Recently the govt announced another increase of CPF minimum sum(MS) to $131,000. from $123K For many who are unfamiliar, this sum seems somewhat astonishing and arbitrary but the rules and rationale for the minimum sum was laid out during Goh Chok Tong's time as PM in 2003. The goal was to raise minimum sum to $120K of 2003 dollars i.e. adjusted for inflation.
Only if you have more than the minimum sum when you reach age 55 you can take out the excess. Otherwise you have with until age 65 to start the monthly drawdown. The principles applied in the minimum sum legislation is very simple - the goal is to minimise the govt financial responsibility and push as much responsibility of retirement to individuals themselves. If individuals still can't take care of themselves, the govt backup is the Maintenance of Parents Act which forces children to take care of their parents. The minimum sum scheme effectively pushes retirement to 65 for many Singaporeans and a large segment will never retire because they cannot build up enough funds to do so. We are not talking about a 1st world quality of retirement for Singaporeans but maintaining basic subsistence ....even this is a problem for a large segment of people given less than half the people can meet the minimum sum[Link].
Singaporeans have the 2nd highest savings rate in the world of about 20% (China took over us as the highest) due to the CPF yet do not have enough to retire. What has gone wrong?
1. Use of CPF for housing. The liberalisation of CPF for housing is believed to have caused the rise in housing prices in the 90s[Link]. Through land sales, the Singapore govt has been able buid up reserves which are now one of the biggest in the world due to higher property prices.
2. Low fixed returns on CPF Funds. Every single major pension fund in the world invest to get good returns for the account holders to ensure that they obtain an real return on the account. This done for, say, the Malaysia EPF which consistent beats our return on CPF funds relative to inflation(see article below). The long term implication of low returns is Singaporeans have to set much higher proportion of their income for retirement than in schemes where pension funds are properly invested to achieve higher above inflation returns. In a parliamentary sitting, Minister Hen revealed that CPF funds are loaned to the GIC which invests it and keep the excess returns. This again trades off Singaporeans' ability to retire for building state reserves.
3. High income gap. The very large income gap in Singapore makes it hard to uphold the principle that everyone should be responsible for his own retirement. A large segment of the population will never be able to retire because of low income. The lack of a scheme to take care of the old has led to many working at a very advanced age. Many Singaporeans find this inhumane, unconscionable and unjust as we see elderly workers from a generation that was considered the number one workforce in the world still doing menial jobs to make ends meet. There is no money to help them but there is cash for voters during election period \and money to fund all sorts of estate upgrading including an artificial river in Bishan if people cast their votes to support the PAP.
CPF has to be reformed to give our retirement funds a higher return above inflation. There is also need for a scheme that will take care of a large number low income workers who will never be able to save enough for retirement- these can be done if the PAP govt can overcome its ideological contrants to do the right thing. The link between CPF and property unfortnately is not so easy to unentangle. Too many Singaporeans have invested too much of the CPF in property and are vulnerable to long term decline in this asset class. There are schemes now such as the lease-buybacks which monetise the homes of the poor who don't have enough to live on when they retire - designed to take back the homes from the low income folks when they die leaving nothing for their next-of-kin who are also likely to be poor.
EPF's investment income best ever at
PETALING JAYA: The Employees Provident Fund
(EPF) returned its best performance to date to post a gross investment income of
RM24.06bil in its financial year ended Dec 31, 2010 reflecting a 39.8%
year-on-year growth amid the impressive recovery of the Malaysian economy from
the 2009 global economic recession,
The growth had also led EPF to
declare a dividend rate of 5.8% for 2010, up 15 basis points compared with the
The EPF also recorded its highest ever dividend payout
amount of RM21.61bil, an increase of 11.55% over the 2009 dividend payout of
“Financially, we leveraged on the recovery in the markets to
garner our highest gross income to date, while operationally, we further built
upon the strong foundations laid to enhance operational efficiencies, deliver on
key performance targets and elevate the customer service experience,” said EPF
chairman Tan Sri Samsudin Osman in a statement yesterday.
Annual Report 2010 was tabled in Parliament yesterday.
fund maintained its prudent strategy and devoted the majority of its investments
in 2010 to fixed income assets with 32.38% invested in loans and bonds, 26.9% in
Malaysia Government Securities and 5.45% in money market instruments.
Equities emerged as the single-largest asset class comprising about one
third or 34.85% of total assets, while 0.42% was invested in properties.
The year also saw the EPF total investment assets crossing the RM400bil
mark to stand at RM440.52bil as at Dec 31, 2010.