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National Day Rally 2014: CPF changes good but devil is in the details

Published on Aug 18, 2014 12:22 AM
 
While the changes to the Central Provident Fund outlined by PM Lee Hsien Loong in his National Day Rally 2014 speech are important, more details are needed to determine if the policies made are geninuely beneficial for those targeted. -- ST PHOTO: CAROLINE CHIA

SINGAPORE - There were three main complaints over the Central Provident Fund (CPF) leading up to the National Day Rally on Sunday evening.

One was over whether it provided enough for retirement. Another was that people wanted more flexibility in withdrawing bigger sums from their CPF savings. The last big complaint was over the Minimum Sum levels, which will hit $161,000 next year.

Prime Minister Lee Hsien Loong squarely addressed all three issues in his speech by announcing a few significant changes to the system.

On adequacy, he announced two changes. One is making four-room flats eligible for the Lease Buyback Scheme. The other is giving low-income elderly a yearly bonus to help them with their expenditures during their retirement years through a new Silver Support scheme.

At the same time, Mr Lee also said that CPF members will be able to withdraw a lump sum from their savings, possibly up to 20 per cent, after they reach 65 years of age.

Lastly, he said that he does not see any "major increase in the MS", which will bring cheer to people who have been long complaining about the ever-rising MS levels.

The changes are important and made with the intention to give people more of what they wanted out of the system.

In so doing, the changes did not significantly alter the CPF system as we know it today and retains much of its strengths, especially its sustainability.

But will it serve to impress those who have been calling for a major revision of the system? Unlikely, for two reasons.

One is the lack of details in his speech on some of these policy shifts.

Mr Lee did not dive deep into the intricacies of the policies because he probably did not want to get bogged down in the details.

But it is precisely the details which will determine if the policies made are geninuely beneficial for those targeted.

For instance, how big will the Silver Support bonus be? Will it be yearly top-ups of a few hundred dollars or a few thousands?

Likewise, Mr Lim Siang Thnia, Director, PwC Asia Actuarial Services, wanted to know what the conditions are for the greater flexibility allowed in withdrawing a lump sum from the CPF.

The answers to these questions will only come later. In the case of Silver Support, the details will only be released in the Budget next year.

The other reason why some may be less impressed with the changes announced is that they did not address other key issues raised over the CPF.

One big question that has not been answered: How to generate higher returns for CPF savings?

Returns on the CPF savings are risk-free but the 2.5 per cent and 3.5 per cent on the Ordinary Account savings will not be able to achieve the kind of compounded interest effect that will turn small pools of savings into comfortable retirement funds.

Mr Lee did say that the new advisory panel, to be set up by the Government to review the CPF further, will look at this issue, namely how to allow members to invest their CPF in search of higher returns.

"The changes today are a step in the right direction. In particular it's good that they are they are looking to making the CPF less of a one-size fits all approach," said Mr Marcus Koh , Principal Pension Consultant, PwC Asia Actuarial Services.

"But I would really like more details. It's still pretty much at a discussion stage now so we can't really say much about the proposals."

In other words, those looking for major changes will have to wait a little longer.

But if the details work out, then the wait will be well worth it.

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