Be more flexible on CPF Minimum Sum

ST Forum, The Straits Times, February 5, 2007


CURRENTLY, CPF members who turn 55 are required to set aside the Minimum Sum of $94,600 in cash or pledge property up to 50 per cent of the Minimum Sum.

If the amount set aside is less than the Minimum Sum, the CPF Board will pledge the member's property (if any) to make up the shortfall.

The cash portion is to ensure that the member receives a monthly income in retirement.
Members are also required to set aside a Required Amount of $28,000 in their Medisave Account when they make CPF withdrawal.

If members have less than the Required Amount in their Medisave Account, their Ordinary and/or Special Account balances in excess of the Minimum Sum will be used to top up the Required Amount.

The requirement to set aside the Minimum Sum and Required Amount is to enable members to have enough savings to meet their financial and health-care needs for old age.

While I fully agree with the rationale for the Minimum Sum and Required Amount, I have an issue with the way the CPF Board determines the Minimum Sum.

Current rules require members to set aside the Minimum Sum in cash. If the amount of cash is less than the Minimum Sum, the member's property is pledged to the CPF Board to make up the shortfall.

I have sufficient savings in my Ordinary and Special accounts to meet the Minimum Sum. I also have a single premium endowment policy that will mature when I turn 62, which was bought several years ago with funds from my Special Account.

When I asked the CPF Board recently if I could treat the endowment policy (which I am willing to assign in favour of the board) as part of my Minimum Sum, the answer was 'no' unless it is a life annuity from a participating insurance company.

On the one hand, members who do not have sufficient cash to meet the Minimum Sum have to pledge their property to the board, but what good is the pledge of property unless it can be converted to cash? In normal circumstances, the likelihood of the property being converted to cash is remote.

On the other hand, an insurance endowment policy has a fixed maturity date with certainty of payout, and the proceeds can then form part of the Minimum Sum. If properly assigned in favour of the CPF Board, an endowment policy is a more liquid asset than a pledge of property, to satisfy the statutory requirement of the Minimum Sum.

Raymond Lee Weng Fatt