CPF – Complicated Problem to Fix

TODAY had an interesting way to describe one of NTUC’s proposals to tweak the CPF system. It described the suggestion to let those with less than the minimum sum take out 20 per cent on top of the $5,000 that they are allowed to when they turn 55.

Eye-catching indeed and doubtless welcomed by those who want their CPF returned to them to fund other expenses or even a holiday. But what happens then to their monthly payouts under CPF Life? Much smaller than before? And what happens to the payouts for the rest of CPF members who kept their money in the fund?

The NTUC suggested “incentives’’ to get people to keep their money in the CPF but one labour economist said this would have “marginal utility’’. People would be expecting more and more incentives over time. And frankly, can’t the money be better used to bolster health care or pump up the wages of those who need the money?

I guess you would expect the labour movement to weigh in on behalf of the working class. It has tried to do so, but like all policies, any change would have an impact on some other part of the whole. And you can’t ever satisfy all the people all the time.

I was also thinking about another “eye-catching’’ proposal – shave off the 2 per cent difference in CPF contributions between those below 50 and the 50 to 55. I have to confess that I was flummoxed when I realized that my take-home pay as gone up. And then realized is because I had just turned 50 and hence do not have to contribute as much to CPF. Then again, neither does my employer. So wonderful. I’m glad that I don’t need my CPF Ordinary Account to pay for my housing…

Here’s the problem: The rates were shaved to make old(er) people employable because employers won’t have to pay them as much – something which the labour movement surely welcomes. Then again, the labour movement wants people to have more money for retirement. What a conundrum!

Of course, this eye-catching proposal is viewed as “hair-raising’’ by businesses who see only a rise in wage costs at a time of restructuring.

Then there is the proposal to raise the cap on wage contributions from $5,000 a month to $6,000 and to do this in two $500 parts. The reason is because the 80 percentile of wage earners have been designated as the ceiling. And that hit $6,000 in 2012. Hmm. Interesting. I didn’t know about the 80^th percentile factor and the proposal looks like simply a logical adjustment. But what is the impact really of the rise? I wish the labour union elaborated on this. More money for future retirement and less money for present needs? What sort of impact will this have on people who have to pay off housing loans?

There is also the 1 per cent extra interest given to those with balances of less than $60,000. NTUC wants the cap reviewed. According to ST today, it wants it doubled, to $120,000? I don’t think anyone minds more money. But do we really need to do more for those who are better-off – or give more to the lower income? How many people are we talking about with balances between $60,000 and $120,000 anyway?

Policymaking is quite an interesting exercise especially when there are so many good but conflicting priorities. I can’t wait to see what sort of proposals the CPF review panel will come up with that will satisfy all, or at least most, CPF members.