"
Hi AK
Agree that govt needs to communicate better. but it is also important for the govt to be able to do its job.
there are some ppl with hidden agenda and will always find fault no matter if the matter is explained or not...
extremely disheartening.
As for your stance on putting all your OA into your SA. it is a good idea. but I have some use of OA at this point in time. but for one to be able to put OA into SA, deserves to be mentioned and applauded.
AK - The government needs to do a better job of communicating with these people and to regain their trust. -.-"
The line above sounds like the PAP who is still insisting it is a communication problem, nothing wrong with their policies.
Please no more 'talk only, no action' from the PAP, becos the proof of the pudding is deeds and actions, not mere talk & communication.
Hi Julian,
A transfer of funds from OA into SA as early as possible and, in my case, the first 4 years of my working life, will allow the magic of compounding do its work better. The more time there is, the stronger the compounding effect. :)
However, we have to be sure that we will not need the OA money in the near future for housing, for example. OA to SA transfer is a one way street.
Hi Ong,
If we are looking for proof that the system works, then, I think we will find my "e-book" on the matter interesting.
Yes, the proof is indeed in the pudding.
Recruit Ong: it might be good if you do further study on CPF again.... instead of hearing to populist bloggers or AK.
.... this way, with proper understanding of the system, only can you arrive on a rational conclusion :)
Hi Ana, seeing how things are on the ground and how the pap continues to screw up and lack foresight, the rational thing to do for me is to continue voting for the opposition and support those who have the courage to speak out against those who seek to oppress and silence the weak. :-)
Ong,
it is your right to vote for whoever you want. there is no need to tell us.
but to say "...support those who have the courage to speak out against those who seek to oppress and silence the weak" is a bit far-fetched.
this is because the weak has a voice in both the opposition and the PAP MPs. if you were to read the parliament extracts properly. You will know this or choose to ignore this.
More important, the govt must teach the weak to fend for themselves at the same time. the understanding of financial prudence is a must. because most of us not not born with a silver spoon and most of us will just lead a normal life....
AK,
Agree on your take on the OA to SA. But I am not as lucky as you since my commitment level for use of my OA is still there.... but nevertheless, the strive to achieve financial independence is necessary but it may be different paths for different people.
If I choose to not exercise my commitment, I will do the same as you (putting my OA into SA).
Hi Julian,
If we need our CPF-OA money to pay the mortgage on our home, then, we should not be as aggressive in transferring funds from OA to SA.
We could instead consider a voluntary contribution to our SA annually up to a max of $7K per annum. If we do this for a few years in a row, it will amount to quite a bit of money and compounding will work its magic for years to come. Of course, we must not forget the income tax relief too. ;)
The max allowed is $7K a year but it doesn't mean that it has to be $7K. It could be $5K, $2K or $1K. Whatever we can afford to put aside will add up over time.
"... always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something."
Charlie Munger
:)
Ak
Yes, I have started to put $7k into my SA in the last 2 yrs. the beauty of compounding is working its magic.
Of cos, I'll have less disposable income. But I understand cpf and HDB and iras better so there r other ways to utilize my OA.
Hi Julian,
Delaying gratification with less disposable income while securing meaningful risk free returns for retirement early. Sounds good to me. ;p
Of course, you pay less income tax in the meantime too. :)
:-)
Agreed....
I was pro opposition in 2011, but after 3 years - I think some of these opposition appear to be financially illiterate to me.
In Singapore, pro PAP is considered oppressed; while speaking up (even if the facts are all wrong) is the heroic thing. That's herd behavior, yes? No?
Better to verify the facts, so that you are not swayed just on someone's views. Facts are available on cpf's website...
And in my work , c
.... Cpf is so strict on the funds.
Define 'screwed up'.
Is pap screwed up because we cannot accept that foreigners or new immigrants can get rich in this land of opportunity?
Btw, DID YOU TAKE THE EFFORT TO READ MOF OR CPF WEBSITE?
I think not. Hmmmm, not very wise, is it. Knowledge is power....
Cpf is not the working capital of GIC......
These folks will blame govt's again.
And Roy or another person will come up and spin another story....
AK,
While I believed it is good that topping up SA with cash is doing you good and help you achieve your minimum sum, I will appreciate if you also talk about some of the cons of deploying cash into SA for risk free 4% investment.
Pro:
1) Risk Free 4% (If current policy remains unchanged)
2) Paying lesser tax
Cons:
1) Opportunity cost (Cash might be better deploy elsewhere for better returns)
2) Locking up of accessible cash for a long period (and might be longer than you though if the DDA is going to change from 65 to 67 in the future. Certainly might happen since it is change from 62 to 65)
If pro and cons being mentioned, then this will help others make a better judgement :)
Hi Ana,
Yes, knowledge is indeed power while misinformation can also give power to some. ;p
It is very sad that we have the situation at hand today and the non-partisan in me says that the government has to take some responsibility for this.
I have felt for many years that they have not done a good enough job of reaching out to the masses to explain to them reasons for the existence of the CPF and for the changes made over the years.
Now, I only hope that 9 stitches (if made) will be enough.
Hi LS,
I have mentioned why funds in the OA should not be transferred to the SA before both in the blog and the comments section. I also had a guest blog on this matter. I also remember a reader, Veronika, leaving a well written piece in the comments section on this issue. :)
As for a voluntary contribution to the SA, it really depends on whether we can afford to do it and whether we are confident enough to generate consistently returns higher than 4 to 5% per annum with our cash.
To me, having a part of my wealth locked up till 65 is not a disadvantage, especially if it grows at 4 to 5% per annum.
Also, the voluntary contribution to the SA is capped at $7K per annum. We could choose to contribute any amount lesser than this.
To the many Singaporeans who are not savvy enough to invest their money for consistently higher returns, there is no meaningful opportunity cost to speak of.
To those who are savvy enough, they will understand the merits of not investing all our money. $7K a year goes into a long term savings plan with a risk free rate of 4% per annum? I think they would embrace this. There is a place for risk free returns in any investor's portfolio. This is why many have money parked in bonds. :)
Guess I am not savvy enough :)
Having 16% of my income vested in long-term risk free investment aka CPF to be is enough at the current moment. I prefer a larger proportion to be invested(or waiting to be invested) for better returns. Also I like to have a reasonable portion that is accessible to me anytime in case of emergency(that is not covered by insurance) or income loss. If SA do offer the accessibility option(even with a penalty of early withdrawal), definitely I will put in my accessible cash in there.
As such, I still see putting cash into SA is still not preferred option, at least at the current moment in life. But it might be useful for people who are not investing consistently enough for higher returns.
Hi LS,
I actually replied to your comment but deleted it after re-reading my comment that you replied to. I missed the point you made. ;p
Aiyoh, don't say liddat lah. Simi "not savvy enough". Please forgive me if you found my earlier comment offensive. Definitely not my intention. -.-"
Each person's circumstances and beliefs are different. So, even for those who are financially savvy enough and I think you definitely are, some could not and some might not make voluntary contributions to their SA for reasons of their own.
There is a place for long term savings and the CPF (which pays decent returns) is one such tool that we have at our disposal. To what extent do we want to make use of this tool is up to us, of course. :)
Savvy enough or not savvy enough, that is the problem, or is it? I can safely say I am not savvy enough in many things in my life....
When I was younger and working, I spent like there's no tomorrow, I always spend more than I earn.... Now when I'm a lot older and not working, I spend not frugally but wisely, and I have no tomorrow, literally.... Ironic huh?
I think when we decide (not) to top up SA, it's not because we are (not) savvy enough, many times it's due to life's circumstances, preferences and needs....
I have never top up SA or transfer my OA to SA all my life it's because I need disposable cash for my daily needs and my OA for my housing needs.... It's only recently that I decided to transfer OA to SA after the sale of my previous flat coz I don't see a need to use my OA for the coming 4 years. I have hit the maximum amount for SA so I'm waiting for this July when they raise the max cap for SA and I'll transfer again....
My advice to my younger friends or nephews and nieces, is always to think of cpf as the last option if you really have no better place to park your extra cash. What goes in cannot come out as and when you need but rather what the existing cpf act will dictate, especially the amount in SA....
For those who have housing needs, if you need to make part-payment in cash to your monthly instalments, rather than having this cash earning close to nothing in your bank account just for the monthly giro, find the opportunity to top up your OA with this cash to earn the higher interest and also pay for your mortgage....
HI AK,
Surf upon here by chance and glad that I found this place.
only one question so far as I am not into "investment" related issues yet (in a way).
Is it true that its better to offset the HDB loan that I have taken : -
a) to reduce the loan with either extra $ in OA or spare cash; or
b) to keep it in CPF as it yields higher interest?
Cause I heard both versions and both sounds reasonable. Lost.
Hi Stoopiak,
Not so easy to answer this question because, like you said, both camps make sense. :)
I will remind myself that I can do many things with cash whereas the CPF-OA money has limited number of uses.
So, we have to ask whether we know how to generate higher returns with our cash in hand. If all we can think of is to leave it in a fixed deposit account for interest income of 1% per annum, then, we are better off paying down that HDB loan with cash. Also, make sure we already have an emergency fund set aside that could take care of one or two years' of living expenses.
Then, if we do not need so much money in the CPF-OA, we could think of transferring some of the OA money to our SA to enjoy higher interest rate to help meet minimum sum requirement. Ask whether you might need that OA money in future before you do any transfer because it is irreversible.
There are other ways to approach this matter, of course, and this is just one that we could consider. :)
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