Sunday, 27 September 2015

CPF Part 2

In my earlier blog, CPF Part 1, I explained it from my personal perspective (micro view). I shared and highlighted how I have enjoyed and benefitted from the policy and CPF scheme. It was like buying an insurance that gives me protection and return with dividend on my premium.

It is mandatory for employer and employee to contribute towards the CPF accounts. The employer has to match and contribute near proportion to the employee's CPF account. Currently, the employer contributes about 16% and employee about 20% of the monthly gross salary. It adds up quite a substantial savings for working Singaporeans.

CPF is a social safety net. It allows retiree to withdraw monthly from their CPF savings to support their livelihood especially for the middle and lower income group. The amount to be withdrawn per month will depend how much savings there are in the individual's retirement account. Retiree can still continue to enjoy on their health care by tapping on their Medi Save fund to pay for their hospital bills. The Medi Shield Life can provide long term health care for their medication and hospitalisation especially those with chronic disease or illness. For those who have lost their income or their savings in the CPF have depleted, they can apply through Medical Social Worker for Medi Fund to pay for their medicine and hospital bills subject to a mean test. CPF allows Singaporeans to buy and own their home, either public housing (HDB flat) or private property (condominium or landed houses). The asset can be converted to cash in time of emergency.

I shall now explain in macro view on what happen to our money when deposited in the CPF. The government under the Ministry of Finance (MOF) becomes the trustee. MOF have to guarantee on the payment including annual interest when the time is due. The money deposited with the CPF Board would be divested and reinvested through GIC (Government Investment Companies) and Temasek Holdings to generate revenue and growth. Like any business, there is always risk on the investment. There would be gain and loss. Spread over time, GIC and Temasek Holdings must earn with surplus to repay the capital sum deposited with the CPF Board plus dividend to the depositor in due course.

Like any financial institutions, banks and stock exchange, they must have the public's trust and confidence in order to operate and perform with results. Any banks or finances will become insolvent or goes bankrupt if they lost the trust and confidence of their customers. Likewise, MOF and CPF Board can only perform to its optimum and earn sound return if the depositors have faith and confidence in them. This is the reason why we must have people of highest integrity and competency to manage our national wealth including our reserved fund.
We must be grateful to our pioneer leaders and founding fathers especially our former DPM and Finance Minister, Dr Goh Keng Swee, for initiating and implementing CPF savings in our work force. CPF money allowed to be circulated and distributed in our economy. It is a prudent and measured policy which works for Singapore.
It was coincident that at the time of my writing this blog, I was reading "The Second Curve" by Charles Handy. He mentioned in his book on page 146 chapter 10 under the Ponzi Society and praised Singapore on the Central Provident Fund. 

Thursday, 24 September 2015

CPF Part 1

CPF (Central Provident Fund) is the basic theory of economic. It is about saving a part of your earning. It is also about compulsive saving. A lifestyle habit, to be thrifty and frugality cultivated from young and introduced from working life.

CPF is a traditional colonial rule inherited from the British. It is a social safety net for old age and retirement. Over time, the Singapore government improvised it and changed the rules to allow CPF savings as part of long term investment giving bigger and more secure return. This was the reason CPF savings can be used to buy public housing (HDB flat) and private properties. In recent years, it also allowed to use CPF savings to invest in government approved (blue chips) bonds, stocks and shares to earn higher return.

Lately, the CPF Board allowed elderly or retired Singaporeans to deposit part of their total CPF savings to CPF Life to earn higher interest and to be withdrawn on monthly payment for a life time just like the annuity scheme. In other words, one receives a sum of money to support their daily expenses and livelihood.

I have benefitted from this policy of CPF scheme. It allows me to buy my first HDB flat from my CPF savings. Although my basic salary was low when I started working and monthly contribution to the CPF was not much, I do not have to pay cash and incur financial burden in repaying the monthly instalment. With low purchased price for a 5-room point block flat at the time, I was able to repay the mortgage loan in a short few years. The employer's CPF share of contributions played a crucial part in both savings and instalment repayment scheme. I later sold the HDB 5 room flat and invested the total sales proceeds in a private property.

The CPF scheme has provided me with a permanent home but also gives me a good return on my assets. Both the HDB flat and private property bought appreciated in value and gave me a good return on my investment. All these were possible with my savings in the CPF when I started working.

When I started my own business, I continue to contribute to the CPF under self- employment. It allowed me to accumulate my CPF savings and I was able to buy and re-invest in other properties. It also allows my savings to grow and earn good return in term of interest and appreciated values in assets.