CPF Minimum Sum, Medisave Minimum Sum to Go Up

From the first of next month, Singaporeans turning 55 years old will have to leave $99,600 in their CPF accounts under the Minimum Sum scheme. The amount is $5,000 more than the current minimum sum of $94,600 and will will apply to CPF members who turn 55 between 1 July 2007 and 30 June 2008.

Those who set aside the $99,600 fully in cash will receive a monthly payout of $790 from age 62 for about 20 years.

Likewise, the Medisave Minimum Sum will also be increased with the new amount being $28,500, up by $500. At the same time, the Medisave contribution ceiling will also be raised by $500 to $33,500.

As usual, many people will complain about the increase in CPF minimum sum since it is their money that has been "locked up". However, if we look deeper into the higher minimum sum, the raise in minimum sum will likely have effect on 2 different distinct groups of people, the low income and middle income groups. High income earners can be effectively exclude from any analysis since CPF is not likely to suffice to meet their retirement needs and they should have had pursued alternative wealth management opportunities.

For the low income group, the raise in minimum sum will better assist them in building a dependable source of retirement funds. With an ageing population, such self reliance during retirement has a wider impact on society as a whole. Taxes can be controlled at lower levels as the working population will not have to totally shoulder the burden of providing for the retired.

For the middle income, they have been increasingly feeling the squeeze of not getting the benefits provided to the poor while striving to attain and maintain the luxurious lifestyle so envied of the rich. In the course of this pursuit, the middle income group had frequently stretched their means to the last dollar. Of course, there is also a subgroup within this strata whom live well within their means and have little issues preparing for retirement but again, it is important to focus on the fact that CPF is a basic scheme to help in retirement and those who are able to should jolly well enhance their retirement income via other avenues.

What the raise means is actually rather trivial if we consider that CPF savings does attract interest of at least 2.5% and 4% for the Ordinary and Medisave accounts respectively. The impact of these raises is most acutely felt by those who are already nearing retirement age but for those who are still active in the workforce, the compounding effect of returns over time can be harnessed to enhance the CPF sums. 2.5% and 4% are the minimum guaranteed returns but if idle sums are properly invested into the right vehicles, it will not be difficult to double the returns of the Ordinary Account and get annualised returns of 5% or more.