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GE2015: How 3 Parties’ CPF Proposals Will Affect You
Aspire, Personal Finance | 09 September 2015
By: Chen Xushuang
Articles (26) Profile

The General Election is just around the corner, and as expected, the issue of Central Provident Fund (CPF) is fiercely debated between PAP and the opposition parties. So, what exactly do the latter want for a change?

Let’s take a look at what the Workers’ Party (WP) and the Singapore Democratic Party (SDP) have to say.

Workers’ Party: Earlier Payouts, Protection from Inflation, Greater Transparency

WP proposes lowering the CPF Payout Eligibility Age from 65 to 60, so that members can start receiving their CPF monthly payouts earlier if they need to. The Payout Eligibility Age should be de-linked from the Retirement Age and Re-employment Age, said WP.

This means that members are eligible to start drawing from their CPF regardless of their employment status. On the other hand, WP states that members who choose not to start withdrawal earlier (in order to earn interest or to receive a higher payout at a later date) should also be free to do so.

WP also proposes inflation protection for CPF using a Senior Citizen Consumer Price Index for CPF Life payouts. The party suggests that this should be financed from the issuance of inflation-indexed government bonds to CPF. In addition, it wants Silver Support payouts to be given on a monthly instead of a quarterly basis.

Image from Ministry of Finance

Though the government guarantees returns back to the CPF, WP sees it necessary that CPF members be given full transparency on the nature and performance of their CPF monies.

This includes getting to know the difference between the investment returns of Guaranteed Investment Certificate (GIC) and the net interest payable on CPF on a 10-year moving average basis. WP also suggests that in years of high return, CPF members should get paid special dividends (1/3 of the aforementioned difference).

Singapore Democratic Party: Return CPF Savings at Age 55, Abolish Minimum Sum

There will be extra interest for those aged 55 and above from 2016.

“Retirees depend on their savings for survival. Withholding their savings is not only unfair, but also immoral,” says SDP’s Chee Soon Juan. Basically, SDP wants CPF members to be able to get back all their CPF funds when they turn 55, regardless of how much they have.

SDP also calls for the abolishment of the Minimum Sum Scheme, which it sees as a burden and distraction for retirees. Instead, it proposes an opt-in scheme in which the withholding of retirees’ accounts is voluntary. On top of that, SDP states that CPF interest rates (currently 2.5 percent per annum) should be adjusted upwards as GIC Return on Investment is higher.

PAP: CPF Offers Good Returns Unmatched by Others

Despite the various attacks that the current CPF scheme came under, Prime Minister Lee Hsien Loong opines that “the CPF is taking good care of the old people”.

He also pointed out some of the benefits that the scheme offers—Special Account paying 5 percent per annum interest for the first $60,000, and Retirement Account paying six percent per annum interest for the first $30,000. PM Lee remarked these interest rates are not offered by banks such as DBS and UOB.

[/caption]Manpower Minister Lim Swee Say also assured that the payout age for CPF Life scheme will not be raised even after the re-employment age is raised to 67 by 2017.

Takeaway

The concept of CPF ‘saving and keeping’ the money for Singaporeans might be based on the fact that some of us are not prudent with our finances. It assumes that some older Singaporeans might spend more than they should if all the funds are given back to them.

Those who are actually prudent and financially savvy might find this unfair, but the fact is that many people, not just Singaporeans, are not the best financial planners and managers.

In a nutshell, if the CPF policies were to change, such that funds are handed back to us at an earlier age, we have to take greater responsibility to plan our finances well. Whereas if the current CPF policies stay unchanged, it is definitely worth looking at the interest rates that the government is offering. As PM Lee had said, the rates CPF is offering are higher than that of local banks, at least for now.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

Please click here for more information about this author.


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