CPF Life - More Flexibility, More Options

On 2nd Feb 2015, a government-appointed panel set up last September to study ways to enhance the Central Provident Fund (CPF) system put forward some recommendations to the government which have been accepted. The panel held discussions with more than 400 Singaporeans to gather feedback to arrive at the proposals.

Some of these recommendations include different retirement sums for different needs, an option to withdraw up to 20% of savings in a lump sum and a choice to defer withdrawal in exchange for higher monthly payouts.

The panel sought to ensure that the CPF provides a basic level of lifelong support in retirement while offering additional flexibility to cater to different needs.

The panel said there should be clearer choices over lifelong payouts and the Minimum Sums to be set aside for retirement.

What it is now

Currently, CPF members must meet a Standard Minimum Sum by the time they turn 55. The Minimum Sum increases to $161,000 in July, is locked away until the CPF member turns 65. That is when they will start getting a payout every month.

Members can withdraw up to $5,000 from their CPF accounts from age 55. Anything above half the CPF Minimum Sum and Medisave Minimum Sum can be withdrawn from age 55 with a property pledge.

The New Choices You Have

Under the recommendations set out by the panel, CPF members retiring in 10 years' time should set aside enough CPF savings to provide for a basic monthly payout of about $650 to $700. This amount assumes that the retiree owns a home and does not need to pay rent.

To receive this payout, CPF members turning 55 next year will need to set aside a Basic Retirement Sum of $80,500 as premiums in 2016.

CPF members can withdraw their savings above the Basic Retirement Sum, subject to a CPF charge or pledge on the value of their property. This means that if the member sells his property, the amount of the charge or pledge will be returned to his CPF account to supplement his basic payout.

Members who do not own their homes should set aside twice the Basic Retirement Sum, or $161,000, the panel said.

Those with more than the Basic Retirement Sum and who want higher lifelong payouts be allowed to top up their CPF Life premiums, up to the Enhanced Retirement Sum. 

They should also be given an option to defer receiving their payouts in exchange for a higher amount every month. For every year that the payout start age is deferred, monthly payouts will increase by 6% to 7%.

For those with shorter-term cash needs, the panel said they should be allowed to withdraw up to 20% of their savings in their retirement account at age 64. This goes up to 65 in 2018.

To help those with low savings in their CPF retirement account, the panel said CPF contribution rates for workers aged 50 to 55 should be raised to match those for younger workers.

Below is the Summary of the decisions you have to make based on the new recommendations:

What choices will I need to make at 55?
1. How much you want to receive as payouts in the future and how much money to set aside in your Retirement Account.
2. Whether to withdraw $5,000.
3. If you have savings beyond the Basic Retirement Sum or Full Retirement Sum, whether to withdraw them.
4. Whether to use any savings beyond the Basic Retirement Sum to top up accounts of loved ones.

What choices will I need to make at 65 or the payout eligibility age?
1. Whether to make a lump sum withdrawal of up to 20%.
2. When you want your monthly payouts to start.
3. Which CPF Life Plan to join (before payouts start)
 

A second batch of recommendations will be unveiled later this year.

What do you think of the initial recommendations put forward by the panel? What are your concerns and considerations?

Key CPF Changes from the National Day Rally

At the recent National Day Rally, Prime Minister Lee Hsien Loong addressed the issue of whether people have enough savings for their old age. He assured Singaporeans that home ownership and the CPF scheme - Singapore's twin pillars for ensuring that people have enough for retirement - will be improved to better support the poor and be made more flexible for all.

CPF members will be allowed to take out a part of their savings as a lump sum during retirement, subject to a limit, perhaps 20%, to ensure they receive monthly payments throughout their later years.

The Silver Support scheme will be set up to make annual bonus payments for the elderly poor who have insufficient CPF savings, no HDB flat or family support.

An advisory panel to be set up by Ministry of Manpower to study CPF changes like the the adjustment to the Minimum sum and how to invest CPF savings more widely to achieve higher returns.

Citing an example of the Tan family with a monthly income of $4,500, the Minimum Sum for the Mr Tan's cohort is $155,000. If he pledges his house, he needs to set aside only $77,500 in cash. But this means that he will get only $600 a month in CPF Life payouts after he retires. Most in the audience think that the Tans will need $2,000 a month after retirement at age 65. To get this monthly payout, he must set aside $250,000 in his CPF account at age 55 - more than the $155,000 Minimum sum for his cohort. Hence, the Minimum Sum scheme's requirements were not unreasonable. For comparison purposes, if they need $1,000 a month, he must set aside $120,000. If they need $3,000, he must set aside $380,000.

Mr Tan can get more money each month if he keeps working, rely on support on his children, use his personal savings or get money out of his house. 
(1) He can rent out one room and get about $700 a month. 
(2) He can move in with his children, rent out the whole flat and get about $2,500 a month. 
(3) He can sell the flat and move to a three-room flat or a studio apartment. If he tops up his CPF with the proceeds, he will get an extra $20,000 in Silver Housing Bonus. If he moves to a studio apartment, he will get $210,000 in cash and $800 more a month. 
(4) He can apply for the Lease Buyback Scheme. If he sells back 35 years of his flat's 99 year-old lease to the HDB, he will get a lump sum of $27,500 in cash and $900 more a month.

CPF Minimum Sum to go up from S$155,000 to S$161,000 for the cohort that turns 55 next year, but there is no need for more major increases.

The Housing Board's Lease Buyback Scheme, which allows owners of three-room flats and smaller units to sell a part of their 99-year lease to the Government in return for a regular income, will be extended to four-room flat owners as well. That means more than half of all flat owners can use their homes to ensure an income this way. However, the take-up rates are low so far as most elderly may prefer to leave the flat to their descendants.

Singaporeans are reminded of the retirement options that they have and to start saving for it when they are younger, so as to be adequately covered in their old age.

CPF Life

CPF Life is a national annuity scheme that allows members to receive a monthly income for life, starting from his drawdown age (DDA). This is an improvement over the Minimum Sum Scheme as members have a high chance of outliving the limited payouts due to Singapore's high life expectancy.

An article written by Goh Eng Yeow and published on the Straits Times on 1 June 2014 explores the choice between CPF Life Standard and Basic Plan.

The key differences of the plans are that under the default plan, Life Standard Plan, the monthly payouts are higher while the bequest left to beneficiaries are lower. Under the Life Basic Plan, the monthly payouts are lower but the bequest left to beneficiaries are higher.

Depending on your year of birth, you will either have to apply to join CPF Life or be automatically placed on it.

Birth Year               Option
1954 or earlier         You can apply to join CPF Life
1955 - 1957             You can apply to join CPF Life when you reach 55 years old
1958 and later          If you have >= $40,000 in your RA at 55 or >= $60,000 in your RA at 65,
                                 you will automatically be included
                                 If you have < $40,000 in your RA at 55 or < $60,000 in your RA at 65,
                                 you can apply to join CPF Life

where RA = CPF Retirement Account which is created when we turn 55 by transferring savings from our CPF Ordinary Account (OA), Special Account (SA) and then Medisave Account (MA), where applicable.

The current DDA for those born in 1954 or later is 65 years old. For a male born in 1954, the monthly payout under the Standard Life Plan is about $1,000 while under the Basic Life Plan is about $930. For a female born in 1954, the monthly payout under the Standard Life Plan is about $920 while under the Basic Life Plan is about $900. The reason why monthly payouts for female is lower is due to longer life expectancy of females. The life expectancy of Singaporean females is about 85 years while for males is about 80 years in 2013.

Ultimately, which plan one chooses to go with is purely based on personal circumstances and preferences. If you are single and without beneficiaries, you can choose the Standard Plan to get a higher monthly payout. However, if you have the intention of leaving a more substantial bequest to your beneficiaries, the logical plan to choose is the Basic Plan.

What will you choose? The Standard Plan or the Basic Plan? What will be your main considerations?

Please refer to the CPF website for more details. You may also use the CPF Life Payout Estimator to estimate your monthly payout and bequest. For other information on growing old in Singapore, please also refer to the Singapore SilverPages created by the Government.

8 Things to Know about MediShield Life

MediShield Life promises "Better Protection. For All. For Life." So how will the man in the street like us benefit from this very bold move of the Singapore Government to achieve universal healthcare coverage?

1. Covers Everyone
All Singapore Citizens and Permanent Residents
Even if you have pre-existing conditions
Even if you have been rejected by insurers
Those with pre-existing conditions to pay higher premiums reflective of their higher risks, at an additional 30% for a period of 10 years
Currently insured Singaporeans pay no more than 3% increase from current premiums as a result of  universal coverage
Everyone shares in the national risk pool and plays a part in supporting pooled healthcare costs

2. Protects You for Life
Previously up to age 90. 
Singapore’s life expectancy is one of the highest in the world. Average life expectancy stood at age 82 in 2013. Women live longer to age 85 and men to 80 according to data from Department of Statistics Singapore. If history has anything to go by, we could be expected to live to the ripe old age of 120 by the time our turn comes. 

3. Better Benefits
MediShield Life pays more of your bills. You pay less.
Remove lifetime claim limit of S$300,000
Increase annual claim limit by 40%, from S$70,000 to S$100,000
Increase the daily claim limits for normal wards and ICU wards by up to 55%
Increase the claim limits for surgical procedures by between 25% and 93%
Increase the claim limits for outpatient cancer chemotherapy and radiotherapy treatments
Increase daily claim limits for community hospitals by 40%, from $250 and $350
Lower co-insurance rates from current range of 10 - 20% to 3 - 10%
Collectively, these enhancements will lead to a higher payout from Medishield Life and patients will pay less.

4. Premiums will Increase
Better benefits = Higher premiums
Pay more when working =  Pay less in retirement
Annual premiums range from $130 to $1,530 dependant on age as compared to previous $50 to $1,190 up to age 90.

5. Premiums fully payable by Medisave
At least this will alleviate any worries of Singaporeans having to pay this by cash out of their own pocket

6. Government will provide support

Premium Subsidies

• For Pioneer Generation
• For Lower-income
• For Middle-income

Transitional Subsidies

• For All Singaporeans up to 2018

Medisave Top-Up

• For Pioneer Generation for Life
• For those aged between 55 to 64 in 2014 (5 years)

7. No one will lose coverage due to financial need
Additional financial assistance for those who cannot afford premiums even after subsidies

8. No need to apply
MediShield Life will start at end 2015
Automatic Inclusion for Singapore Citizens and Permanent Residents

Conclusion
In all, we have to applaud this bold healthcare reform proposed by the Government given the ageing population and the changing demographics going forward. This will likely result in an increase in healthcare costs but this is the price that we have to pay if we want everybody to have access to affordable healthcare regardless of health and financial situation. The society has to be mature enough to accept cross subsidisation across different groups for the greater good. However, the sustainability of such a model may be questionable as it may become a huge burden to the younger generation. Currently, we have a dependency ratio of six working adults to one elderly citizen above age 65. This dependency ratio is expected to fall to two working adults to one elderly citizen by 2030 according to the Population White Paper 2013. It will be up to the Government to tweak its policies  so that a fine balance can be achieved.

Please refer to the website for more details.