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Why it is So Difficult to Raise the CPF Withdrawal Age of Your Citizens

I think I have some thoughts about things related to the CPF that I would probably share over time. They will be smaller articles some what like this. It is meant more to invite my readers to tell me if they agree or disagree with the points raised and give their point of view.

When you are older, you lived with the system more, and as you hear more things, you want to put them out there. I also am privileged to be educated by the CPF team in the past.

So I am a pretty good “Wu Jian Dao” situation.

Some caveats is that I might not answer you and that you should try to make it less political as possible. If you have some numbers hypothesis, you can share it. If you have your own conspiracy theories, you can also share it.

Don’t use my platform to cry father, cry mother and ask people to return your CPF money. Explain why it make sense to return the money without bringing up the political party.

CPF Squabbles


I read this pretty good Mothership summary of how our former healthcare minister Howe Yoon Chong recommended that the CPF withdrawal age be raised from 55 years old to 60 years old. This happened in 1984, so its probably as old as Kyith. As a little rascal, I did not remember this episode.

The recommendation was made after a 12 member committee studied on The Problems of the Aged.

And the people was not happy about it. To make the situations even worse, Lim Boon Heng and Toh Chin Chye came out to criticize the idea.

The backlash was big. Perhaps due to that report, the PAP lost 12% of the overall votes in that election. Howe quit politics that year. Chiam See Tong won Potong Pasir.

I think some of the arguments made by Lim Boon Heng and Toh Chin Chye was a little valid. They centered on

  1. What is the worker suppose to do between 55 years old to 60 years old
  2. There are those who are near to 55 years old and planning to go on pilgrimage with the money and now you tell them you got to wait 5 more years
  3. The CPF contribution by employers and employee back then was 50% (which was ironically lowered to 35% after the 1985 recession) and if you extend it, it places more burden on employers

I have no access to the report back then, so we do not know what kind of stuff is written in the report.

As a blogger writing on the topic of financial independence, I can see where is the concern.

  1. Longevity tends to go up. Last week, I was shocked by some actuarial figures how long we should live till (100 years old)
  2. Aging population
  3. Unable to ramp up productivity

With these in mind, we can see how likely the paper will conclude that we should push back the age where you can draw out your CPF.

But what does that do?

The Extraordinary Wonders of Delaying CPF Withdrawal

To those not familiar with the retirement literature, by pushing back the withdrawal age, which essentially is the age you draw down your money:

  1. you save for 5 more years
  2. prevent spending for 5 more years
  3. your money compounds for 5 more years.

It is very powerful.

So the cash flow that you get 5 years later looks much larger than what it is if you withdraw at 55 years old.

And it is often recommended by retirement experts.

One spouse could take distributions at 65 while the other spouse take it at 70.

Now, I have reservations to how robust the retirement thought process in the 1980s. The safe withdrawal rate only came out in 1994.

You can have your own conspiracy theory why they would push back the withdrawal age.

The Difference between the Government’s Money and Your Money

After this episode, it seems no one will want to meddle with that 55 years old milestone too much. What the incumbent did was to try and work the message in a different way

Under the old scheme, if you have $5000 in your CPF, you can get it out at 55.

Under the current scheme, if you hit your BRS or FRS, you can withdraw the rest of the CPF money.

Why is keeping to 55 years old such a sensitive topic to the people? I have a good guess.

Because you say it is my money.

You will say that the 50% contributed by the employer and myself is my money.

If the money in the CPF is my money, then why do you (the government) keep hoarding my money, when I was planning to get it out?

When you tell people that this is their money, then they will think they have the kind of power to act on it like their own money.

They can withdraw and do whatever they like with it.

For most pension systems around the world, people get taxed in different ways. This can be through income tax paid on their income, through corporate tax from their business, or through the services they use, goods they purchase. It could also be on their wealth assets.

These part of these tax revenue goes to funding the pension system.

The narrative is more that this money is taken away from you and you hope for the best that eventually when you retire, the system can provide a cash flow for your retirement. It may also breed a culture where the citizens depend a lot on the government system.

In our case, the narrative is more that this is our money and we are forced to put it away. The good thing is that we can see “our share of this pension plan”.

If you speak to folks from other countries, they will say this is multi times better because for folks who are intentional, they know how much they are getting at the end of the day.

If you have $200,000 in your CPF, that is for your benefit. There will not be a situation where the pension is under funded and the folks in the future get less. However, if everything is in your control also means that if you do badly in life, your future retirement is bleaker and not many people will help you.

I guess it might also be a way that the incumbent wanted to make citizens equitable of this country.

So they feel this is their money.

Imagine that DBS suddenly tells you that you cannot withdraw your money for 2 years. You start wondering why they would do something like this. Then you start thinking whether there is a liquidity crisis in DBS.

When you make a plan to delay CPF payout, this is probably that sort of feeling.

As a retirement planner, my current view is that for majority (98%) of the Singaporeans, they would not know how to systematically spend down a lump sum well. (Until something show me that they are matured and sophisticated to do it)

The reason is that to spend enough, yet make the money last, for a period of time you do not know the end date, is a complex problem.

So people tend to over or under-spend. People f#$k up behaviorally too.

The conservative ones…. They take out their money… And they will put into something as low risk as CPF Life .. but lower yield.

In a lot of ways, apart from the conspiracy theory, on paper, the justifications are there for the 1984 paper.

However, based on the way the narrative on the CPF is shaped, any actions that show you want to meddle with the CPF becomes a very political topic.

It is macham like your brother-in-law and your sister suddenly telling you what you should do with the money you inherit from mom.

What gives them the right to tell you what you should do with your money?

In reality, they may be right, because they been seeing how you fritter away your normal savings and worried the same will happen to this new found windfall.

Ultimately, the older government set up a system where we seemed to own a lot, and they have to be aware that people look at them as fund managers or financial planners, who are suppose to capital allocate their money well and make good recommendations.

Some trust them. However the more fishy things they do with your money, the more skeptical you get.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often.

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
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Hyflux: I could probably see the structural weakness but probably not when things would blow up
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henry

Saturday 2nd of March 2019

Allowing CPF to finance property has eroded the purpose of the CPF. The result is wonderful stats that 80% own their homes. A real trophy to hold up to the rest of the world.

But it kicks the can down the road and that road seems shorter now with 99 year leases running out and values diminished till zero. And typically, its not the fault of the system... its YOUR fault. YOU over spent. and now in your retiring years, you have to bear the burden of insufficient cash.

The other view is that the foolish ones kept their homes and did not sell and upgrade! In other words, it is an unspoken, national practice to buy and sell your home to make small ( or large ) profits to build your CPF! ( or to buy a brand new car ). The ones who dont sell are being punished. Same goes for en bloc sales.

I agree that most people have poor financial discipline when it comes to sudden and large sums of money ( even if its just $1,000 ), and restricting the payouts is good. But it supports the notion that authority knows best, robs the individual the self empowerment and control over his/her own money.

The connection between property and CPF should be disrupted. It is now a Pandora's box.

Fred

Friday 1st of March 2019

The G has not convincingly justified its ground to push the payout period of initial 20 years( 65 to 85) to 30 years (65 to 95). The recent debate in Parliament on pushback of 65 to 70 is a diversion, a military strategy favoured by our leaders to mask the real McCoy of reduced monthly payouts.

WHO has published that current average lifespan of Singaporean is 83,(males as 80.5 and females as 85). Even at year 2030, the average would only be 85. By G own stats, 50% of Sporeans live beyond 85 and another 30% possibly beyond 90. Isn’t CPF Life is an insurance that covers longs with shorts. Since 85 is the age where 50% lives beyond and the other 50% lives short, the payout is justified at 85? By prolonging the monthly payout period from 20 to 30 years, it simply means the monthly payout sums would lessen by at least a third? Coupled with a number delays, from 55 to 60, 62, 63 and now to 65, it is not difficult to distrust the G on conspiracy theory that it has no money to pay CPF members of their dues. What about hoarding a lump sum under Basic Healthcare Sum, to exacerbate the misery of its members?

CPF is a PAP creation which is now obsolete. It has served its purpose then. Unlike other countries,where states funded the system, ours is a saving or self-funded Scheme but absurdly controlled by the G. Shouldn’t members have their rights through AGMs, town-hall meetings to manage these funds? Like what blogger CW888 states ‘CPF is for those who have plenty’ this tweaking of payouts affect the Low-Income and self employed the most in terms of quantum and delays.

Worse, we hear from Finance Minister himself in Budget2019, that our MAS, GIC and Temasek via the NIRC, the returns from these reserves far exceed the collection of income taxes, GST, stamps, road taxes and COEs for revenue expenditures. By his numbers and my extrapolation, there are more than 35% of employees in the age group of 50-64 having less than $60k in their Retirement accounts and need top-up of a measly $1k. A revamp of the whole system is in order?

Kyith

Saturday 2nd of March 2019

Hi Fred, I take the need to tap upon 50% of long term capital returns as an indication of the opposite. we might not have enough money or enough return.

Sinkie

Thursday 28th of February 2019

One aspect of the CPF system that not many have acknowledged is that it forces the govt to be more prudent in its spending, versus using a higher tax system. Since CPF is recorded as long-term debts and not revenue to the govt.

It also forces the govt to implement expenses or investments with a view to being returns accretive or yield accretive, so as to be able to return back the CPF with interest. E.g. GIC, Temasek, Jurong Industrial Estate, JTC, Changi airport, shipyards, Tuas port.

We are fortunate in that large forced savings & prudent investments over decades have provided a large enough base to provide sufficient recurring income & growth to cover CPF liabilities. It was all too easy for corrupt govts or war-like environment to derail this experiment.

However this high-individual-savings-low-public-tax system is not enough to back-stop any bad behaviour of the people, especially if it involves large % of population. A large portion of the national savings are ultimately belonging to individuals and cannot be used to bail out bad behaviours. SGD is not a reserve currency & barely a trade currency hence govt can't print SGD to bail out people without destroying the value of SGD.

Hence the conservative management of CPF retention via increased Minimum/Retirement Sums, CPF Life, increased Payout Age etc. They leave the withdrawal age at 55, becoz if you can satisfy all the hurdles of retirement sums, basic healthcare sum etc then you already have enough cash to do whatever you want with it. But they ensure that a last-level subsistence living type of funding is withheld as much as possible, becoz S'pore low-tax system is not designed to support hundreds of thousands or even tens of thousands on monthly "welfare pension" cheques.

Kyith

Thursday 28th of February 2019

Hi Sinkie, its how differently this was designed. perhaps an upcoming post is on the positive role of withholding money from citizens.

Retired Uncle

Thursday 28th of February 2019

I don't quite believe in the longitivity theory promoted. One, if Mr LKY with the best healthcare and doctors to take care of him can only live to 91, what makes some think that they can live beyond that age? Don't forget, he was already unwell in his 80s. Two, if we look around us, most people would alredy have some form of illness in their 60s. People live longer because they are on some form of medicine or long term treatment. All these need money. And with a compormise of their quality of live, do we still want to "torture" them by telling them they cannot touch their CPF money? There are those who live beyond 90 but I believed they are the minority. Maybe just a few percent of the population. I have seen so many wakes at my area, most of them passed away in their 70s and a few 80s. My aunt just passed away at 75 recently. Perhaps the govt can provide the critics wrong with concrete data. Don't just do sales talk.

Kyith

Thursday 28th of February 2019

The data I got is not from the government. well, its close but not suppose to be meant for public consumption. this data is used to bet against paying out Singaporeans.

Anonymous

Thursday 28th of February 2019

Those 2% end up rich or happily retired while the rest continue complaining. Humans (including myself) tend to be positively biased about managing our own money. So the feeling of stop keeping my money in CPF and i know how to manage the lump sum. Having lived/seen few countries around the world, I must say we have the best system for retirement funding. CPF, Foreigners, Property & Taxes are such sensitive topics and explaining via logic doesn't go well.

Kyith

Thursday 28th of February 2019

Hi Anonymous, I think we tend to overrate our own money management abilities. Perhaps you are right. We are nitpicking on a system that is very good already.

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