CPF Recommendations – What I like about it

I had written a number of posts on the Central Provident Fund (CPF). The CPF Advisory Panel released its first tranche of recommendations on Wednesday (4 February 2015).

The main purpose of CPF is still to provide for retirement needs of members. I am glad that this was brought back into focus. The panel headed by the President of NUS, Dr Tan Chorh Chuan, realised the need to simplify the language used in existing CPF policies and communications. They have introduced certain degree of flexibility in CPF to cater to different categories of members with different circumstances. It is not a one-size-fits-all type of recommendations.

Instead of calling it a Minimum Sum, it is replaced with the term Retirement Sum. This Retirement Sum is set-aside in CPF for monthly payout at Payout Eligibility Age (instead of current term “Drawdown Age” which can be ambiguous).

The panel recommends three (3) schemes of setting aside the Retirement Sum at age 55 depending on individual circumstances:

  1. Basic Retirement Sum – half of this year’s Minimum Sum (ie $80,500) if the member owns a property and pledges it
  2. Full Retirement Sum – two (2) times the Basic Retirement Sum (ie $161,000) if the member does not have property or does not want to pledge his property
  3. Enhanced Retirement Sum – three (3) times the Basic Retirement Sum (ie $241,500) if member wishes to put more money in the scheme and receive higher monthly payout.

The proposal is now 1-2-3 for Retirement Sums.

The Enhanced Retirement Sum scheme is new and CPF has to set aside funds to anticipate the interest payment (4%) of enhanced retirement sums.

The panel also recognised that CPF is complex as it is now. There is a need to provide information and financial counseling to help members make informed choices. This is critical as mis-information about CPF can get round coffee shop talks very quickly.

The panel also recommends that an option be given for members to withdraw up to 20% of Retirement Account at age 65, subject to condition of amount of CPF savings in the member’s account. (This post does not want to go into the details of the intricacies.) Suffice to say that PM Lee Hsien Loong did mention this aspect in his last National Day Rally speech. The NTUC also did the same suggestion before the CPF Advisory Panel releases its recommendations. So all parties sing the same tunes on this aspect. However, the panel went one-step more and recommended that some members can delay the start of monthly payout after age 65 and before they turn 70 years old. This is the other flexibility introduced to an otherwise rigid CPF Schemes.

Copyright © 2015, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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