Parlimentary Debate on Proposed CPF Changes this week

The most interesting topic in the Straits Times this week was on the proposed CPF changes - raising of the age at which one could draw down one's CPF savings (less the minimum sum) and the proposed annuity scheme. (The second was in the emergence of protests against the Burmese Military Government by Monks)

This brought out from PAP backbenchers some surprising questions about the whole basis for the existence of the CPF and views about how well meaning policies had contributed to the issues that have prompted Minister Ng to propose the CPF changes.

Certainly, population trends, housing costs and GLC monopolies (and near monopolies) can be argued to be contributing factors. But at the heart of the issue is a simple financial question:

Why is it that after so many years of forced savings of a large percentage of one's salary (33% from employee and employer contributions), so many are left with not even enough to meet the minimum sum level when they reach the age where they can draw upon their CPF?

As for any investment, the two key factors that determine what final amount a CPF member can count on are how much gets saved and the rate of return. The % of a worker's salary that goes into CPF is fixed, dependent on his salary, and constitutes a good 33% of his total salary! The rate of return is fixed, and at 2.5% for the OA and 4% for SA, seems on the low side compared to what the major insurance companies are offering as likely rates of return of between 5-8% over the long term for investment linked policies.

Of course, the latter is not guaranteed, but as NMP Siew mentioned in his very well prepared speech, CPF savings may be considered to be not guaranteed as well. Watch Siew Kum Hong's speech in 2 part on YouTube. It'll be time well spent:

NMP Siew Kum Hong Part 1 and Part 2

Such a difference in interest rates, compounded, over a long period like 30 years can make a huge difference.

Sylvia Lim of the WP gave a good speech as well. She made a case for delaying the raising of the draw down age till legislation on employment for the elderly is fully thought through and implemented. Here are Parts 1 and 2.

If watching these videos has increased your appetite for more opinions, I suggest this article from the onlinecitizen.