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 Temasek Holdings will be issuing 10-year USD bonds to generate cash to fund it’s own business as well as it’s subsidiary companies.

The offer is expected to be at least US$500 million with the coupon rate yet unknown. For the previous 10-year bond issuance in 2005, the coupon rate was 4.5%. Temasek is looking to pay a spread of 1% over the equivalent US treasury bills, so the coupon rate could be close to 4%.

The bonds have been rated AAA by S&P and Aaa by Moody.

This brings us back to the commonly asked question: Should we be paid a higher interest for the monies in our CPF Ordinary Account?

Granted the bonds will be issued in USD, but could Temesek have issued bonds in SGD, and pay a coupon higher than 2.5% to the CPF board? Even the 10-year Singapore government bond is giving a yield of close to 2.85% currently.

A higher interest paid on our long term Ordinary Account funds (which are locked in) will go a long way towards helping people with their retirement funding.

100k earning 2.5% over 20 years will become 163k.
100k earning 3% over 20 years will become 180k.
100k earning 3.5% over 20 years will become 199k.
100k earning 4% over 20 years will become 219k.

Health Minister Khaw Boon Wan gave a hint of what is to come when he mentioned that more needs to be done to better serve Singapore’s aging population.

This includes:

• increasing the Medisave contribution rate from the current 6-9.5%
• enhancing payouts for Eldershield to $800/month from the current $400/month (this will also mean increasing the premiums)
• providing more funding for the Medifund-silver scheme
• introducing the 3E framework over the next 15-20 years – Elderfund, Eldersave and Eldershield

With the wide array of schemes available, it is a challenge for anyone to know all the schemes, not to mention keeping track of all the changes.

For starters, just do a permutation on the following terms:

• medi, elder
• save, shield, fund

The government should seriously consider setting up a giant information database wikipedia style. Frills and graphics might be good but when it comes to the crunch, what most people really want is to be able to find the information we need in the shortest possible time.

One example is the current CPF website which is simply hard to navigate. Is it only me or do you also feel the same way?

Read the entire interview with Khaw Boon Wan here:

Medisave Contribution to Rise

Currently, the interest rate for the Special Account, Medisave Account and Retirement Account (SMRA) is pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%.

The government had earlier guaranteed a floor of 4% on this interest till the end of this year. Two days ago, Manpower Minister Gan Kim Yong said this is in light of global economic conditions and exceptionally low interest rate environment, the minimum of 4 per cent interest rate will be extended for another year till end of 2010.

Without this minimum, the interest rate for the fourth quarter of 2009 would have been 3.4% p.a.