Singaporeans need to set aside a CPF Minimum Sum of $155,000 inside our CPF before we are able to withdraw any access monies out to use. If we don’t have this Minimum Sum, our CPF monies will be trapped inside and we cannot withdraw our monies.
By now, we know that nearly 90% of Singaporeans cannot even meet the CPF Minimum Sum today, and half of Singaporeans do not even have $55,000 inside our CPF, which means half of Singaporeans have less than 35% of the CPF Minimum Sum!
The question I had asked previously is why the government keeps increasing the CPF Minimum Sum since the mid-1990s, knowing that most Singaporeans will simply not have enough inside our CPF to meet the CPF Minimum Sum? Why does the government want to lock our CPF up?
So, another question we need to ask is – how much interest do Singaporeans need to earn on our CPF so that we would be able to meet the CPF Minimum Sum?
Singaporeans Have to Meet a Combined CPF and Medisave Minimum Sum of $198,500 Today before We Can Withdraw Our CPF Monies!
However, before we go on further in the discussion, Leong Sze Hian has discovered that since 2013, on top of the CPF Minimum Sum, Singaporeans would also need to be an additional Medisave Minimum Sum of $43,500 (this year) before we are able to withdraw our CPF monies.
In short, for someone who reaches 55 this year, he/she would need to have at least $198,500 in his/her CPF before any excess CPF monies can be withdrawn. This means that half of Singaporeans won’t even have a quarter of the combined Minimum Sums in our CPF!
How Much Combined Minimum Sums Would Singaporeans Need to Meet in 30 Years’ Time?
So, for a 25-year old Singaporean who starts work today, and works for another 30 years before he/she reaches 55, how much would the CPF and Medisave Minimum Sum be in 2044?
At the rate that the CPF and Medisave Minimum Sums are growing, they would have grown to $365,000 and $133,500 in 2044 respectively (and this is a low estimate). This means that for a 25-year old Singaporean today, we would need to set aside a total of $498,000 inside our CPF in 2044, in order to be able to withdraw any excess CPF monies out.
How Much Would the Combined Minimum Sums Be, Including for Spending for Housing Loans?
But let’s not forget, if you use your CPF to pay for housing loans, this would eat into your CPF and cause you to save lesser inside your CPF.
So, in order to calculate how much you would need to actually have inside your CPF to have enough to pay for housing loans, and still be able to meet the withdrawal needs, you would also need to factor in how much extra you need to pay for the housing loans, on top of the CPF and Medisave Minimum Sums.
As I had written before, if a Singaporean couple “buys” a $300,000 flat today, they would have to spend about $400,000 in total, including for housing mortgage. If the housing mortgage is split equally, each person would need to pay $200,000 from their CPF.
Thus on top of the $498,000 Combined Minimum Sums, a person should have an additional $200,000, or be able to save at least a total of $698,000 to be able to retire in Singapore!
Singaporeans Need to Earn 6% on Our CPF to Be Able to Meet the Minimum Amount
So, if this is the case, for a 25-year old Singaporean today, how much interest should we be able to earn on our CPF to ensure that we are able to meet the minimum amount of $698,000 to be able to retire?
If we look at a low-income earner who earns $1,200 today, assuming that his/her salary increases by 4% every year, he/she would need to earn an interest of 6% on the CPF every year in order for he/she to be able to meet this minimum amount of $698,000!
But this is if a person continues to see a 4% increase in salary every year and never loses his/her job. However, we know that this is quite impossible, since for a low-income worker, after he/she reaches the age of 40, his/her wage then starts to decline, which means that there is negative wage growth!
As such, you can imagine that for a low-income worker, he/she would need to earn a much higher CPF interest rate to be able to save $698,000! He/she might even need to earn 7% or 8% at the very least!
Today, the starting wages on the government’s Progressive Wage Model starts at $1,000, which means that a low-income Singaporean who faces wage-decline from age 40 would need to earn at least a 7% or 8% on our CPF!
But how much is the CPF interest rates now? Singaporeans are only earning 2.5% to 4% on our CPF, and an additional 1% on the first $60,000. According to Leong Sze Hian, Singaporeans earn an average of about 3% on our CPF. This is far lower than the 7% or 8% necessary for a low-income Singaporean to be able to save enough to retire on!
Singaporeans Should Earn $2,000 to Be Able to Meet the Minimum Amount on the Current 3% CPF Interest?
But based on the current CPF interest rate of an average of 3%, how much salary would a person need to earn in order to save a minimum of $698,000 inside the CPF?
If you look at the optimal scenario of a 4% wage increase every year, a person would need to earn at least $1,893, or at about $1,900!
Today, nearly 20% of Singaporeans don’t even earn $1,900 – which means that at least 30% of Singaporeans will not be able to save enough to retire!
But again, this is assuming the perfect scenario of a wage increase of 4% every year, without job losses, but this is very unlikely.
Singaporeans Might Need to Earn As Much As $2,500 or $3,000 to Be Able to Retire in Singapore! 50% of Singaporeans Might Not Be Able to Retire.
So, if we do factor in wage and job losses, a person might need to earn as much as $2,500 or even $3,000 to be able to save enough to retire!
If the minimum needed is $2,500, this would mean that 40% of Singaporeans today will never be able to save enough to retire.
And if Singaporeans need to earn a minimum of $3,000, then 50% of Singaporeans today will never be able to save enough to retire!
Now, if you include other factors, such as if someone decides to sell his/her apartment to buy another one for at least once or twice, then this means that even more Singaporeans wouldn’t be able to save enough to retire! Perhaps now we can understand why as many as 90% of Singaporeans cannot meet the Combined Minimum Sums today and cannot retire!
Now, $2,500 and $3,000 isn’t a far-fetched amount that Singaporeans should earn. If we look at countries which have a similar cost of living to Singapore today, Tokyo has a minimum wage of $2,000, Australia has a minimum wage of $3,000 and low-income workers in Norway earn $5,000.
So, in fact, it is Singaporeans who are being shortchanged by our government, where the starting pay for workers is as low as $1,000 today, and 30% of Singaporeans earn lesser than $2,000!
The Singapore Government Has to Return the 6% Earned at GIC Back to Singaporeans
In any case, if we follow the optimal scenario, is it a pipe dream for Singaporeans to earn a CPF interest rate of 6%? Remember, earlier we said that for a low-income worker who sees a wage growth of 4% every year and stays on the job for 30 years, he/she would be able to meet the minimum amount of $698,000 at a 6% interest rate of the CPF.
But actually, 6% should be what Singaporeans should be getting on our CPF today (but which we are not getting).
It has now been exposed that our CPF is invested in the GIC. After numerous denials by the government (by Lee Kuan Yew in 20o1 and 2006 and by Ng Eng Hen in 2007), the government finally admits the truth that our CPF is invested in the GIC in June this year. We now know too that our CPF makes up the bulk of the GIC’s assets, which means that the GIC is in fact akin to our CPF.
In 1999, Prof Mukul Asher had criticised the CPF interest rates by saying that, “there is “no economic rationale” to pay a one-year fixed deposit rate on what is essentially a 35-year or more (the duration of one’s working life) savings plan”.
Indeed, it is thus important to know what is the GIC’s interest rates since its inception in 1981, so that Singaporeans will be able to know how much our CPF should actually be earning. It has been 33 years now.
However, the government has refused to reveal this information.
Even so, we are able to triangulate this information from some of the information that has been revealed in the past. In 2006, then-Minister Mentor and the Chairman of GIC revealed that the GIC’s annual returns averaged “8.2 percent in Singapore dollar (SGD) terms in the 25 years ended March 2006” since its inception.
Deputy Prime Minister and Finance Minister Tharman had also revealed that, “Over the last 5 years (from 2014), (GIC) earned 0.5% in SGD terms, over the last 10 years it earned 5% in SGD terms, over the last 20 years it earned 5% in SGD terms.”
GIC also reported that, “The GIC Portfolio’s 20-year annualised real rate of return for the year ended 31 March 2014 was 4.1%, compared to 4.0% for the previous year. In USD nominal terms, the GIC Portfolio generated an annualised return of 6.5% over the same 20 years.”
So roughly, the GIC might have earned about 6% to 6.5% in interest since inception.
If so, 6% to 6.5% should be what Singaporeans should be earning on our CPF.
The Government Should Increase CPF Interest Rates to At Least 6% and/or Set a Minimum Wage of $2,000
Thus for a low-income earner in an optimal scenario, a 6% CPF interest rate is highly viable.
But of course, to ensure that all Singaporeans are able to adequately retire, this would also mean putting other measures in place, such as by implementing a minimum wage and by securing the job prospects of Singaporeans.
So, for the purpose of this article, what we can establish is that Singaporeans should earn a 6% on our CPF in order to be able to meet the Combined Minimum Sums 30 years down the road, and spending for the housing loans (for one flat).
And if the government does not want to increase the CPF interest rates, then it would need to implement a minimum wage of possibly at least $2,000 (as had been shown above), or do a combination of both. And remember, this is if there is an optimal scenario. Otherwise, wages and CPF interest rates would need to be even higher, or other measures would need to be implemented as well.
Evidently, the current wages that Singaporeans are being paid and CPF interest rates are severely inadequate to allow Singaporeans to save on. To have 30% of Singaporeans earn less than $2,000 is honestly quite embarrassing and a mistreatment of Singaporeans, for a country that has grown to become the most expensive place to live in, in the world.
The government needs some integrity here. It is absolute nonsense for the government to pay themselves the highest salaries in the world, but expect Singaporeans to survive on one of the lowest wages among the developed countries. And depending on which wage level you use, Singaporeans could have a poverty rate of as high as 20% ($1,500) or 30% ($2,000).
Things are looking pretty bad for Singaporeans.
Singaporeans Have Been Bullied by the Singapore Government for the Past 15 to 20 Years
It has been 15 years since Singaporeans were forced to accept low CPF interest rates of between 2.5% to 4% – or the lowest interest rates in the world.
Today, Singaporeans also have one of the least adequate retirement funds in the world, even though we contribute the highest proportion of our wages – 37% – into CPF.
If 90% of Singaporeans are simply not able to retire adequately because we cannot meet the CPF Minimum Sum, then something is very wrong here, don’t you think?
Yet, the government would hang on to the unchanged CPF interest rates of 2.5% to 4% for the past 15 years (since 1999) and refuses to implement a minimum wage, but would only institute starting wages of a minute $1,000 under their Progressive Wage Model.
Yet, since the mid-1990s, the government would increase the CPF Minimum Sum to such a huge extent, knowing full well that Singaporeans simply do not have enough inside our CPF and will not have enough, to meet the CPF Minimum Sum! At the same time, wages for low-income Singaporeans have hardly increased at all!
Why would the government increase the CPF Minimum Sum while forcing Singaporeans wages and CPF to remain stagnant, on low CPF interest rates?
Why the government would do this is anyone’s guess, but the main question to ask – why did the government reneged on its responsibility to Singaporeans?
So for at least the past 15 to 20 years (or more – note the Medisave was created in 1984 and the CPF Minimum Sum in 1987, so maybe 30 years now?), Singaporeans have been signalling to the government that our CPF is broken, yet the government has not taken any credible action to increase our retirement funds. In its place, the government instead forced Singaporeans to pay more from our wages into CPF, reduce CPF interest rates and force Singaporeans to work longer.
Something is not quite right with the government’s planning when coming out with a solution requires Singaporeans to suffer, without any losses on the government’s part.
The uni-lateral victimisation of Singaporeans by the government has to stop. The security of Singaporeans is right now under threat by the current government.
3rd Edition Of The #ReturnOurCPF Event
On 23 August, there will be a third edition of the #ReturnOurCPF event.
Join us at the third edition and take a stand. The government cannot take Singaporeans’ CPF to use and tell us that they do not know what they are using it for. This is a derision to Singaporeans and daylight robbery!
On 23 August, we will see you at Hong Lim Park. Let’s come together, be united and speak for change, for the better for our lives, and our children’s.
You can join the Facebook event page here.
Also, my first court case will be held on 18 September 2014, at 10.00am. It will be a full-day hearing.