This minimum sum kicks in once a CPF member becomes 55 subject to the CPF withdrawal rules. A CPF member can draw anything above the minimum sum. Since July 1, the minimum sum is set at $99,600. This figure will increase yearly, as it did from $80,000 since 2003, to at least $120,000 in 2013. This pool of our hard earned and/or wisely invested money can only be touched once the member reaches 62.
Then again, it is not a complete withdrawal of our money. Instead it is a monthly payout of $790 from 62 until the pockets are emptied in about 10-11 years time. In theory, as the average life expectancy in Singapore is about 80, there is some years left to go even after all the minimum sum has been exhausted. Unless one buys a separate life annuity plan with an insurance company where there is a payout for life - how much payout depends on how much is invested.
So. The minimum sum scheme is actually a basic default CPF term annuity plan of sorts. A $99,600 annuity plan (at the 2007 minimum sum rate). Minister-in-charge of aging issues, former minister without portfolio, Lim Boon Heng, mused that the minimum sum withdrawal age could be raised from the current 62 to 65, in line with any corresponding raising of the retirement age.
The thorn in the nanny minimum sum scheme is that it leaves those who plan, whether it is a good plan or not is another matter, for a retirement with little choice on how and when to spend their own money.
There is some validity in the minimum sum scheme as tax-payers' money should not be used as the safety net of people who do not wish to save anything for retirement. Their financial folly should not automatically be the burden on the state's coffers. State resources is better channeled to other welfare programmes and to people who actually deserve it. However, there should be an opt-out scheme for those can show that all is financially set in the retirement years. Purchase of an approved reverse mortgage and/or life annuity plan are credible signs that something is being done and the CPF member can finally withdraw all the money stashed away all these years to be spent in a desired way.
Furthermore, if the government is so defensive about the minimum sum squandered away even by those who are on a reverse mortgage or annuity plan, a staggered instead of a lump sum withdrawal can be rolled out instead e.g. once a person has an annuity plan, 50% of the minimum sum can be withdrawn in a year's time and the remainder can be withdrawn in X years time. So in practice there are various minimum sum schemes available depending on how much effort the CPF member has put in to ensure that he is financially independent. Those who look out for their own finances should not be penalised with a rigid minimum sum withdrawal scheme.
Flexibility in the minimum sum amount and withdrawal for some. Is that too much to ask for?
Comments (6)
TVD - the key question to increasing the minimum sum and withdrawal age is the cost (lack of flexibility and real cost to Singaporeans who make the effort to manage their retirement monies prudently) vs the benefit (preventing less than responsible Singaporeans from squandering their retirement savings earlier than later and then the taxpayers have to pick up the tab). It boils down to how many Singaporean fall into which camp.
Posted by Sze Meng | July 4, 2007 6:59 PM
Just wondering - do other countries with CPF-like schemes have the equivalent of a "minimum sum" ? And under what circumstances do they allow partial or complete withdrawal ? Anyone with any take on this ?
Posted by Wong Hoong Hooi | July 5, 2007 1:24 PM
Hi Szemeng
True. That question sums it up. But I just wish for more flexibility.
Hi Hoong Hooi
Good question. I really don't know yet. In the UK since 2005, a pensioner is offered the option of a one-time taxable lump sum withdrawal under certain conditions e.g. delay drawing on pension for at least 12 months.
Posted by The Void Deck | July 7, 2007 5:07 PM
I have a 'defeatist' solution to this matter. We can continue to debate on this but the likelihood of any change in the existing policy (no matter how unfair it sounds) will most likely be minimal. In fact, I find Singapore's CPF minimum sum withdrawal scheme 'encouraging'. It pushes and in fact encourages more Singaporeans to work abroad. First of all, you stop putting more money into CPF and secondly it offers you a chance to get another citizenship in another country. In today's world where there is a demand for global talent, why should talented Singaporean be encouraged to stay and work in Singapore? Under existing rules and regulations, such as reservists (in which we are discriminated against by some foreign employers) and CPF minimal withdrawal scheme, why stay on in the country unless you hare driven by strong idealism and loyalty? If you work in HK, you contribute to their MPF scheme but are not bound by the minimum sum rule and free to withdraw the amount when you leave the country. Furthermore, you don't have to go back to Singapore to serve reservists once you are working abroad and you compete on equal grounds with the locals there. I find it not surprising why it is harder to find local talents to fill top positions in Singapore and need to resort to foreign talents. We are setting up a vicious cycle.
Posted by superman | July 9, 2007 1:09 PM
http://www.petitiononline.com/annuity/petition.html
Posted by WH | August 25, 2007 10:05 AM
The Big Truth about CPF Annuity
LKY- We don't want to see you in 20 years time at the meet the people session and complaint that you got no money to eat.
Then we will probably give your food stamp...
That is the grant scheme of things.
In 2001, PAP knew that more than 50% of people don't even have the mimium sum when they reach 55. They are worried.
They stop people from taking out the money and at same time increase the minimum sum so that chances of taking out is almost zero at 55.(for the poor)
They increase the minimun sum to $120,00 by 2013 and they knew that again more thant 50% cannot match that sum at 55.
2008 Annity scheme, the objective is that most people who live until 85 can have something $600.... and got no reason to see the government for food stampo
So that how it work.
To earn interest on your CPF, someone have to borrow the CPF money and invest something that is at least higher than 2.5%.
That someone is GIC or various government agencies.
The CPF board buy government bond and earn the interest in order to pay you.
So, Dr Ng at first said No and then said the relationship is not simple. The truth is Yes.
Now how do earn interest with the pool of money for the annuity.
the trick is the same. THe pool has to be big enought, so that any big distortion payout along the way can be smoothen out. That's why it must be complusory!
The money will be invested on the government bond again and earn a low interest of 3%. by the way there is no mention of rate of return in the CPF
annuity schemes.
the CPF annuity is very clear give you a choice to choose, at 65, 70 75, 80, 85, 90
with payback or no payback when you goes to heaven!
You have to choose at 55, but you cannot get it until 65 earliest. So that 10 good years of your money is pooling inside to fun the payout. Ha ha 10 years, go and buy the savest bond in singapoe or dividend yield from good company SPH, you get at least 3 to 5%. Go and count yourself, you lost at least 50% of capital appreication on your money compounded from premium
So how do you choose?
Now, let say you are OK fellow, work 30 years in your life middle income, at 55 got 135K in the minimum sum.
Hint from LKY
1. check you family history, your anuty, uncle, how long they live, die of what illness?
2. Estimate what is your likely hood of your Life expectancy. If it is below 65
Choose 90, minimum premium committed is (4%)annuity and the rest return to your family if you die before 65.
But you contribute 10 good years of money to the pool for investment.
2. If you expect to leave until 80, Choose 65 and get your money fast but you pay a high premium.
3. If you father/mother, uncle and auntie are at least 90 years old and you live a healthy lifestyle, choose 65 and pay maximum premium ,get maximum payout from annuity account every month.
4. From 85 to 90, not many people are sane?
Finally, if you follow what Dr NG said, well I have not think about it, you know most Singaporean are lazy, I will leave it at default 80, ha ha good luck to you.
Dr Ng is rich, Cancer surgeon before and minister for at least another 10 years. He don't need this annuity.
The truth is most people die at 75 to 85. you get nothing before 80, you are not only lazy but also stupid!
So the Default is 80, ha ha for the lazy and stupid.
If what the newspaper said that the scheme is easy to understand and it only takes 3 to 5 minutes to explain to the layman(security guard, delivery man) than I am sure this people will choose 80 default.
CPF hopes many people choose 80 because that is the best outcome.
why, A big pool of money to invest for next 25 years and then the majority of the payee will die at that age. No refund is even better.
Whan happen when everybody choose 90, no refund. The is scheme will work but the people can go and see the MP when their money in the retirement account is depleted.
MP will give you food stamp! from 85 to 90 years old.
What if everyone choose 65, it is a big responsibilites for the CPF, if everyone live until 90. (that will never happen!)
So my prediction for the next ten years
GST will raise to 10% as they attempt to reduce the personal income and company tax down.
ERP will be paid as you move the car from your house.
Mimimum Sum will be raised along with inflation and again >50% can never make it.
The govenment will raise the retirement age to 65 or even 70 to make sure as long you work and don't need to give food stamp.
The Mean Test by Mr Khaw will be refined and expanded to make it even More Mean?
Guess what all this they will do it after election and before election a lot of goodies......
Collect $2 return $1 and collect again another $2 and return $1......
Bao Chiak---Dr NG said about the CPF annuity scheme. ya ya where got bao Chiak
Posted by limcy | February 25, 2008 12:44 AM