CPF Board recently came up with a new second inclusion point of $60k at the draw-down age (DDA) for the CPF Life scheme.

The DDA is the age at which members are allowed to withdraw their CPF savings in the form of monthly payouts. The DDA for members who turned 55 from 1999 to 2004 is 62. This has been gradually increased to 65 for those who turned 55 in 2009.

Previously, only CPF members born in 1958 or later with at least $40,000 in their Retirement Account (RA) at age 55 will be automatically included in CPF LIFE with effect from 2013. Those with less than $40,000 will not be automatically included at 55.

To help these members participate in CPF LIFE and enjoy an income for as long as they live, members will be automatically included at DDA if they have $60,000 in their RA then. This might happen because some members may subsequently have significant RA inflows between 55 and the DDA.

This latest move by the CPF Board will increase the pool of people in the CPF Life scheme as it will now be able to “compulsory acquire” people who did not had $40k at 55 but had $60k at the DDA.

Starting from 1st July 2010, the first $40,000 of members’ Special Account balances will no longer be allowed to be used for investments.

There is no change to the requirement for members to set aside $20,000 in the Ordinary Account before they can invest their Ordinary Account monies.

If you have already bought investments under CPFIS-SA but do not have $40,000 in your SA, you will not be required to sell them. However, when you liquidate these investments, you would not be able to re-invest them unless you have at least $40,000 in your SA.

Medisave is a national medical savings scheme introduced in April 1984 whereby part of our income is put into Medisave Accounts for the main purpose of meeting the future hospitalization needs of our own or our immediate family.

Under the scheme, every employee contributes 6.5-9% (depending on age group) of his monthly salary to a personal Medisave account.

A small portion (subject to yearly/monthly cap and/or deductible) can also be used for certain outpatient treatment and/or chronic diseases. This list includes:

• Hepatitis B vaccination
• Hyperbaric Oxygen Therapy
• Desferrioxamine Drug and Blood Transfusion for Thalassaemia
• Intravenous Antibiotic Infusion (at certain hospitals)
• Rental of Devices for Long-Term Oxygen Therapy and Infant Continuous Positive Airway Pressure Therapy
• Immunosuppressant Drugs for Organ Transplant
• MRI, CT and PET scans (for cancer patients only and as prescribed by doctors)
• Pneumococcal vaccination for children
• Diabetes
• Hypertension
• Lipid disorders
• Stroke
• Asthma
• Chronic Obstructive Pulmonary Disease (COPD)
• Schizophrenia and Major depression

Recently, Minister Lim Hwee Hua suggested to our Health Minister Khaw Boon Wan that Medisave be used to help pay for mammograms as our breast cancer screening rate is still low. Encouraging people to go for early screening can help prevent costly medical bills subsequently.

Mr Khaw mentioned that he is sympathetic to the idea, but he also wants to be sure that the solution is sustainable and will not cause future problems.

The main purpose of Medisave is to help pay for costly hospitalisation. That tends to happen at old age. Small outpatient bills should be paid out of pocket in cash otherwise the Medisave account might be depleted prematurely.

Therefore, the proposal will be studied at length before any policies are changed.

On another occasion last week, Mr Khaw also highlighted that the current contribution rate of 6.5% to about 9% does not build up enough reserves to pay for both big medical bills and long-term care.

Medisave was originally meant to pay for major hospital stays only but its use has since been expanded to include some outpatient payments.

Mr Khaw said the current contribution rate is not enough to cover long-term healthcare bills and is likely to have to go up. The increase in contribution rate will depend on what the members of parliament are ready to support.

It was reported that 35 financial advisory representatives have been given warning letters by the CPF board for churning, with seven of them suspended.

Just a warning letter?

For the uninitiated, the practice of churning actually involves the repeated buying and selling unit trusts using CPF monies with a sales charge of 3%. Part of the sales charge is then given back to the CPF member in the form of cash rebates.

You can see regular newspaper advertisements promising “quick cash” – this is one of the ways they operate.

Read one of my earlier stories on churning:

Why churning can hurt your portfolio

It seems that the worst thing that can happen to churners is just termination of service. To curb out this practice, more severe penalties should be implemented and enforced.

It’ not too difficult to seek out the offenders by responding to the newspaper advertisements. It is a question of whether the authorities want to proactively act to clean out this disease in the financial industry.

HSBC has recently launched a home loan package that is linked to an equity index, the Morgan Stanley Capital International Singapore Free Index. The Singapore Free Index tracks 27 heavy weight stocks in Singapore.

Under this new package, customers are charged an interest rate of SIBOR + 1.1% throughout the loan tenure.

With the special equity-linked feature, the customer will get a cash rebate of 0.25% (of the current loan outstanding amount) if the Singapore Free Index manages to appreciate 30% from its original price (known as barrier level). This 30% appreciation check is done once every quarter over a period of two years.

Thus, it is possible for a customer to get a maximum rebate of slightly less than 2% of the original loan amount. Practically, the amount of rebate will not hit the maximum possible as there is no guarantee the Singapore stock market can rally 30% from current levels in the near future.

A minimum loan size of $200,000 is required and the package is currently only available to new and existing HSBC Premier customers.

HSBC’s new home loan offer is available until Nov 30. To qualify for HSBC Premier, customers must maintain a total relationship balance of at least $200,000 with the bank.

While this is indeed an innovative idea by HSBC, I am not so sure whether consumers in Singapore are ready for it at this present moment, especially when people are been hurt in the past year by so many structured products that have gone wrong. I am not so sure whether there is a prospectus for this, but I don’t think anyone is about to start reading through a 100-page prospectus for taking up a home loan?