Prudent housing choices ensure enough CPF savings for retirement: survey

SINGAPORE: With prudent housing choices, young Singaporeans in the workforce today will have enough savings through the Central Provident Fund (CPF) system for their retirement.

This is according to details released on Wednesday from an independent study commissioned by the Ministry of Manpower.

Deputy Prime Minister Tharman Shanmugaratnam first made mention of this study at the opening of the Singapore Human Capital Summit in September this year.

The study was conducted by two researchers from the National University of Singapore, Associate Professors Chia Ngee Choon and Albert Tsui.

In the study, the assumption is that Singaporeans entering the workforce today, would be looking to buy their first homes in 2017.

Another assumption is that the men would be 30 years old, and women 28.

And these couples would buy build-to-order flats that are in keeping with their household incomes.

As workers use CPF savings to finance housing, it is important that they buy a flat type within their means, to leave enough CPF savings for retirement.

For lower-middle income households at the 30th income percentile, typically with a combined monthly income of S$5,100 in 2017, that means a three-room flat.

For median-income households at the 50th income percentile, typically drawing a combined monthly income of S$7,100 in 2017, a four-room flat would be the choice.

Upper-middle income earners at the 70th income percentile, typically earning a combined monthly income of S$9,200 in 2017, could choose a five-room flat.

These figures are projections of 2017 dollars, i.e. nominal household month salary when new entrant turns 30 for males and 28 for females.

With these assumptions, couples can then fully pay their mortgage instalments from their monthly contributions to the CPF ordinary account.

And men earning median incomes at the 50th percentile should be able to replace 70 per cent of their wages on retirement at 65.

That is, their CPF savings should be enough to provide them with 70 per cent of the monthly income that they earned at 55, which is assumed to be the age when a Singaporean's monthly income peaks.

For women, the income replacement rate (IRR) is 64 per cent.

The IRR is a widely-used international measure for retirement adequacy. It refers to the ratio of retirement income to pre-retirement earnings.

The study estimates the IRR that workers could get at age 65 based on their CPF savings. The figures in the study compare well with international standards.

The World Bank recommends a range of 53 to 78 per cent as the IRR for middle-income earners.

Associate professor Chia said that IRR can be used as an indicator of retirement preparedness.

"Our study shows that there is a very clear trade off between retirement adequacy and housing consumption," said associate professor Chia.

"Take for example the base case, when we look at the median worker at say, 50 percentile, we have assumed that this worker will buy a four-room flat. If this household decides to buy a flat type that is one size bigger, say a five room, then we'll see the income replacement rate fall from 70 per cent to 58 per cent," he added.

The median IRR amongst Organisation for Economic Co-operation and Development countries for a median-income earner is 66 per cent.

The study takes into account current CPF policies and features such as CPF contribution and interest rates.

Interest rate for Ordinary Account savings in CPF to remain at 2.5%

SINGAPORE: The interest rate for Ordinary Account (OA) savings in the Central Provident Fund (CPF) will remain at 2.5 percent from 1 January 2013 to 31 March 2013.

The CPF Board said the computed CPF interest rate, derived from the major local banks' interest rates from 1 August 2012 to 31 October 2012, worked out to be 0.21 percent per annum.

It said as this is below the legislated minimum of 2.5 percent per annum, the OA interest rate will remain unchanged at the legislated minimum of 2.5 percent per annum.

The CPF Board added that an extra 1 percent interest will continue to be paid on the first $60,000 of a member's combined balances, with up to $20,000 from the OA.

The extra interest from the OA will go into the member's Special or Retirement Account to enhance his retirement savings.

As for the HDB's Mortgage Rate, the CPF Board said it will remain unchanged at 2.6 percent per annum from 1 January 2013 to 31 March 2013.

CPF Minimum Sum Topping-Up scheme extended

SINGAPORE: Minister of State for Manpower Tan Chuan-Jin announced on Thursday the extension of top-ups under the Central Provident Fund (CPF) Minimum Sum Topping-Up scheme to include parents-in-law and grandparents-in-law.

From January next year, cash top-ups into the special or retirement accounts of this group of persons will enjoy tax relief.

The CPF Board said that a CPF member may enjoy up to S$7,000 relief for cash top-ups to family members under the extension.

Giving details at a retirement conference, Mr Tan said the government would need to amend the CPF Act and the Income Tax Act later this year to effect the change.

With this enhancement, the Minimum Sum Topping-Up Scheme will become an even broader avenue to help CPF members boost the retirement savings for themselves and their loved ones, Mr Tan added.

According to CPF, there were 38,200 Minimum Sum Top-Up transactions amounting to S$215.6 million in 2011.

Top-up for parents were most popular with 58 per cent of top-ups going into parents' accounts.

Top-ups into spouses' accounts made up 16 per cent.

4% interest maintained for CPF Special & Medisave accounts

SINGAPORE: Central Provident Fund (CPF) members will continue to enjoy 4 per cent interest rate on their Special and Medisave accounts from April to June.

This is in line with the government's announcement made in September 2011 to maintain the 4 per cent per annum floor rate for interest earned on all monies in the Special, Medisave and Retirement accounts until 31 December 2012.

Savings in the Special and Medisave accounts (SMA) currently earn either 4 per cent or the 12-month average yield of 10-year Singapore Government Securities (SGS) plus 1 per cent, whichever is higher.

The interest rate on SMA savings is adjusted quarterly, based on interest rates on 10-year SGS over a preceding 12-month period.

From 1 March 2011 to 29 February 2012, the average yield of the 10-year SGS plus 1 per cent works out to be 2.93 per cent.

Therefore, CPF will maintain the SMA interest rate payable to CPF members at the current floor of 4 per cent from April to June 2012.

Tharman gives assurance on CPF retirement savings

Deputy Prime Minister Tharman Shanmugaratnam on Monday reassured MPs concerned about whether people have enough retirement savings, citing figures to show the Central Provident Fund (CPF) system meets the basic retirement needs of low to lower-middle income Singaporeans.

He also clarified the role of the mandatory savings scheme, saying it is not designed to meet the needs of higher-income earners, who often have private savings outside the CPF.

The Minimum Sum that a CPF member must set aside at age 55 is now $131,000. That sum gives a monthly income of $1,100 for life from age 65 under the CPF Life annuity scheme.

It is enough to meet the typical spending needs of a two-member, lower-middle income retiree household - that is, one between the 20th and 40th percentile by income.

'Some people think the Government introduced CPF Life to hold on to their money for life. Actually, all it means is that you get paid for life.'
Manpower Minister Tharman Shanmugaratnam

Bankrupts' CPF inheritance goes first to...

Any inheritance money from the Central Provident Fund (CPF) willed to a bankrupt, whether discharged or not, will go towards settling the bankrupt's debt, reported the Straits Times.

The Court of Appeal ruled that any money left after paying off creditors will be held in trust. This means it will be managed on behalf of the bankrupt.

The court also ruled that even if the information on the bequeathed sum surfaces after the bankrupt has been discharged from his or her debts, the money will still go to the Official Assignee (OA), who will hold it in trust.

The court set these rulings in a judgment released last week in a case where a discharged bankrupt tried to keep $102,000 left to her by her late sister in CPF money and SingTel shares.

The woman involved in the test case, 52-year-old kitchen helper Madam Lim Lye Kiang, had been a bankrupt for 11 years with debts amounting to $1.18 million to 13 creditors when her sister Lye Keow died of cancer in March 2008.

When Madam Lim Lye Keow died, her bequest should have been transferred to the OA, as under the law, all assets belonging to a bankrupt are held by the OA for distribution to his creditors.

However, the OA was not aware of the inheritance. The paper reported that in October 2009, the OA asked the court to discharge Madam Lim as a bankrupt, as she had been one for more than ten years with no further realisable estate. She had also paid up to $150 for her monthly contributions to her bankruptcy estate.

She was then discharged in November of that year after each of her creditors received $11,664 in a final dividend declared by the OA.

However, two months later, she tried to claim her inheritance from the CPF. The CPF Board instead transferred the money to the OA, who applied to the court for an order to distribute the money among Madam Lim's creditors.

In October 2010, the High Court sided with the OA. Madam Lim had argued that since the CPF authorised the release of the money after she was discharged as a bankrupt, the money belonged to her. According to the paper, the court said that 'the protection extended to the money of CPF account holders did not extend to nominees like Madam Lim, and that the money could thus go to the OA to settle debts'.

When she appealed, the appeal court ruled that as she was a bankrupt at the time of her sister's death, the money had to go to the OA. It rejected the argument of her lawyer, Foo Soon Yien, who said that her discharge 'had the effect of revesting the entitlement to the money in her'.

The court, made up of Judges of Appeal Chao Hick Tin, Andrew Phang and V. K. Rajah, instead agreed with the OA's lawyer Lim Yew Jin, who argued that the discharge did not reinstate Madam Lim's right to the money.

Bankruptcy laws that rule the administration of a bankrupt's estate may continue after his discharge were upheld by the court. The court said that while a bankruptcy discharge releases him from debts, it does not affect the debts themselves.

Thus, any assets that surface after a final dividend is paid to creditors will be held in trust by the OA for the discharged bankrupt.