CPF Minimum Sum to be raised to S$139,000

Today, the announcement for the CPF minimum sum for 2012 is out. The new value now stands at 139k. This is 8k higher than the 2011 minimum sum of 131k.

Source:

http://www.todayonline.com/Singapore/EDC120530-0000100/CPF-Minimum-Sum-to-be-raised-to-S$139,000

My first thought was that the value was much lower than what I estimated earlier this year. In my earlier post in January this year, I estimated the minimum sum to be 143k instead.

Related post: CPF minimum sum for Jul 2012 [predicted]

Reading further, I realised why the actual figures are much lower than my estimates. The original plan was to increase to 120k (in 2003 dollars) by year 2013. The increase was carried over 10 years from 2003 in a "gradual" manner.  However, with a high inflation rate last year, this figure will work out to be 143k for 2012 which was the same as my estimates! In response to concerns of such a large increase, the gradual increase is now amended to extend by another 2 years due to the original huge increase. This change will mean that we will see medium to huge increases (depending on inflation rate) for the minimum sum until 2015. After which, only inflation will affect the minimum sum value. 

Other thoughts:

Based on earlier calculations in other posts, I feel that many Singaporeans will have difficulties hitting the minimum sum. There are a few possible changes to the current CPF rulings to help more Singaporeans hit this minimum sum, Some of them are:

1) Increase the current 5k cap for CPF contributions to 8k

2) Increase the employee CPF contribution to 25% or even 30%.

3) Increase the employer CPF contribution rate

4) Decrease the prices for HDBs

My guess is that (1) and (2) are more likely to occur. If they were to be implemented, the increase is likely to be introduced in small increments over a period of time. This will be similar to other policies like the minimum sum itself or the increase in GST. There is also likely to be one-time tax rebates if these were to occur. However, both options will definitely mean a reduce in cash flow and I don't like that.

AIMS DRP

The price for AIMS AMP REIT have dropped significantly lately. The current price is 1.115 which is lesser than the offer price for the DRP. Due to this, I will opt for cash distributions this time round.

AIMS DRP: The optimal number of units to apply?

Earlier last month, I posted about the AIMS 4QFY2012 results. For this quarter, it is interesting to note that they started a distribution reinvestment plan (DRP) where we can opt for units rather than cash distributions.

Previous post: AIMS Industrial REIT: 4QFY2012 results

Today, I  received the DRP letter for AIMS. 

Some details to note:

DPU: $0.027

issue price: $1.1622

Last done price: $1.17

The amount of DRP units allocated can be calculated using the formula below:

N = (S * D) / V

N is the number of DRP units to be allotted and issued.

S is the number of participating units held by the unit holder

D is the qualifying distribution per unit. In this case, it is 0.027

V is the issue price of the DRP unit. In this case it is 1.1622

The most important part is N will be rounded down. Any fractional entitlements will be disregarded.

 One question I had in mind was how I can minimize the "loss" through those fractional units if I wanted to participate in the DRP?

Since D and V are fixed, we can re-write the formula as:

N = (S * 0.027) /1.1622

 

I am fine with keeping odd lots of my holdings. However, I do not like the idea of keeping a weird number of units. I wanted my units to be in multiples of 50s at least. 

To achieve that, we need to do some calculations. To get 50 units, you will need a minimum of 2153 units to participate in the DRP. Higher units are computed as follows:

number of units	units to take part in DRP
50	2153
100	4305
150	6457
200	8609
250	10762

I then computed the number of units before the fractional entitlements are removed:

Units to take part in DRP	units alloted
2153	50.0181
4305	100.0129
6457	150.0077
8609	200.0026
10762	250.0207

.
 Even though if you had chosen a random number of units to participate, the actual differences will be very little (less than a dollar), it is still our entitlement!

How this can help you:

If you are intending to apply for the DRP, calculate before you apply. For example, if you own 10000 units and want to participate in the DRP fully, you are entitled to 232.31 units. This will be rounded down to 232 units. However, did you realized if you participate in the DRP for 9987 units only, you would still have gotten the same 232 units. The remaining 13 units which you can opt for cash will net you another $0.35. 

Little it is, but better than nothing. Isn't?

Other thoughts:

The calculations above were done for fun. I will still wait for another week before deciding if I want to take part in this DRP.  If prices remain above 1.16, I am likely to opt for units for part of my holdings. If the price starts to fall, I will opt for cash and find a good opportunity to buy at a even lower price than the 1.1622 that is offered.

Taxable income by income group 2010

The e-filing for individual income taxes has ended some time back. Once IRAS processes the submission, we should be receiving the notices for the payment. In the mean while, one can use the calculator on the IRAS website to estimate the taxes they need to pay:

http://www.iras.gov.sg/irasHome/page04.aspx?id=8278

Some people may also be interested on where they stand in terms of income compared to other tax payers. The breakdown for the assessable income for 2010 is as follows: 

source: http://www.iras.gov.sg/irasHome/page.aspx?id=12504

There is also a calculator on http://www.salary.sg/2012/compare-your-annual-income-latest/

where you can enter your assessable income to see where you stand against other tax payers. Do note that the calculator do not include annual incomes that are lesser than 20k as they are not taxable.

Other thoughts:

It is interesting to see how many taxpayers there are in the different income levels. We can also see how 12.5k individuals can earn more than 500,000 in a year. Do note that this is from employment income alone! These people definitely have passive income coming in from investments. The capital gains and dividends do not attract taxes nor CPF contributions. No wonder the rich always get richer!

From the table above, we can also see how the high income earners pay much more taxes than the lower income earners. This is due to the progressive income tax rate system in Singapore. For every dollar earned above the 320,000 mark, one will need to pay $0.20 in taxes (20%). Compared to first taxable band od 20k to 30k, the tax rate is only 2%. This tax system further affirms my conviction to eventually achieve a high stream of passive income from dividend investing that can "replace" my active income. The passive income  is not taxable on our end!