Don't be conned by CPF Board

10th January 2013

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Received this newsletter email from CPF Board today. It painted a rosy picture . . . to "con" you?

"With bank deposits earning such low interest rates these days, we were searching for a good place to deposit savings for our children. We realised that we could start a CPF account for our children by making a deposit via the Minimum Sum Topping-Up Scheme. The best part is that such deposits to the Special Account currently earn up to 5% interest, risk-free.

At 5% interest annually, just one deposit of $3,000 in the year the child was born would grow to more than $46,000 by the time the child is 55! This is a good way of saving the $3,000 Baby Bonus, or any savings that are not needed for immediate use. The compounding effect of CPF interest is impressive in the long run. We've already done so for both our kids."  - Li Wenqiang and Kang Chui Hsia, CPF members, Parents of two


But after reading I have reservations about it. Why? $46,000 . . . 55 years later is peanuts!

- It didn't tell you about inflation from the time of contribution to your child's age of 55. $46,000 in his/her CPF 55 years later has lost most of its value eaten away by inflation.

- It did not factor in the cost of living 55 years later. A bowl of noodle may cost $10 - $20 or higher then.

- CPF Board did not guarantee the 5% interest will stay indefinitely or will increase further according to cost and standard of living - inflation NOT taken into consideration. CPF Board can adjust interest downwards at any time to their liking.

- With CPF Minimum Sum getting higher than before. Since 1 July 2012, the CPF minimum sum has been increased from $131,000 to $139,000. The minimum sum will be adjusted every July for inflation and raised gradually until it reaches $120,000 (in 2003 dollars) in 2015. Reason why there must be an increase? They said: "This is because the value of money will fall as prices in general go up over time." So can you imagine 55 years later how much will the minimum sum be?

- At age 55, members can only withdraw a portion of their CPF savings. Setting aside the minimum sum upon reaching 55 ensures that members have some regular income from their Draw Down Age to live on during retirement. The draw down age will be raised gradually from 62 to 65 and members born in 1950 and after are affected. Now, with frequent raising of draw down age, it is not surprising they might push further to 70 years, giving stupid excuses that people are living longer! That means you can never get to withdraw your entire CPF savings at one go. It will be held and given to you in small portions till your time is up . . . as you lay in your coffin.

 
One question that struck my mind is . . . .

Is the CPF Board going bankrupt with all the loss investments by the billions of dollars by Temasek Holdings, the government's investment arm? With many others withdrawing when members turn 55 - the baby boomers?

And they have to resort to "brain washing" people to top up their CPF, their parents' and spouse's CPF and now to the extend of opening an account and topping up for their child!

Its all up to you . . . be vigilant and don't be easily fooled by them painting rosy pictures.  I would rather buy endowment policies or increase and diversify my dollars on low risk investments.