There’s been a lot of opinions and statements (I’m trying to be polite here) regarding CPF floating around over the past few weeks. From Singapore’s latest blog martyr, Roy Ngerng, to Lim Swee Say’s “enlightening” statements regarding CPF, this is definitely the hot topic of the moment.
It’s been addressed so many times over (and even made the front page of the Straits Times a few days back) that I actually feel a bit silly talking about it again. But what caught my attention was recent statements made by Manpower Minister Tan Chuan Jin regarding the usage of CPF monies for payment of housing commitments, and his opinion on the minimum sum in general.
The Background Issue
For some time now, there has been quite a bit of chatter and feedback on what happens at the age of 55 when your CPF savings are shifted from your Ordinary Account (OA) and Special Account (SA) to your Retirement Account (RA). Normally, this wouldn’t be an issue at all. BUT, if you had been using your OA to service your housing loan and the money suddenly vanished from that account and reappeared elsewhere (in an account that is not servicing that loan), that’s obviously going to be a problem.
Of course, if you had the cash from years of smart investing and saving up (and reading MoneySmart), you could then continue servicing the loan with cash. Unfortunately,
- MoneySmart didn’t exist 20-30 years ago and
- It would appear that a vast majority of the people who do have to continue servicing their home loan at 55 do not have the liquid cash to do so.
As reported by Today Online, the authorities receive an average of about 500 appeals annually from CPF members 55 years and older with regards to using their Retirement Account savings for housing. Of these cases, about 2/3 of them are approved (which is quite a decent figure in my opinion).
That’s What He (Tan) Said
Out of the 11 MPs who raised questions after the statements from Mr Tan and DPM Tharman Shanmugaratnam on the issue, 5 of them were in relation to asking the Government to allow more flexibility on CPF usage (did they read our article on that too??)
In response to the queries, Mr Tan highlighted 3 main points:
- It is imprudent to automatically allow lower-income CPF members to continue using their funds for housing
- The Government is ready to exercise flexibility in the use of CPF for housing after the age of 55
- The Government is re-evaluating whether the drawn-down age needs to be revised when the re-employment age is raised in 2018.
1. Allowing Lower-income CPF Members to Use CPF Funds
In rejecting the suggestion to automatically allow people in a certain income bracket to automatically continue to use their CPF to service their housing commitments, he said:
“We also do not want … to encourage rash and imprudent housing purchases by members who think that they can automatically draw-down fully on their Retirement Account funds to service their loans,”
As harsh as you might think this sounds, it’s really not something that’s being done for their fun and pleasure. If anything, it gives them more work to do. But it also does act as a preventive measure to stop a complete financial collapse in your retirement years.
He also pointed out that there are existing measures in place to help those in need, citing the example of HDB deferring or reducing mortgage payments for a period of time. Other options include renting out spare bedrooms or including children as joint owners.
He concluded by saying, “Ultimately, if all these things don’t quite work out and families are in difficulties, that’s where the social safety nets come in.” That being said, it brings us to…
2. More Flexibility in the Use of CPF for Housing After 55
Mr Tan highlighted that the Government has exercised flexibility where the case warrants, and has even allowed some people to use their RA savings for housing even thought they don’t meet the minimum sum requirement.
We’re not sure what this number is (it could very well be 1 person for all we know), but the fact of the matter is that this is quite unlike your draconian book-throwing, “because the rules say so” treatment that we are pretty much used to here in Singapore.
Addressing the concerns over servicing mortgage payments, Mr Tan said, “we recognise that helping members maintain a roof over their heads is an important part of our overall retirement adequacy goals”.
The other point that was reiterated was that the Minimum Sum is meant to provide basic financial coverage for a couple at a level slightly lower than middle income, and that the more flexibility that is allowed, the more the account is depleted and blah blah blah ok thanks we’ve heard this repeated a million times already. But you have to feel his frustration because with so many MPs dozing off in Parliament, he probably feels like a broken record by this point in time.
3. Re-evaluating the Drawn Down Age Further Than 65
While this is bound to piss off a lot of people, hold your horses because nothing is set in stone yet.
Mr Tan points out, “Whether it needs to be raised further will depend on life expectancy and the need to maintain retirement payouts at a reasonable level. We have not reached any conclusions yet.”
Once again, they’re obviously not doing this for fun. What is important to bear in mind is that this has to (and it seems like it will) come in tandem with an added flexibility to use CPF savings in certain necessary situations. If that really is the case, and the Government is able to workout a suitably robust system of CPF usage without a compromise on an individual’s financial sustainability after retirement, then I think we really should all chill a little on the CPF angst.
And for the last time, your CPF money is 100% safe (sorry, couldn’t help myself).
What are your thoughts on Mr Tan’s latest statements? What else do you think needs to be in place for the system to be flexible enough? Share your thoughts here!