Den of The Lion Investor

The current CPF minimum sum of $99,600 will go up to $106,000 from 1st July this year. This is the amount of CPF monies that you have to set aside before you can withdraw the rest. Upon reaching 55, the minimum sum will be moved to your retirement account, and you will start getting a monthly payout of about $960 from age 64 for the next 20 years.

The Medisave minimum sum will also go up from $28,500 to $29,500 while the cap on the Medisave contribution ceiling will go up from $33,500 to $34,500.

There is also a phasing out of the 50% withdrawal rule for those who are unable to meet the CPF minimum sum. From 1st January 2013, CPF members must meet the CPF and Medisave Minimum Sums first before they can withdraw their remaining Ordinary Account and Special Account balances at age 55.

The complete press release with details of the changes can be found on this page of the CPF website.

Going ahead, you can expect the minimum sum amounts to be revised upwards every year to factor in inflation.

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According to Health Minister Khaw Boon Wan, the Medishield insurance scheme currently pays only about 55 per cent of big bills in the subsidised B2 and C class wards. As he wants the patient’s share to be lower at about 20 per cent, therefore he is increasing some of the payouts under the scheme.

However, this also means that the premiums for everyone under the Medishield scheme will have to go up.

• If you are 60 and younger, your yearly premiums will increase by up to $60 from the existing $30-60.
• If you are 61-80, your yearly premiums will increase by up to $120 from the existing $225-510.
• If you are 81-85, your yearly premiums will increase by up to $480 from the existing $600-705. This is a more than 50% increase.

The people under the age group of 81-85 are the worst hit as their deductible amount will also rise to $3000 for B2 wards and $2000 for C wards. Those under 80 have a deductible of $1500 for B2 and $1000 for C.

(The deductible is the amount of money which you have to pay yourself before the Medishield insurance comes in. You will not be able to claim anything for bills that are below below the deductible amount.)

The reason given for the massive increase in premiums for the 81-85 group is that there is only a small pool of people (less than 6000) in that group, so it is difficult to keep costs down. With life expectency of Singaporeans increasing, perhaps there will be more people in that group in the future.

For myself, I have already ditched my Medishield plan long time ago to take up an alternative plan offered by one of the private insurers.

References:

ST article about the changes

Video by Minister Khaw Boon Wan on the premium increase

CPF Changes : Implications for Financial Planning - This was the title of the keynote presentation that was to be delivered by Mr Leong Sze Hian, President of the Society of Financial Service Professionals. With CPF being close to everyone’s mind, it was not surprising that this seminar at the Smart Expo was fully packed.

To everyone’s great disappointment, Sze Hian could not make it for the event and had to get one of his staff to be the replacement speaker.

The presentation material was probably prepared by him as it was filled with many facts and figures, not unlike his regular contributions to the Straits Times forum.

Unfortunately, that also meant the person delivering the presentation had to go in depth to deliver the message intended. With all due respect to the replacement speaker, this was something which she failed to do. This was understandable as being a last minute replacement, she probably didn’t have enough time to prepare.

She finished her presention in half the allocated time and quickly made her exit without taking any questions from the audience. As she run through the slides pretty fast, I couldn’t take down too much notes from them. These are some which I manage to “salvage”:

• The 3 main concerns of Singaporeans are retirement, housing and healthcare. The changes made in the 2007 Budget meant that we get more cash (from our salary) but less in CPF. This does not really address the main problems.
• Members had an average of only $66k in their CPF accounts, with the median even less at $20k.
• Based on half the minimum sum, we will get back $600/month (at 4%) or $720/month (at 5%) for twenty years after our retirement. With the new CPF Life scheme, we will get back $604 (for male) and $570 (for female) for life.
• According to statistics given by the government, the life expectency of someone born in 2006 is 78 for male and 82 for female. But what is the life expectency of someone who is already 50 now?

The last point is something I am very concerned about. Formulating a new policy based on the statistics of someone born today and applying it across the board for people born decades ago. Will it make the latter better or worse off? Only time will tell.

If you are like most average people and are confused by the mind boggling choices of the CPF Life scheme, please do not hesitate to seek advice from someone who is able to understand it well.

If not, you might choose the option that doesn’t meet your needs. Remember, your CPF money is also your hard-earned money.

From 1st April 2008, there will be some changes to the Central Provident Fund (CPF) scheme where investments are concerned. Basically, the first $20k in both your OA and SA will be unavailable for investments. This does not affect existing investments so you will not need to liquidate any investments if you have less than $20k in your accounts now.

If you wish to deploy the first $20k in your CPF OA or SA funds for investments, you will need to do so in the next one or two days as it takes time for the CPF funds to be transfered out.

For your reference, leaving that amount in your CPF will earn you 3.5% p.a. for OA and a floor rate of 5% p.a. for SA (for this two years).

After 1st April, if you have less than $20k and sell or switch any of your CPFIS-OA investments, the money will be temporarily held in your agent bank first. If you want to use the amount for investments, you will have to do so before it gets transfered back to the CPF board.

Once it gets transfered back to CPF, the $20k rule will apply.

For CPFIS-SA, it will not be possible to do a switch as any sales proceeds will go directly into your CPF account. However, if your funds are under IA status (purchased from a CPFIS Registered Investment Administrator), switching will not be a problem for both CPFIS-OA and CPFIS-SA regardless of the amount left in your CPF account.

Refer to Annex C for list of CPFIS Registered Investment Administrators

For ILP products, switching might not involve a transfer of your monies to your CPF account. I’m not 100% sure on this so you might want to confirm with your insurance agent.

Should you rush to invest all your CPF monies now? It depends.

Some people might be reluctant to do so because of current market volatility. What I did is I moved most of my CPF to a money market fund. Subsequently, I will be doing RSP investments into unit trusts. This avoids investing all my CPF at one go.

Some people might have a high contribution to their CPF accounts every month. In their case, even if they move out all their money now, their CPF OA and SA will still build up to $20k very soon.

Moving out those funds from the CPF for investments might be a worthwhile consideration for those who have a very small contribution to CPF every month.