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CPF Scheme – The Debate Over Returns and Withdrawals (Part 1)
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Nov 03, 2015 |

The recent Singapore elections are over, and one of the hot topics highlighted by the opposition parties was the CPF scheme. There were some who wanted the government to allow CPF members to do a complete withdrawal of their CPF savings by age 55.

There is no easy answer to this demand.

With regard to the full withdrawal of CPF monies at age 55, there is a danger that some members may not be savvy enough to know how to manage the monies for the rest of their lives. If they are not careful, the monies may be exhausted too quickly and thus the government will have to step in at that point to provide some form of welfare. If this segment of people who needs welfare grows too large, the government may have to raise tax revenues to cover the costs.

This means that the group of people in Singapore who have been disciplined and careful in managing their finances may be forced to help support those who have been weaker by paying higher taxes. This is not ideal, and we have seen how some of the more advanced countries are currently suffering from similar problems. In any case, keeping the savings in the CPF accounts longer would also help to increase the savings pot, so that CPF members will have more money for their retirement and the money will last longer too. It is true, though, that having some flexibility to withdraw part of the savings will help some CPF members meet their urgent monetary needs.

However, the hope is that we can build up savings independent of the money in our CPF accounts for our retirement years. This would give us the flexibility to draw on such cash reserves to meet life’s unexpected needs without depending on the next CPF monthly payout. We would have a much ‘richer’ retirement too, as we’ll have more income from our cash savings supplementing our CPF retirement payouts.

Read Part 2 here

Ernest Low holds an MBA from University of Liverpool and is the Head of Investment & Wealth Management with AXA Life Insurance Singapore. He has also written a money management book for kids called Starting Small Finishing Rich.

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