What can be done to improve CPF safety net

I believe I am in the majority who support the Central Provident Fund (CPF) and would even want to put in more money, especially into my Special Account.

My reasons are:

The rates exceed those offered for bank deposits; and

I wish to gain the benefits of compounding interest.

But some people lack financial education or discipline.

The moment a lump sum is withdrawn, it usually goes to consumption. Once these finances are drained, they complain that it is too expensive to live in Singapore.

The Government is launching MediShield Life. This is very important, especially for retirees as medical bills are one of the biggest expenses for most of them.

I am sure our Government will continue to improve social policies and CPF returns but it is a fact that it cannot please everyone.

The maximum contribution limit to CPF is $30,600 a year. It is not a lot, considering that one does not hit the limit the moment one starts working.

It has been reported that many who have used the CPF Investment Scheme (CPFIS) were worse off than if they had left their money in the CPF.

It is better not to allow such wide-ranging stocks and unit trusts under the CPFIS.

CPF is a basic safety net with a generous risk-free return. I suggest that the Government:

Increase the CPF Ordinary Wage ceiling from the current $5,000 per month;

Go back to the 20 per cent contribution for both employer and employee;

Increase the maximum CPF contribution from $30,600 a year; and

Increase the current maximum contribution to the Supplementary Retirement Scheme (SRS) from $12,750 a year.

The SRS is a good tool for those who are serious about retirement planning. It was set up for those who want to complement their CPF savings.

But I fail to understand the current cap on annual SRS contributions.

Perhaps if an account holder can meet the current CPF Minimum Sum before the age of 55 through larger contributions, complemented by a tweak in CPF returns or CPF Life payouts and SRS enhancements, we can reduce the number of complaints about living expenses.

Choong Ju Liang 

This article was first published on June 16, 2014.
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