Here are some suggestions to deal with the problem faced by many cash strapped people who need their CPF savings at 55, and do not like to see the money locked up in the CPF Minimum Sum Scheme. (Note: this represents my personal views and is not a matter for the Presidential Election).
18 June 2011
Withdrawal of CPF Savings
A few people have asked for my views about the withdrawal of CPF savings. They waited to withdraw their savings at 55, but found that it is now being held back under the Minimum Sum Scheme (MSS) to 62 and to be withdrawn in instalments. The minimum sum being held back for those reaching age 55 in 2011 is $131,000.
More details of the CPF Minimum Sum Scheme can be found here: http://ask-us.cpf.gov.sg/Home/Hybrid/themes/CPF/Uploads/RSD_WDL/CPF_Minimum_Sum_Scheme.pdf
Some people need the CPF money before age 62 as they are unemployed or have debts and were unhappy at the delay caused by the MSS scheme. They asked for my views if this CPF scheme should be modified to take into account of their situation.
Technically, the CPF member is allowed to withdraw all of his or her savings in the CPF at age 55, except for the minimum sum that has to be held back.
Withdrawal at 55
If a person has been contributing to CPF and has not used too much for housing, there should be cash available for withdrawal at age 55.
The problem is that many people paid too much for their HDB flats or private housing and do not have sufficient savings to withdraw at 55 years. This leaves them in a cash strapped position. The situation is worsened when they are unemployed. And many people seem to be caught in this situation.
Rent out a room
The practical solution to get an income is to rent out a room. The rental market is booming and it is easy to rent out a room in a HDB flat for $400 to $600 a month. This can be a good source of supplementary income. Many property agents will be happy to arrange this rental for the owner.
The family has to adjust and accommodate the tenant. This may be inconvenient but it should be considered, as it provides an additional source of income to owners who are cash strapped.
Allow early withdrawal of MMS money?
Some people may prefer a way to make an earlier withdrawal of the MMS money. They may not have sufficient money for their old age, but the felt strongly that their immediate need is to have money now, not later.
So far, there is no way to allow early withdrawal of the MMS money. The regulation is quite strict.
I believe that for some special situation, it may be justified for the CPF member to make an early withdrawal. The problem is – how to access the justified cases from the unjustified cases? Do we want to make it easy for more people to withdraw their money early to spend and face a problem later on? Who makes out the case?
We should consider working out a case for people to make earlier withdrawal. The application can be handled as follows:
· A set of guidelines should be set out on what are justified cases for early withdrawal
· The applicant should engage a financial planner (from the approved panel) to assess the financial situation and make a recommendation
· The recommendation should be considered by a special committee
We should recognise that there is a problem faced by many people under the current CPF regulations and be able to work out a way to deal with these problems. I hope that this problem can be looked into and a solution found (not necessarily the solution that I have proposed).
Limit use of CPF for housing
We should also set prudent limits on the amount of CPF savings that can be used for housing. Recently, some regulations have been implemented to set certain limits. I am not sure if these regulations are working well.
Instead of relying just on regulations that may not apply to certain people, it may be advisable for the purchasers to get the appropriate financial planning advice. This can be handled as follows:
· A set of guidelines should be set out on what are prudent purchases
· The applicant should engage a financial planner (from the approved panel) to assess the financial situation and make a recommendation, if the applicant wishes to go outside of the regulations
· The CPF board can insists on this recommendation, if the applicant appears to be using too much of the CPF for housing
The recommendation of the financial planner should be considered by a special committee.
Financial Planning Advice
Many people need the right type of financial planning advice. They are many people who have obtained the qualification but they are not using their knowledge in the right way, i.e. giving financial planning advice for a fee.
The above schemes can help to build a proper financial planning service that will benefit many people in planning their savings properly for the future.
rex comments as follows,
ReplyDeleteThe issue of CPF withdrawals is a complex one.
The problem arises because Singapore "welfare" system is not a real welfare system, what you get in old age is the fruit of your OWN labour. SO if you are an average or sub-average intelligence worker, your old age savings is definitely not enough. The State owes you nothing. You reap what you sow. This is unlike other first world countries, where the excess riches of the more capable are in some ways redistributed to citizens who can no longer work because of age. I would call it a community pooling arrangment, it is a charitable way to treat old people, a rich country can afford it. I think it is a better way to build a country and loyalty to a country. Our present system is literally a you die your business system, because if you weren't very capable in your youthful years, sorry, when you get old, there's nothing for you except what you had saved up before.
In view of the above, i am of the opinion that for folks who have small amounts like $40,000 or $50,000 in CPF and desire to withdraw their savings immediately on 55 for ther reason that "they need it"... then this is actually NOT going help much-- what happens after all the money is spent? Is it not better to leave it in the cpf with guaranteed 4% interest (RA) or 2.5% (OA) - simple ordinary folk have no business acumen anyway, and if they have so low cpf amounts, then it already proves that they are not very economically productive, so how would they know how to make more money out of $40,000.
And, i disagree with Mr Tan's proposal for the cpf members to seek "financial planner". Financial Planner is for those who have pretty large sum of money, they need some guidance to handle the sums. For the common folk who live on day to day savings , how on earth will a finanical planner help with a paltry 40,000 left for the rest of one's life? With such small sums, common sense is enough to manage, i.e. take mrt instead of taxi, choose low grade rice instead of hom mali thai rice,buy unbranded clothes not Kate Spade..
In the final analysis, there is inherently nothing seriously wrong with the government "freezing" the withdrawal limits of those who have little money in their account, by doing so the govt is helping them to get 4% interest and this is good for them when they get even older.
I know it is cruel way of thinking, but the fault lies in something bigger than the issue of permitting or not permitting cPF withdrawals on reaching 55.
A country should have some form of welfare system. A country which can afford to pay mulitples of USA president salaries to even junior ministers, should not hoard its money on welfare schemes yet splurge on unnecessary expenses. IT is far better to build loyalty to a country with a decent welfare system. The policies of the government has been wrong from Day 1. The CPF system is completely inhumane, for a first-world country.
rex
Hi Rex,
ReplyDeleteThe purpose of the assessment by the financial planner is to see if there is a case for the member to withdraw some of his MMS money earlier. It is easy to say "no" and state that it is the end of the business, but I feel that we should study if the answer is "yes" under certain circumstances.
rex comments as follows,
ReplyDeletei think to engage a financial planner "to see if a case exists" for an indivdiual to request full withdrawal of cpf monies, is an unnecessary introduction of a third party with accompanying costs and possible conflicts.
In a well designed goverment system, the Special Cases whereby withdrawal should be allowed, ought to be clearly spelt out. Departures from the norm may be granted on specific basis. At present i understand that if the cpf member suffers permanent fatal disease, there is no problem to withdraw everything. Parliament could debate and finalise a list of other Specific cases. An MP (a good MP of course) can even assist the member at no extra cost...
Do we need financial planner to seek exemptions? I think financial planner job is not that, f.p. job is to teach people how to manage the money for better returns. But as i said, if one has just several ten thousands, how much money can it generate up to 85? Giveup lah, no f.p. can do much...
I would like to repeat my opinion again. IT is cruel way to treat singaporeans to entirely rely on their own life savings. Because of the bell curve, always there will be a 2 sigma deviation of poor people who cannot survive. If we are Timbuktu, i understand. But we are to say the least, a damn filthy rich government paying ridiculous salaries for years, and pensions, to large number of dubiously qualified/deserving people.
How can we not be able to afford a proper Welfare System? We can do it. The CPF system is not workable at all, because it is just shifting the personal problem of the average and poor aged citizen to a different time horizon. IT is very cruel, to allow so many rich people to luxuriate in their infinite wealth and not at all pooling part of their unused (of course, many of the rich will die before they use up even 10% of their wealth) resources to help the unfortnate, sick, infirm in their twilight years. What kind of a country is this?
rex
Financial planners have generally done a bad job in teaching people how to invest their money. The best advise is to invest in a diversified, low cost fund for the long term. The financial planner sells high cost investment products that pays a high commission to the adviser, at the expense of the consumer.
ReplyDeleteIt is better for the financial planner to earn a fee in applying the knowledge, like lawyers in practicing the law.
We cannot rely on civil servants to decide, as they are not willing to make the judgement and are likely to say "no". We cannot rely on hard written rules, as they are inflexible.
Our present system is literally a you die your business system, because if you weren't very capable in your youthful years, sorry, when you get old, there's nothing for you except what you had saved up before. What you get in old age is the fruit of your OWN labour. Agree.
ReplyDeleteMinimum monthly withdrawal of $300 even when below CPF Minimum Sum. If no more CPF, start of real welfare system. ??? ??? ???
Have to agree with Rex on his analysis about our could not care less Govt and the bit about the FA in assisting in the tough luck cases.
ReplyDeleteHopefully, the new MPs -both Ruling Party & Opposition can do something as suggested when the new Parliament sits.
The other point about most Singaporeans using too much of their CPF for housing is critical in halting furthur sad stories down the road.
Beside Honesty/ fairness etc, values that Mr Tan advocates, we need to live with-in our means. Getting into debts is now fashionable.No ?
We could make some deductions why our CPF are held back in the minumun sum.
ReplyDelete1. CPF somehow is short of money to
pay so many baby boomers all
retiring around this time. Also
many PRs who have CPF Accounts
are returning home for good,
and withdraw their CPF money
with them. Also, hope that our
CPF moneys are not part of the
losses suffered by our two SWFs.
2. Govt is worried some members
could not manage a big some of
money, may lose all at the
casinos, may spend all on their
mistresses from Batam or China.
3. May lose all in some business
enterprises, as Singaporeans
are not enterpreneurs, being
stymied by the System for
decades.
4. And when such people lose their
pants and skirts, Govt is
afraid they would stretch out
their palms to claim for
welfare.
The above is the Govt's Agenda as regards to CPF withdrawal.
So fellow citizens, get real.
Rex comments on yujuan's post:
ReplyDeleteYes, you are absolutely correct. Those points you listed, are the HARD TRUTH of CPF ; which every thinking Singaporean must ponder over at the back of their minds. I opine that we should never ever petition the govt to allow withdrawals at 55. IT would be like a rush drawdown on a bank by all depositers - the bank will collapse (because of the system of Credit Creation - Economics 101)and in the end you are the one suffering. The whole singapore economy will crash, our dollar will become banana currecny, property will crash, life will be miserable, if the cpf system collapse.
I have strong suspicion that the damage to the cpf is already done, what use is there to curse PAP... the focus should be on how to make the system credible and intact, even if it is by an unconventional path.
Neither will the opposition party be able to do anything, because it is spilt milk you can't get much, and it is better to let everyone continue with the myth that the money is still there and at least we can still scrape the bottom of the barrel get back the money little bit at a time after 62, as compared to entire system collapse. IT benefits no one if the secret is out and the HARDTRUTH is broadcasted to locals and international arena.
Above is just my opinion.
rex
CPF is almost an identical version of what I called - my Nanny's policy. Let me share my story...
ReplyDeleteWhen I was in primary school, Nanny gave me 20cts pocket money everyday - 15cts for a bowl of noodle and 5cts for a glass of drink. One day, Nanny told me if I brought my own water, I could save 5cts everyday and I could use the savings to buy myself presents. I agreed.
So 5cts was auto deducted from my pocket money and put into a clay piggy bank. One day, I wanted to buy myself a doll and went to my 'bank' to ' withdraw' my savings only to discover that it was a one-way pot with no opening at the bottom. Hence money went in could not be taken out easily.
I took my piggy bank to Nanny for help. I asked to take $5 but Nanny approved $2. And I was not allowed to buy a present of my choice but had to choose from a list of "approved items". Since piggy bank could not be opened, Nanny gave me a 'loan' of $2 from her own money which I had to repay by allowing her to deduct from next year's pocket money. (I get 10cts increment every year, now I know this is called inflation lah.) I am glad Nanny didn't know how to calculate interest, else I had to repay with interest !!!)
When I protested, Nanny argued that the savings were for rainy day and my future. So she must be prudent with it else I spent them all on 'good for nothing' items. (Nanny is illiterate).
Do you guys see the similarity btwn CPF policy and what my Nanny did ? Well, in all fairness, the intent of the CPF policy is well meant but the manner in which it is managed is too 'parental'. If PAP could lift the stronghold it puts on our CPF money and liberalise the use of Medisave to cover more areas of healthcare and don't be such a stick in the mud, CPF is a good sytem of forced savings for people who are not prudent in managing their finances. Having said that, CPF did better than Nanny because they at least pay good interest which Nanny did not.
Btw, I had a tiff with CPF on the use of Medisave for dental treatments of which I just sent an email 3 hours ago to CPF CEO Yee Ping Yi, MOH Gan Kim Yong and MOM Tharman Shanmugaratnam. Let's see what they have to say...or they could choose to ignore me.
Fionna