Friday, December 21, 2012

CPF Medisave Required Amount to be raised to $38,500

From January next year, the CPF Medisave required amount (MRA) will be raised to $38500 from the current $32000.


So what is this Medisave required amount?
This refers to the amount you are required to set aside in your Medisave account (MA) after meeting the CPF minimum sum.

This means that if you have fulfilled the CPF minimum sum at the point of withdrawal, and your MRA is not hit, you will need to top-up the MA to meet this MRA (38500 from Jan 2013) before any withdrawals.

Why did it increase by so much? It is more than a 20% increase when inflation rate is about 5%!
The MRA was set to increase by $2500 (in 2003 dollars) per year until it reaches $25000 (in 2003 dollars) in 2013.

I tried to calculate this amount as follows, assuming an inflation rate of 5%
Estimated MRA for 2013
= MRA 2013(in 2003 dollars) / MRA 2012(in 2003 dollars) * MRA for 2012 * inflation rate
= 25000/22500 * 32000 * 1.05
= 37333.33
= 37500 (rounded up to nearest $500)

Even with this calculations, my estimated MRA is still much lower than the announced amount of $38500. Working backwards, CPF board used an inflation rate of 8% !!

Estimated MRA for 2013 based on 8% inflation rate
= MRA 2013(in 2003 dollars) / MRA 2012(in 2003 dollars) * MRA for 2012 * inflation rate
= 25000/22500 * 32000 * 1.08
= 38400
= 38500 (rounded up to nearest $500)

Does that mean that the inflation rate for 2012 is 8%? I cannot imagine the CPF minimum sum for 2013 when it is announced later in July.

How about the medisave minimum sum (MMS) and  Medisave Contribution Ceiling (MCC) ?
The current MMS sand MCC stands at $38500 and $43500 for 2012. The news article did not mention the change in values for them. If I am not wrong, these amounts will adjust in July with the CPF minimum sum.

For those who do not know the MMS and MCC are...
Medisave minimum sum (MMS) refers to the amount you need to retain in your medisave whenever you withdraw your CPF savings. This amount is currently at $38500 for 2012.

Medisave contribution ceiling (MCC) refers to the "cap" for your medisave account. Any CPF contribution to the MA in excess to this "cap", will go to the SA (if you are below 55 years old) or RA (if you are above 55 years old). This amount is currently at $43500 for 2012.

Other thoughts
At the very least, the initial target of $25000 (in 2003 dollars) by 2013 for the MRA will be hit with this increase. After which, we should only expect "inflation rate" to affect the yearly increases. But, who is to say that "new targets" will not be set?

I have always thought that the CPF interests should be pegged to inflation minimally. With inflation rates higher than CPF interest rates, we are constantly moving further and further away from our retirement needs.

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