Sensible proposals to revamp flawed CPF system

There is a lot of talk about CPF and how it might be a PAP con to keep Singaporeans’ money forever. CPF is a tricky issue, and I’d like to talk about the issue and propose partial solutions to problems Singaporeans face in as simple and non-inflammatory a way as possible. On one hand, it is in the public interest for everyone to have enough retirement funds. Yet it also is in the public interest that everyone gets to use the funds when they are in need, especially today.

Hackish, Poorly Thought-out Solutions

Certain CPF Board solutions such as “why don’t you sell your 3-rm flat and buy a 2-rm flat” are technically and economically poor (one just creates churn and pays unnecessary transaction costs). I think it is agreeable that these ugly hacks are unacceptable.

The Minimum Sum: Actually a Reasonable Idea, But…

Admittedly, the idea of a “minimum sum” as a threshold for withdrawal makes some sense. Good financial planning means that, accounting for interest and inflation, one would like to have enough retirement funds to fund retirement. But the ridiculous outcomes like forcing Singaporeans to sell their homes suggest that something is wrong with the system. Indeed, I believe that something is missing.

Planning and Real Life: Withdrawals for Particular Expenses

First and foremost, it is important to see that plans generally do not survive the slings and arrows of outrageous fortune. But putting in place a financial plan means that one has some assurance that things will work out. Retirement funds are not just for food, drink, utility bills, trips to Genting (every two months for the rest of your life) and trips to the doctor (every month for the rest of your life). Sometimes one balances one’s budget by moving things around. It is a natural response to real life.

Therefore, I really see no problem in allowing Singaporeans to use their CPF funds for things like mortgage payments. (The alternative of “selling the house and buying another” is asinine.)

Ensuring Funding Adequacy Today through a Minimum Monthly Withdrawal Entitlement

What about day to day expenses? Sometimes things happen and you just can’t meet the minimum sum. Then whatever monthly amount ones get will be low and unlivable. But one has saved money. A lot of money. Maybe it is not enough for the rest of one’s “statistical life”, but it shouldn’t mean starving today.

I think there should be the concept of a “Minimum Monthly Withdrawal Entitlement”. This means that each CPF “member” should have the option of withdrawing up to some Minimum Monthly Withdrawal Entitlement Level (if their present monthly entitlement is below that). This might be pegged to the cost of living. I’ll say upfront that this means that for some, CPF monies will run out before the end of their “statistical lives”. But it is a reasonable trade-off between today and tomorrow. Starvation and various other forms of deprivation today might mean that there won’t be much of a tomorrow to look forward to. In particular, such deprivation usually means deteriorating health.

In the face of such problems, I say, let’s kick the can down the road. It gives us some space to try to solve the retirement funds problem. In particular, it is a problem of not enough money to fund the tail end of retirement. I don’t think it is insurmountable if Singaporeans get behind a solution in a present day, whatever it might be, and let it build (financial) momentum.


Long story short, I think the following adjustments to the CPF system are sensible trade-offs that solve huge problems today:

(1) Allow Singaporeans to use their CPF funds for particular necessity expenses like mortgage payments.

(2) Introduce a Minimum Monthly Withdrawal Entitlement so that those whose current monthly withdrawal levels are less than that can live reasonably without physical deprivation today.

I recognize that (2) kicks the can down the road. But sometimes that is the sensible thing to do. Given how far down the road the can is kicked, it gives us time to deal with the problem.

Jeremy Chen

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