Tan Kin Lian's Blog: Allow members to opt out of CPF Life

Tuesday, September 07, 2010

Allow members to opt out of CPF Life

To CPF
I note that for those age below 54, they will automatically be enrolled in CPF life when they turn 55. While I think CPF Life is a good scheme to ensure Singaporeans have some savings they can tap on when they are old, it may not be an efficient way of allocating hard earn money for some members.

I am a Certified Financial Planner since 2006 and have been in the investment management industry for 20 years. I have a well diversified portfolio and I am comfortable that my wife and I can retire from active work life anytime we may chose to do so. We think we can do better in allocating the CPF monies we have accumulated.

I am sure many members have their retirement plan well thought out and executed. Some members might want to use the CPF monies to start their own small business to provide income for their future. Some may see investing in their kids education a better alternative. I understand perfectly that the CPF Life scheme requires the law of large numbers for it to work but I think it is not fair to force members to be in the scheme if they have better uses and needs for their monies.

I think the scheme should allow for opt out, as long as members can argue for their decisions. To attract more members to stay with the scheme, perhaps the government should chip in to make the scheme attractive (compared to say members investing in private sector annuity scheme). Failing which, the government should set up a fund to provide for any shortfalls of the scheme. Please do not use hard earned monies of some members to fund other members, which I see the CPF Life scheme is all about.

HCM

25 comments:

zhummmeng said...: HCM,
you should know you can't take out the retirement account money whether you participate in CPFlife or not. So what is this talk about letting some members to invest more efficiently? You maybe a CFP but many are not. The objective of CPFlife is to help ensure the man in the street have some money for retirement and NOT those who are savvy or rich. Unfortunately, to ensure success these savvy ones have to sacrifice for the poor through their participation but they don't lose except they may get better return.
This scheme calls for sacrifice of the minority for the majority.; September 07, 2010 9:17 AM
Koh said...: For certain Scheme to succeed you need to pool all resources. The knowledgable & savvy ones need to think in term of the good of the majority! Never always think of mine own good, mine only ...mine....mine...mine!!!!!!!; September 07, 2010 11:44 AM
Tan Kin Lian said...: I have blocked a comment by Spur which is rather rude to HCM. Sorry.; September 07, 2010 2:30 PM
Spur said...: Hi Mr Tan,

No need to apologise. I am very upset that persons who ought to know better come out and say things which seem to be contradictory and rather self-centred. Next time I'll cool my tongue! :)

Yes, I am in total agreement with Zhummmeng's and Koh's comments above.; September 07, 2010 2:47 PM
michael13 said...: Although we, sometimes, can be very critical of some of the government's lopsided policies. It's always good to bear in mind that we should strive to be more supportive of schemes like CPF life which is for a common good as a fellow citizen.; September 07, 2010 3:32 PM
Vincent Sear said...: What's the point of opt-out and who can afford to opt-out? Of course, those whose can demonstrate financial independence at retirement age. Then again, it won't affect them much whether they opt-out or not. Since it's spare change to them. They're already rich enough. Just treat CPF Life as a spare deposit.

That's the whole irony. People who want to opt out are people with much less financial resources. They deplete CPF and they're on their own. Some may use the capital on businesses successful, but mathematical probability taught us, not all can.; September 07, 2010 7:50 PM
Tan Kin Lian said...: I have to block the view posted by Lye Khuen Way. Sorry.
You can disagree with HCM but you do not need to be personal.
Some of you like CPF Life. That's your view. HCM wants to opt out and invest on his own. That is his view. We have to respect the view of other people and not engaged in personal attacks.; September 07, 2010 8:20 PM
Tan Kin Lian said...: Reply to Zhummeng,
HCM only ask for those who are financially savvy to opt out of CPF Life. Those who are not savvy should not be allowed to opt out. He is not suggesting that the opt out be allowed to anyone who ask for it.; September 07, 2010 8:22 PM
Lye Khuen Way said...: Mr Tan, it is all right .I should apologies instead for being carried away. Believe whoever read these comments would have a good general feel of the sentiments,

I wonder how are CPF members going to "argue for their decisions to opt out".; September 07, 2010 8:55 PM
rex said...: rex comments as follows,

the problem with cpf life is two fold.
1. What if you need money desperately between 55 to 65 when cpf life starts the monnthly pyments.

2. what if you need a large amount of money suddenly after you reach 65? The system alllow you to draw tricles of it strictly controlled every month. What if you fractured your hip and you actually have money in the cpf but you cannot touch it bec it is coming out only fix amount each month?

i think govt should treat us like adults, we should make our decision ourselves there is no logic to force all those 54 and below. this is not fair.

rex; September 07, 2010 10:57 PM
symmetrix said...: Fact: The CPF Life scheme has a very low take up rate.

Fact: The govt has now introduced a 2nd auto-inclusion condition to rope in more ppl into the scheme.

Fact: The more ppl in the scheme, the more sustainable it becomes.

The govt says it has introduced this scheme as it feels more and more ppl are going to live well beyond 83 yrs old. There are ppl who are not convinced of this, and it is one contributing factor to the low take-up rate. Some others do not see the value in this scheme, and prefer to let the monies in their RA move into the MSS, which provides payouts for up to 20 yrs. Others feel they should not be rail-roaded into it.

The govt should seriously address these issues, and then more will accept the scheme. Ppl may even voluntarily sign up for it.; September 08, 2010 12:28 AM
Spur said...: OK, I think the writer's main issue is why must everyone be forced into CPF Life. He feels that he can manage funds better, and he will be able to grow the money more than leaving it to CPF or some state annuity scheme.

But isn't this the fundamental concept of CPF all along? Even without CPF Life, you still need to set aside the Minimum Sum and the Medisave Minimum Sum BEFORE you can even withdraw a single $1 from your CPF account when you turn 55.

This is the same problem faced by many 55 yr old right NOW who cannot even meet the MS and have to resort to using gimmicks like property pledge in order to withdraw SOME of their CPF. They don't have to bother with CPF Life as it is still optional. Yet, can they withdraw all their CPF OA and SA when they hit 55 or 65 yrs old? NO!!

So unless you are proposing to do away with this universal CPF concept, otherwise it is just "personal wishes".

Don't forget, just like the current RA, CPF Life is focused on the MS. Any amount greater than the MS you can withdraw at 55, just like current scheme.

And from policeman wear shorts until now, you cannot withdraw your CPF because you need a large sum of money. Many people have been made bankrupt for owing $50K while still having $300K in CPF. What if your mom needs organ transplant? Or you got major operation when you're 70 yr old etc? Too bad. Sad but true. Otherwise it will create moral hazards and the system loses its integrity.

As far as I know, the only ways to withdraw all your CPF while you're still alive are:-
1) Renounce SG citizenship and migrate overseas.
2) Certified by CPF-appointed medical board that you are terminally ill, and most likely to die within 12 months.; September 08, 2010 2:55 AM
Wealth Journey said...: The poster is actually quite right that it's "his" money and he should be deemed to be able to use it as he desired.

However, the govt have always intended for "his" money to be in a welfare fund to assists the common good of the masses.

It would be better if the govt not let members have the illusion that CPF is their money to avoid this situation.; September 08, 2010 6:54 AM
symmetrix said...: Sorry, I have to disagree with Wealth Journey's 6.54 am post, last para. CPF monies belong to the CPF member. There are already a number of limitations of how this money can be used. CPF Life is another limitation. Let the ppl decide whether they want it all for themselves or share it with the govt. There are many generous folks out there, but let the ppl decide.

It is about time this nanny govt stop treating its citizens like children, and insulting them while abroad. As Najib said recently, the good ol days when govt knows what is best for the ppl are gone.; September 08, 2010 10:05 AM
zhummmeng said...: REX,
CFlife is minimum sum based..whether you buy or don't you can't take the money out.It has been like this all the time..anything exceeding the minimum sum you can take them out at 55.
I know of many people who don't want to take out the extra too to enjoy the 2.5%.These are smart people. They withdraw slowly and not all at once and keep the rest in the CPF bank .It is also protected against creditors.
I wonder why many are clamoring to take out everything as if you are very good money manager who can turn them a few folds without the risk.
If you take out, wait kenna conned by insurance agents who magicstone you to put in the Capital Plus locked for 3 years earning gallonteed 1.4% instead of earning 2.5% guaranteed every year.
Should get the facts right and listen to the truth and honest advice..; September 08, 2010 10:06 AM
rex said...: Rex comments on Spur comments:

I think you got your facts wrong. You said "all along" there was this "minimum sum" requirement". This scheme was only introduced in 1987 . Prior to that if you reached 55 you take out the money and live happily ever after.

Were those who did just that, in dire straits today? So why introduced this MS? I am not convinced. I think CPF needs to keep the money for singapore development and to use to speculate in investments by the goverhment. Some extreme view even say CPF is ponzi scheme it is actually bankrupt.

The whole point is that when we are old, many of the medium-rich want to see a standby funds available. They can sustain themselves but for rainy days it is nec to have the flexibility of being able to have access to a bigger chunk of their own money. The min sum schemed deprives them of this lifeline. This medium-rich are sensible people, will NOT use the money for frivoulous reasons. Why should this class of people be derpived?

You argue that the poor, if they are allowed to withdraw everyting they have nothing left from 66 to death. But then what about now to 65, they also have nothing! Fact is if you are poor you are poor. what is the point of pre-poning a sure event to earlier date i.e. now? Hoping that the poor will die first before reaching the withdrawal age of the MS and the problem will disappear?

I think the central issue is Choice. The govt should allow everyone the option to choose what he himself finds fit to do so. The gradual increase of age to start withdrawal, and the continually call of govt to make everyone work longer, seems to support the extremist view which i recounted above.

rex; September 08, 2010 10:13 AM
Spur said...: Hi Rex,

heh heh! You're right about the MSS being started in 1987. I was still a student then so my history not so good. But I know in 1985-1986, S'pore was caught up in quite a serious recession. Even then, the govt was seeing cases of people using up all their CPF within just a few years of withdrawal. This was also exacerbated by the recession which probably was the 1st time since independence to experience structural unemployment. Hence the MSS was born to control expenditure of CPF by elderly.

keke! If govt do away with the MS, there will be a bank-run on CPF! In that situation, yes, I agree that CPF will not be able to honour all the withdrawals, as no time to redeem from MAS all the SGS bonds + whatever stat board bonds. Probably take at least 6 months to 1 year to payout all qualified CPF holders in an orderly fashion. At least during the 1st time if this is implemented.

Sing Dollar will also plunge plus a sudden spike in inflation, albeit maybe temporarily (1 year?) due to the sudden mass redemption of SGS bonds and the sudden influx of S$ supply.

However the bigger problem is how to guarantee that at least 80% of these people who withdraw all their CPF do not squander away everything within 5 years? You just need 40%-50% to lose everything and PAP will have a BIG problem on their hands. PAP's philosophy all along is that everyone must be self-sufficient, even to the point of relatives coming in to sustain you.

Even with a minimum payout from MSS of $290, I dare say many people will be able to survive barely. What happens when a significant chunk of elderly do not even have $1 coming in? In 20 years time, when 20%-25% of Singaporeans are 65+ the govt will have to do something otherwise there will be a people's uprising. For sure the govt will have to go the way of Europe, with GST at 15% and income tax at 35% in order to fund these elderly. This is something that PAP wants to avoid at all cost.

This is precisely why all these CPF rules and changes taking place. I'm no PAP supporter, FAR from it. Just that, like all govts in the world, whether USA, China or Russia, these are things that need to be planned, not just 5 yrs down the road but 10-20 years down the road.; September 08, 2010 1:26 PM
Wealth Journey said...: VS lingam,
:) I meant the last para as a sarcastic remark actually. Govt always tell people it's their CPF money but they put all sort of restrictions and usage on it. So it is better goverment just tell people it's not their money.. keke..

I totally agreed that if it's your money, you have the right to do what you want with it (without the restrictions and rules).; September 08, 2010 3:26 PM
DareToAct said...: 1. The tax system redistributes wealth among the people in the country. The government uses tax monies to build infrastructure, pay for defense, education, and provide safety net to the people.

2. The pension system, CPF, provides monies for old age. In Singapore, it is the people's personal account. You save for yourself. This is unlike some system in the West, when the people are guaranteed pension and the young people pay for the older ones. The Singapore government makes it very clear that our system is more superior and will not lead us into what the West is getting into now, which is too few young people paying for the older people. The CPF system is very straight forward (or I think it should be) -- everyone save for their own old age.

3. Donation to charity -- people who want to help the poorer and less fortunate donate money (or time) to charitable organizations.

Why, why do we mix these up? I see the mix up everywhere and CPF Life is one.; September 08, 2010 7:15 PM
rex said...: Rex comments on spur's comments,

I repeat a point which i made earlier. Does it make sense to pre-pone a problem (pre-pone being opposite of post-pone).

You have these people withdraw everything and you say they spend all up after 10 years then they are desperate no more money.

The other way is you lock up all their money, and between now to 65 they are desperate no money.

Isn't it the same?
Since it is the same fate, the choice should be left to individual. You can't run away from problems.
The real reason why they had to lock up all the cpf money is really as i suggested in my earlier post. I don't think the govt worries personally if the Ah bengs and Ah lians used up all their cpf money no more left after withdraw. To them you die your business. They don't give a damn. The whole issue is the bankin system, they used up the cpf money in other ways so this whole Min Scheme has come to save the system - the "people's welfare" are just an after-thought, it's not important.

rex; September 08, 2010 10:31 PM
symmetrix said...: Wealth Journey,

Point taken. We are now on the same page. They say "Great men think alike". (I don't want to mention the 2nd half of that statement).; September 08, 2010 10:49 PM
zhummmeng said...: If people are allowed to withdraw their MSS for reasons given by REX , it is like asking the govt also to allow them to withdraw the medisave for reason that they can take of their medical without the govt. Then there will come a time people start to question govt why no free health care service like US or UK. The the govt will reply , how much tax you guys are paying. HOw about the lowest margin begins at 30% and the highest at 55%...Inheritance tax at 65%....that is how these services are funded by taxes..only the poor get from the medifund.. Then immediately there is a long queue for medifund and PA .
assistance. What is the thrust here? In any scheme not everyone can be pleased..It should be the tyranny of the majority in order to work...Opt out is rubbish. I have helped check for many widows on the deceased spouse DPS. Each time I carried bad news to them. Their deceased spouse opted out of DPS..you see the opt out option deprived the widows of much needed money? And now somebody has to pay for the coffin and all the cost of last rites. And these people are usually poor people and they followed some monkeys do and they did, opted out.
Opt out option may seem fair but it is dangerous in the hand of dummies and demented ...Singapore will have a lot of beggars, tissue paper sellers and buskers eking out a living at every corner.; September 09, 2010 12:18 AM
rex said...: Rex comments on zhummeng's post.

Sir you still fail to see my point. The point is that poor people will be poor whether he withdraw everthing today, or he is allowed to withdraw for life 200 dollar a day for life.

You said there will be a society of tissue paper sellers. Isn't that what many poor people already doing today? I am saying that if there is little money in one's account, it is little money also when he is more than 65 years old. This is the root of the problem. If the govt is not interested to support poor people (in fact it is not obliged to) then it makes no difference wehterh he start the tissue paper selling now or 20 years later. Do you follow?

rex; September 09, 2010 4:57 PM
rex said...: sorry typo error in my post,
i mean 200 dollar a month

rex; September 09, 2010 4:59 PM
Lye Khuen Way said...: Hi ! This thread is interesting. Let me add something : This CPF Life & the whole CPF scheme is about the best considering that : the 'common good' & pooling of risks, a certain degree of force saving. That was why I opted in for the CPF Life.; September 09, 2010 7:25 PM

Tuesday, September 07, 2010

Allow members to opt out of CPF Life

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