By Janice Heng, Straits Times
Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam and Manpower Minister Tan Chuan-Jin tackled some common myths and misconceptions about the Central Provident Fund system during Tuesday’s Parliament session.
MYTH NO. 1 – Your Minimum Sum keeps going up
Once the Minimum Sum is set for a particular cohort, it does not change. Rather, it has been going up for each new cohort.
For example, someone who turns 55 between July 2014 and June 2015 will need to set aside $155,000. This is more than for the previous cohort, which had to set aside $148,000, but this older cohort’s own Minimum Sum has not gone up.
Similarly, for someone who turned 55 five years ago, the Minimum Sum was $117,000 and has not changed.
The Minimum Sum has been rising from cohort to cohort over the last decade in order to catch up with what a lower-middle income household would need in their retirement years, taking inflation into account.
MYTH NO. 2 – If you don’t meet the Minimum Sum, you must top up the difference
If you do not meet your Minimum Sum at age 55, you do not need to top up the shortfall in cash. Nor do you need to sell your property to make up the shortfall.
Having less than the Minimum Sum in your CPF account just means that you will receive smaller monthly payouts when you reach the draw-down age of 65.
MYTH NO. 3 – The Minimum Sum must be set aside fully in cash
Only half of the Minimum Sum needs to be set aside in cash. Ordinary Account savings above that amount can be used to finance housing purchases, or be withdrawn if you pledge your property.
This means that a member turning 55 this year only needs to set aside $77,500 in cash. The rest can be withdrawn if they pledge their property. This cash amount of $77,500 will translate to a CPF Life payout of about $600 per month in retirement.
MYTH NO. 4 – CPF monies are managed by Temasek Holdings
Temasek Holdings does not manage any CPF monies.
CPF members’ savings are invested in Special Singapore Government Securities. These are special non-tradable bonds issued by the Government to the CPF Board.
The Government takes the proceeds from issuing these bonds, and pools them together with other funds, such as proceeds from the tradable Singapore Government Securities, government surpluses and proceeds from land sales.
These pooled funds are first deposited with the Monetary Authority of Singapore as government deposits. MAS converts these funds into foreign assets through the foreign exchange market. But a major portion of these assets are of a longer term nature, and are hence transferred to be managed by GIC.
As shown above, no funds from the CPF are passed to Temasek for management.
MYTH NO. 5 – GIC should manage the CPF monies separately
If the GIC had to manage a separate fund to provide backing for CPF liabilities, it would not be able to earn as much.
CPF monies are pooled with the Government’s other assets. Because the Government has built up significant net assets – that is, what it owns minus what it owes – including unencumbered assets, which are surpluses from land sales proceeds, government surpluses, and investment returns from those proceeds, these can act as a buffer.
When the market is weak and GIC’s returns fall below the CPF interest rates, the Government can still pay the interest on CPF monies thanks to the net assets.
By pooling CPF monies with all these other assets, it also lets the GIC aim for higher long-term returns by investing in riskier assets such as equities and real estate. It can take losses when the markets are down, with the knowledge that it stands to gain when the markets go up again later.
A standalone fund for CPF monies would have to be managed much more conservatively, to avoid the risk of not meeting CPF obligations. Instead of accepting risks that allow for good long-term returns, the fund would just aim to avoid short-term shortfalls.