Beyond CPF

Date: January 8, 2016

This has been a busy year for the CPF Board as various enhancements were made to the schemes that impact the medical and retirement needs of CPF members.

With these enhancements came announcements through numerous media channels to detail and explain what people can expect next.

These media communications have sorted the public into three groups:

• Those who get it and attempt to understand more from other channels (such as websites, talks, etc.);
• Those who are confused but take no time to find out more – whether they are “bo chap” or are truly busy – and then become hysterical when they realise they need to use the schemes; or
• Those who have the misconception that they are all well-cared for and therefore need to do nothing when it comes to individual planning.

Out of the three, the last two groups make up the larger part of the population.

To help matters, the members of the FPAS hope to do our part – to contribute our knowledge, time and effort to help others clarify the policies.

The new committee, set up under the leadership of President Joseph Kwok, strives to improve upon the good work already laid by the previous committees. As a part of this committee, it is my honour to take on the role of Chairman of the Editorial Board for the FPAS.

In light of recent policy changes, and the growth and development of financial planning, I hope to effectively use this position to play a small part in moving Singapore’s financial planning industry from strength to strength.

In this segment, let’s take a look at our CPF – how its role has changed, and what we should also do.

CPF’s Role And History

When the CPF came into effect in 1955, it was meant to be a compulsory monthly savings scheme that required all employers and employees to contribute towards the employee’s eventual retirement.

Things have, as we all know, changed.

From the creation of the Special Account and Medisave Account, to the ability to use our CPF monies for our homes and investments, the role of the CPF has expanded to become a more comprehensive social security savings plan for Singaporeans to have a more secure retirement.

Apart from sweeping changes like the ones above, the CPF policies also evolved to reflect the changing needs of Singaporeans, reflecting factors such as the rise in healthcare costs, an ageing population, and the demand for more control.

More Changes: From MediShield To MediShield Life

As one of the biggest changes we will see in relation to the CPF this year, the replacement of MediShield with MediShield Life has caused some confusion.

Where MediShield used to mean basic health insurance, with limits and conditions, MediShield Life is a more inclusive and wide-ranging policy.

With universal coverage, even for those with pre-existing illnesses, and protection for life, MediShield Life addresses Singaporeans’ general medical insurance needs better than before.

Even though the premiums have been raised to reflect the better coverage each Singaporean receives, they will still be kept affordable for everyone through detailed government subsidies.

More Changes: Minimum Sum Scheme

Reflecting a change to give Singaporeans more options to cash out their CPF, the policies regarding the Minimum Sum and Retirement Account will see tweaks.

From Basic or Full Retirement Sums, there will be a new option come 2016 – Enhanced Retirement Sum. Each two or three times the amount of the Basic Retirement Sum, the choice taken affects the monthly payout for life when the person reaches 65 years of age, and the amount of cash taken out.

What Does This Mean For Singaporeans?

For Singaporeans, and members of the financial planning industry, the often used saying of “with great power comes great responsibility” hits closer to home.

With options in their hands, everyone needs to start taking charge of their requirements, and their retirements.

While MediShield Life gives greater protection, it is only meant to fit the general needs of Singaporeans. Those wanting more than Class B2 and C Wards – private hospitals and Class A Wards, for example – will need to be prepared to pay the premiums that will give them such access.

More than the annual premiums, the lifetime cost of such insurance policies need to be factored into the individual’s financial plans.

Being realistic, therefore, cannot be stressed enough. When the emotional and financial drain of being sick can be detrimental to both the individual and their loved ones, the right policies can mitigate the pains and provide peace of mind.

As for retirement, individuals turning 55 are seeing more options to cash out their CPF. Taking responsibility for those actions is therefore more important.

Thinking about the kind of lifestyle one wants at retirement and the funds needed to maintain that lifestyle will help when looking at retirement choices and the CPF.

Moving Forward

It is important for us to plan beyond CPF. After all, the CPF was and is meant to function as a social safety net. With that in mind, it is unfair to rely entirely on the CPF for the different expectations of medical care or retirement needs.

That calls for personal responsibility – to plan your finances to fit your individual needs.

From the CPF, there are changes afoot. They each represent the need to adapt to Singapore’s changing environment.

On the back of Singapore’s success, I’m sure that the CPF Board will continuously work towards enhancing their policies.

On the other side of the story, we need to keep updating and educating ourselves to make the right choices, as well as to help others make the right choice.

Taking responsibility for your own financial success – that’s my wish for SG50.

Take action now!

Contributed by
Alfred Chia C K BSc, CFP, FChFP, ChFC, SAMP

Financial Planning Association of Singapore (FPAS)