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Janice Heng
Tuesday, Jul 8, 2014

Singapore

CPF issue: 15% use properties to meet up to half of Minimum Sum

The Straits Times | Janice Heng | Tuesday, Jul 8, 2014

SINGAPORE - In a speech addressing eight MPs' questions on CPF, Mr Tan set out to "dispel misconceptions and myths that have surfaced in the recent public discussion" on the topic.


Get the full story from The Straits Times.

Excerpt from Manpower Minister Tan Chuan-Jin's speech:

Clarifying Several Issues Relating to the Minimum Sum

"Let me clarify this concept of the Minimum Sum. Some are unhappy when the Minimum Sum increases for every cohort that turns 55. Some see it as a "shifting goalpost" that locks up more and more of their CPF savings. Others do not understand how much savings they must set aside at 55.

"Now, let me explain the Minimum Sum in some detail to dispel misconceptions and myths that have surfaced in the recent public discussion.

"First, the Minimum Sum is cohort specific. Once it is set for a particular cohort, it does not change. For example, someone who turns 55 between July 2014 and June 2015 will need to set aside $155,000. This is slightly higher than what a person who turned 55 last year needed to set aside, which was $148,000 and that remains unchanged for someone who turned 55 last year. To further illustrate, for someone who turned 55 five years ago, the Minimum Sum was $117,000 and that has remained unchanged for him.

"Second, the increases to the Minimum Sum for each successive cohort over the last decade are part of a major, planned, gradual adjustment starting in 2004, to catch up with what a lower- middle income household would need in retirement. This was announced a number of years back.

"How did we arrive at $155,000? That is the amount you need to get a monthly payout of about $1,200 in 10 years' time when you reach age 65, when you begin your draw-down of your CPF savings. We estimate that is how much a lower-middle income household would spend on daily living when they enter retirement 10 years from now. $1,200 per month in 10 years' time is not an excessive amount - it is equivalent to only about what $1,000 would buy today.

"Some might argue that both they and their spouses work, and so if both are required to set aside the full Minimum Sum individually, then they will have the combined payout of $2,400 which is more than what they need. Well, the answer is that if they have a property, and many do have properties, they can pledge that property to set aside only half the full Minimum Sum in cash, so that each one only needs to set aside $77,500 for retirement - half of $155,000. Then the combined payout of their Minimum Sums will be a total of $1,200 per month - or just adequate for basic living expenses. And what happens if they don't have a property to pledge? In the scenario where they don't have a property, they will need to pay for rent, and so a combined payout of $2,400 is not too generous at all.

"Third, if you do not meet your Minimum Sum at 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. Let me repeat this, you do not need to top up the shortfall in cash, nor do you need to sell your property to make up the shortfall. What it means is that with your smaller amount, your monthly payout will be correspondingly lesser, and that is all.

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