I refer to the report “CPF Medisave Required Amount to be raised to $38,500” (Channel NewsAsia, Dec 21).
MRA increase 20%
It states that “From January next year, the Medisave Required Amount (MRA) in the Central Provident Fund (CPF) will be raised to S$38,500 from the current S$32,000.
The MRA refers to the amount that must be set aside in the Medisave Account, after the CPF Minimum Sum requirement has been met.
The CPF Board said those who have met the CPF Minimum Sum and have an MRA shortfall at the point of withdrawal have to make a top-up to the Medisave Account.
This can be done with part of the balances from the Ordinary Account and/or Special Account to meet the prevailing MRA.”
This is an increase of 20 per cent in just one year.
Highest increase ever?
How does the CPF Board determine how much to increase the MRA in a year? I believe the subject increase is the highest in the history of the CPF.
How many have $177,500?
With the Minimum Sum at $139,000 now, what this means is that from 1 January 2013, CPF account holders who reach age 55 with less than $177,500 can only withdraw $5,000.
How many Singaporeans will have more than $177,500 when they are 55 years old?
According to the latest statistics disclosed in Parliament, only about 45 per cent of those who reach 55 were able to meet the Minimum Sum including the pledging of property for up to half the Minimum Sum.
So, how many were able to meet the Minimum Sum entirely with cash in their CPF?
From 4 to 2.5%
As to “Central Provident Fund members will also continue to enjoy a risk free interest rate of four percent on their Special and Medisave Accounts (SMA) for the next three months, from 1 January to 31 March 2013.
The interest rate on their Retirement Accounts (RA) for the whole of next year will also remain at four percent.
The CPF Board said this was in line with the government’s announcement in September that it would maintain the four percent per annum floor rate for interest earned on all monies in the Special and Medisave Accounts as well as savings in the Retirement Account until the end of next year.
Savings in the SMA currently earn either 4 percent or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1 percent, whichever is the higher.
The interest rate on SMA savings is adjusted quarterly, based on interest rates on 10YSGS over a preceding 12-month period.
Since the average yield of the 10YSGS plus 1 percent, from 1 December 2011 to 30 November 2012, works out to be 2.49 percent, the SMA interest rate payable to CPF members from 1 January 2013 to 31 March 2013 will be maintained at the current floor of 4 percent, CPF said”, what will happen if the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1 percent remains below the floor rate of 2.5 per cent, when the 4 per cent guarantee rate ends on 31 December 2013?
What will happen to the CPF Life monthly payouts from age 65 as the projections are all based on 4 per cent plus/minus a quarter per cent?
Can replace 70% of income when retire?
Although the recent retirement study commissioned by the Government said men at the 50th percentile income can replace 70 per cent of their income when they retire at age 65, the stark reality now may be that most Singaporeans can’t even meet the Minimum Sum. (“Retirement study: High IRR?“, Nov 15)
Lower floor rate, lower CPF Life payouts?
There is also the likely possibility of lower CPF Life annuity payouts in the future.
With arguably, the historical contribution of CPF funds towards Temasek Holdings’ 17 and the Government Investment Corporation’s (GIC) 6 per cent annualised returns, how could Parliament have approved the reduction of the Special, Medisave and Retirement Account (SMRA) floor rate from 4 to 2.5% in 2007?
Leong Sze Hian
