Wednesday, May 30, 2012

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.


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.

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.

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