Friday, February 01, 2019

Alternative view on CPF withdrawals at age 70

Image result for light a candle

In my opinion, there is too much negativity on the news that our government will allow a citizen to start getting a CPF payoff at age 70 unless he or she fills out a form to extract the money at age 65. This is because, unless a citizen is really uneducated or has a mental condition,  a citizen can write in to take out the money at age 65.

The hostility is misplaced.

I think citizens should be more hostile to the idea that the upper echelons of the government has been gripped by a few simple ideas from behavioural economics. Choice architecture became popular because of a book called Nudge by Richard Thaler - the idea is that we do not need to come up with a policy to force people to behave in a particular manner, sometimes we can shape behaviour from the way we present choices to them.  For example, it is hard to get folks to opt-in to organ donation. Therefore, by making organ donation requiring an opt-out,  more lives can be saved. Similarly, if the default withdrawal is at age 70, then the population will naturally withdraw their money later if they do nothing.

I think the high-level mandarins did not foresee such a painful backlash that children will remind their parents to take out their money when they hit 65 in the future which can blunt the effectiveness of this policy.

Why the government want to work so hard to retain our CPF money and keep paying a political price to do so?

I have an explanation that is reasonable but may not politically correct if shared.

If you review the way MAS manages our markets, you will note that we do not have a Fed Chairman that talks about interest rates. Instead, MAS manages the economy by adjusting our exchange rate against a confidential trade-weighted basket of currencies that has to fall within a particular band. MAS buys or sells foreign assets to keep our currencies stable.

To keep have these foreign assets at hand for MAS, every Singaporean must sacrifice their CPF to used in this pool of foreign exchange reserves. This is National Service performed by your earned income.

For the past 50 years when the population grew, Singapore had more and more foreign reserves to defend our currency from attack from speculators thanks to the CPF program. We cannot underestimate the benefit of this system - our inflation was kept small compared to other OECD countries. Singaporeans today enjoy a currency three times the strength of Malaysia and did not suffer as much in 1997. More importantly, our businesses were also able to grow in a stable inflation environment. In essence, we sacrificed 20% of our income but, in return,  our currency stayed strong compared to the rest of the world.

As our population ages, policy makers are faced with a new problem not faced by older leaders. More Singaporeans are now withdrawing from their CPF. If Singaporeans start to withdraw more than they contribute into the pool, Singapore loses a strategic tool that has kept us rich and businesses stable for the past 50 years.

This is why withdrawal of CPF will keep getting delayed as we get older. If everyone opts to take out their money at age 65, one day policy makers will be forced to mandate 70 as a minimum as of withdrawal. In the minds of these powerful mandarins at the executive branch, this is the path of the lesser evil.

Personally, I would design a different solution.

I would attempt to use the concept of hyperbolic discounting.

A 65 year old will definitely ask for his money back when he reaches 65. Very few folks will delay gratification to age 70 because they may be dead by then. However, a person at age 25 might be willing to promise to withdraw his money later if he can, somehow, be bribed to do so.

CPF Board should create a package for any Singapore who volunteers to take out his money later at age 70. For me I might consider this at age 25-40 if I am offered the following :

a) Once you agree to take out earliest at age 70, there will be a $1,000 credited immediately into his or her CPF-SA. ( Attractive because it compounds for many years )
b) CPF-IS limits to be adjusted from 35% to 40%, so we can invest more money in the financial markets.
c) In a drastic case, the CPF board can offer $500 in cold hard cash to anyone who does so.

Go ahead and critique my policy idea. I'm no Administrative Service mandarin but at least I am doing my part to light a candle instead of cursing the darkness.


  1. a) Once you agree to take out earliest at age 70, there will be a $1,000 credited immediately into his or her CPF-SA. ( Attractive because it compounds for many years )

    - $1000 is negligible - too small a carrot to most.
    - most will not appreciate the compounding part (especially with $1000, just like compounding to 70 before withdrawal.

    b) CPF-IS limits to be adjusted from 35% to 40%, so we can invest more money in the financial markets.

    - money into market is not with CPF, thus not available to gov as pool for foreign reserve as you've speculated
    - money withdrawn from CPF-IS if lost in share market will create another headache down the road

    c) In a drastic case, the CPF board can offer $500 in cold hard cash to anyone who does so.

    - why not $1000 as proposed in (a) above? it's cheaper than (a) when executed as lump sum at 65 instead of 25-40

    Invite the person (at 65) who qualify for withdrawal down to CPF for a COMPULSARY paperwork for withdrawal. Take the opportunity to explain the benefit of withdrawal at 70 and throw in INCENTIVES (eg your item a and c or any variants) and let them CHOOSE. No political price since it's a choice.

  2. Easier solution .... throw open the foreigner floodgates like before 2011 again. Mandate minimum 10% - 20% compulsory CPF contributions even by foreigners --- cannot withdraw until 60 or 65.

    This will limit the fake talents as well as hit-and-run foreigners. 10%-20% compulsory CPF is similar or less than what they will be paying as taxes in other countries.

    More sleep-eat-shit demographics also gives a boost to local domestic businesses. And definitely boost local property prices & rentals, heck even older HDB flats. This will be a salve to those raising the "foreigner taking away jobs" war cry.

  3. I am worry and concerned after reading your article.
    our aging population, low birth rate and more FT (no or lesser CPF contribution) working in Singapore, will create negative impact on CPF funds, as total amount of CPF withdrawal and incoming contribution in the future will change drastically. Will government have to change the policy again and again due to the above negative impact. In the longer term, is the CPF model sustainable?
    If you shop in Malaysia, Thailand, Taiwan and Indonesia, you will notice that our inflation here in Singapore is actually very high and the CPF interest rate of 2.5% to 4% can’t match the yearly inflation rate of the past 30 years, if this trend continues in the future, CPF account holders’ returns will most likely be negative. And the minimum sum increment is at least 5% per year (according to government, this is to match the inflation rate, then why our CPF interest is only 2.5% to 4%?)