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Is Our CPF System Really That Bad? Clarifying The Misconceptions

This article is a sequel from our original article “Is Our CPF System Really That Bad”. It provides a response to the various comments that we have received from readers.


It was bound to happen. Anytime a website in Singapore publish a favorable article on the CPF system, or anything that could be deemed “pro-government” for the matter, there will be netizens who will be bound to react with unhappiness.

Comments we receive

Let us share with you some comments we received. There were many. We will look at three of them today.


1. A Singaporean earning $3000 per month, for 30 years, is really a stretch of the imagination for average Singaporeans. A salary of $1500 – $2000 is more practical.

 There are people in Singapore with a starting salary that is lower than $3000. Yes, between $1500 – $2000. We are not denying that. We are sure most of us know of such people around.

However, for the purpose of writing a meaningful article that would be relevant for the majority of Singaporeans, our editorial team decided to use a base salary of $3000. $3000 is used because it is relevant. Not too high, not too low. Based on information from MOM, the medium salary in 2013 was $3250. This means our assumption of $3000 is quite accurate, though still a little conservative.

We also assume that an employee will not be getting any raise in the next 30 years of work and does not receive any bonuses during the time. This is absolutely illogical and we admit that. If our main intention was to make the CPF system look good, it will be easily and entirely justifiable for us to make some simple assumptions (e.g. 5% increment annually for the first 10 years of work, 1 – 2 months bonuses per year). Alas, we did not. But still, there were some (probably a minority) who felt outrage on the method of our calculation.

Here are some figures from Salary Explorer on the medium pay of various industries in Singapore. A quick glance would show you that only one industry would fall between the $1500 – $2000 range that some netizens have proposed for us to use.


2. People don’t buy HDB flats at aged 25 and hence our article is inaccurate.

Some readers commented on this and they are not wrong. But in a way, they missed our point, just by a little. Let us explain why.

The purpose of assuming that a couple purchases their HDB flat at age 25 was to simplify the article for the sake of gauging the effectiveness of the CPF system. Thus we took a stance of just assuming you purchase your flat when you started working.

A far more realistic assumption would be to assume a couple starts working at the age of 25 (earlier for female without National Service commitment) and then to be purchasing a HDB flat at age 30 instead.

Had we assume that, the financial figures would have been more positive for the CPF system. Here is why. The the couple would have 5 years to accumulate money in their CPF accounts, along with the 2.5% interest they would have earned in their Ordinary Account (OA).

In return, the loan quantum they will be borrowing would be lesser, translating into lower interest cost. Even if they were to reduce their loan period from 30 to 25 years, they will still be paying lesser in mortgage each month then if they had bought their flat at 25, which were our assumption.

This basically means that we were again being conservative with our estimates. Again it would have been justifiable for us to take a more practical outlook and project better figures for the CPF system if that was our sole intention.

Some other pointers to note was that we assumed purchase of a 5-room flat at $358,000. For those who think that is too low, we suggest you visit the HDB link, which we included in the previous article.


3. It is impossible to use any cash to pay for our HDB Flat. We MUST use 100% of our CPF monies, and hence will need to wipeout our CPF account and have no money in it.

A family with a combined income of $6000 ($3000 each) can definitely afford to use some of their cash to repay their monthly mortgage rather than to solely rely on their OA account.

As shown in the previous article, the monthly repayment of $1235 can be partially funded by CPF, and partially funded by cash. A couple who fund 50% from cash would need to have an outlay of $617 dollars per month, or about 10% of their total gross income.

And even if you were financially illiterate, and decided to use up 100% of your OA monies for monthly loan repayment, while concurrently not saving at all for 30 years (which by the way is a ridiculous assumption as well that we are putting in anyway for the sake of Singaporeans who don’t save), you will still be able to meet the Minimum Sum at the age of 55 from the money in your Special Account & Medisave.

We are not going to do the calculation for you today. If you are interested, do it yourself. There are tons of calculators which you can find on the CPF website for your own reference. You can drop us your comments with the results you have calculated for yourself after that.


What We Hope To Achieve At

What started off simply as a one-time article has become an area of interest for our editorial team. We realize that many Singaporeans are interested in the topic of CPF system, and naturally so. Whether you agree or disagree about the CPF system, it is here to stay. It will be part of your life and we want Singaporeans to make the most out of CPF for themselves, rather than to constantly think of it as some scam to suck your money away.

We read through the comments that many of our readers posted and did pick up some which were value adding. For example, why is it that so many people cannot meet the Minimum Sum commitment at the age of 55, despite what our numbers have shown? We think these are legitimate concerns, and we fully intend to address these in the next few months as we continue writing about the various dynamics of the CPF system. And how you can make it work for yourself and your family.

Lastly, do feel free to leave us your thoughts, comments or questions about the article or your views on CPF. With a topic as large as CPF, it is difficult for us to be all encompassing in any one article.

For example, a reader rightly pointed out in our previous article that there is a Medisave cap. He was right. However because any excess funds in the Medisave beyond the cap would automatically be transferred to the Special Account – and both the accounts pay the same interest rate, it does not make any difference to the final figures. Hence we lump it together. It’s a good comment though, as it allows us to clarify ourselves.

Continue to support us by sharing the article to friends whom you think will benefit from reading it.


 Picture from Sim Kang Heong. Used with appreciation. 




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