Wednesday, February 4, 2015

Observers welcome plan for more CPF flexibility



SINGAPORE — While most observers whom TODAY spoke to welcomed the proposal to give Central Provident Fund (CPF) members the flexibility to put in more savings in order to enjoy a higher monthly payout later, they cautioned that it could end up benefitting the well-off more if safeguards are not put in place.

Observers pointed to the tax relief that CPF members currently enjoy under the CPF Minimum Sum Topping-Up Scheme if they top up their Retirement Account or Special Account, and noted that those who are cash rich will be able to park more money with the CPF Board and earn the risk-free interest. Abolishing the tax deductions and putting a cap on the top-ups are some of the possible safeguards, they suggested, speaking on the proposal recently mooted by a government-appointed review panel.

On top of these, Nanyang Technological University economist Walter Theseira also suggested that the Government supports the top-ups with its own contributions to the members’ accounts. “We must fix the tax deductibility problem and look at how to make it better for middle-income people,” he said.

West Coast GRC Member of Parliament Foo Mee Har proposed that the CPF monthly payouts be pegged to the median salary of Singaporeans. For example, an ideal amount allowed beyond the Minimum Sum could be derived from a monthly payout that is 70 per cent of the median salary — an amount that she felt was roughly enough for people to get by comfortably for the rest of their lives.

Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy said he was in favour of allowing top-ups beyond the Minimum Sum as the Government is bearing the investment risks on behalf of the citizens.

Ang Mo Kio GRC MP Seng Han Thong reiterated that the CPF provides a safe investment option for senior citizens.

“There are many seniors, who have extra cash, trying to invest in some areas but (end up) being cheated. So that’s one way to help them save money in a safer place,” Mr Seng said.

He added: “On the other hand, there are also old folks who find it difficult to meet the Minimum Sum. Flexibility should be extended to both sides.”

Mr Alfred Chia, chief executive officer of financial advisory firm SingCapital, said the 4 per cent interest per annum for monies in the Retirement Account would be attractive for CPF members to put in more money with the CPF Board.

“The question is whether the CPF Board will be able to deliver. (It) must be able to earn the returns. In order to earn the returns, they have to invest the money more prudently,” he said.

At a media briefing on Friday, Professor Tan Chorh Chuan, who heads the review panel, said it will ask the Government to allow CPF members to put in more savings for retirement so as to enjoy a higher payout later.

The panel will submit its first set of recommendations to the Government this week. It is also expected to recommend allowing CPF members to make a partial lump sum withdrawal from their Retirement Account when they turn 65.

Assoc Prof Hui, however, was concerned that a partial lump sum withdrawal will lead to lower monthly payouts later, and members could experience difficulties paying for retirement needs. Nevertheless, most of the observers supported the idea, citing the fact that Singaporeans should be allowed the option in order to meet emergency needs or fulfil certain aspirations. Dr Theseira noted the additional support that would be provided by the Government through measures such as the Silver Support Scheme, which disburse annual payouts to needy elderly Singaporeans from the age of 65 to help them with living expenses.

Prof Tan had also reiterated the need for retirement savings to keep pace with inflation and rising standards of living.

Ms Foo felt that more transparency in the calculation of the Minimum Sum would be helpful for Singaporeans. Dr Theseira said that future increases in the Minimum Sum can be moderated through social support policies. “If you assume (government) support for medical care for the aged is going up ... then you can afford to reduce the amount you need to set aside for these purposes,” he said.

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