According to the Ministry of Manpower, for workers aged 55 and above, 18,600 earn gross monthly income of under $500, 64,000 earn less than $1,000, and 46,400 earn below $1,500. This means that 42 per cent of elderly workers earn less than $1,000.
The statistics indicate that the older one gets, the larger is the proportion who earn less. For example, those earning less than $500 and $1,000, jumped from 8,600 and 36,600 to 18,600 and 64,000, respectively, from age 50-54 to age 55 and above.
This means that those who crossed from age 50-54 to age 55 and above, who earned less than $500 and $1,000, increased by 116 and 75 per cent respectively.
Why is it that it would appear that as one gets older, earnings tend to decline?
How long has this trend been persistent?
The proportion of older workers who are in menial jobs is quite high. 54,300 age 55 abd above workers are cleaners, labourers and related workers, and 35,600 are plant and machine operators and assemblers. About 49 per cent of workers aged 65 and older are cleaners, labourers and production line operators.
For these lower-income elderly Singaporeans, two policy changes may affect them more adversely, than the general population.
The first, is the gradual phase-out of the 50 per cent CPF Minimum Sum (MS) withdrawal starting 1 January 2008. From 2013, those with less than the then prevailing MS of $120,000 at age 55, can only withdraw $5,000.
The second, is the compulsory purchase of a life annuity at age 55. Based on the current annuity rates, this may mean that the monthly withdrawal from age 63, may be reduced by about 25 per cent. Specifically, with the gradual delayed CPF draw-down age to 63, and the one per cent increase in CPF interest rate for the first $60,000, I estimate the compulsory annuity to be about $850 at age 63 from 2021, based on the MS of $120,000 in 2013.
I would like to suggest that the above policies be reviewed, perhaps along the lines of Workfare, that is to help to increase the ultimate total disposable income of older lower-income Singaporean workers.
The reduction in CPF cash-flows due to these two changes, may further strain their megre income sources, after age 55.
The above CPF cash-flow issue is perhaps exasperated by the CPF Board's statistics that "The percentage of active members who met the required MS when they turned 55 declined from 57.1% in 1996 to 36.4% in 2006... The proportion of members aged 55 years and above displayed a four-fold jump from 5.5% in 1985 to 22.9% in 2005".
The MS which started in 1987 has increased by 232 per cent from $30,000 to $99,600 now. This is an annual compound rate of increase of 6.2 per cent.
To what extent has the 6.2 per cent rate of increase, relative to inflation of only 2 per cent, contributed to the CPF cash-flow woes and corresponding total disposable income of lower-income Singaporeans when they cross age 55?
Also, to what extent will the one per cent increase in CPF interest rate, once-off CPF bonus for those affected, and higher workfare for older workers, offset the reduced CPF cash-flow sources described above, in the light of the increasing trend of more elderly Singaporeans in menial jobs earning less wages?
March 24, 2007 Straits Times
New loan agreement puts owners at a disadvantage
WHEN one of the joint owners of a residential property is made a bankrupt, mortgagee banks insist that the other owner executes a new housing-loan pact, even if he is able to continue servicing the mortgage repayments.
For private-property housing loans taken before Sept 1, 2002, the first charge on the property goes to the CPF Board.
By executing a new loan agreement, the first charge would be transferred to the lender of the housing loan.
The implication is that CPF - plus accrued interest - used to pay for a property, which has to be returned to the borrowers' CPF accounts in the event of foreclosure, will, in a sense, lose its protection from the mortgagee upon the execution of a new loan agreement.
For property which is in negative equity, the mortgagee's threat of foreclosure if one refuses to sign a new loan agreement may, in a way, be an empty one because there may not be any sales proceeds left after returning the CPF used plus accrued interest.
Under the bankruptcy legislation, secured creditors are to realise their security within six months of bankruptcy. What this means is that the mortgagee cannot charge interest after six months. However, in cases where it is difficult to sell a property because it is in negative equity, I understand that an application may be made to the Official Assignee to allow the continuance of the housing loan on its current terms and conditions.
As about 80 people are made bankrupt every week, why are banks allowed to insist on executing a new loan agreement, which in effect negates the intent and spirit of Section 24 of the CPF Act in protecting Singaporeans' CPF?
Leong Sze Hian
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Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Business Times - 25 Jan 2007
LETTER TO THE EDITOR
Review phasing out 50% CPF withdrawal
I REFER to media reports about the manpower minister addressing Members of Parliament on Jan 22.
'To a question if the minimum CPF sum of $90,000 would be enough for retirement, Mr Ng said changes are being made so Singaporeans can have more money when they retire. The minimum sum, for example, is gradually being increased and the 50 per cent withdrawal rule will eventually be phased out in 2009.'
According to the CPF Board's website, the rationale for phasing out the 50 per cent withdrawal rule is as follows:
'As Singaporeans are living longer, and having smaller families on which to rely, they will have to depend more on their CPF for their retirement. With the cut in the CPF contributions, it has become even more important for Singaporeans to ensure they have enough CPF savings for their old age. The current withdrawal rule allows members to withdraw 50 per cent of their combined Ordinary Account and Special Account balances, even if this leaves the Retirement Account with less than $47,300 in cash. This leaves many members with insufficient CPF to see them through their retirement. Phasing out the 50 per cent withdrawal rule will help more Singaporeans set aside their CPF Minimum Sum.'
The 'cut in the CPF contributions' may result in some Singaporeans having even less cash at age 55, because they have to use more cash to pay off their home mortgage, children's tertiary education tuition fees and Dependents' Protection Scheme insurance premiums.
Currently, for those with $10,001 to $189,200 at age 55, 'the member can withdraw up to 50 per cent of the total balance in his Special and Ordinary Accounts. The remainder will be set aside in his Retirement Account. Starting Jan 1, 2009, the 50 per cent withdrawal rule will be phased out gradually. The percentage for withdrawal will drop to 40 per cent, and thereafter be further reduced every year by 10 percentage points until the withdrawal rule is phased out. Therefore, from Jan 1, 2013, you must meet the CPF and Medisave Minimum Sums first before you can withdraw your remaining Ordinary Account and Special Account balances at age 55. However, you can continue to withdraw the first $5,000 from your Ordinary Account and Special Account balances. We believe this gradual phasing in will give CPF members time to make adjustments to their financial plans. The Minimum Sum will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013, and will be adjusted yearly for inflation.'
Hence, by 2013, those with less than the Minimum Sum of $120,000 and the Medisave Required Amount of $25,000 (currently $11,500), will not be able to withdraw any CPF money.
With older workers finding it harder to keep their jobs and find new jobs, some Singaporeans may have no choice but to rely on the current 50 per cent CPF withdrawal allowed. This may cause financial stress to those affected. Consequently, I would like to suggest that the phasing out of the 50 per cent withdrawal rule be reviewed.
Leong Sze Hian
Singapore
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
I REFER to the article 'Banks shifting strategy on home mortgages' by
Siow Li Sen (BT, Dec 16).
Currently, HDB flat buyers who cannot qualify for HDB loans, or choose
to borrow from banks, have to pay 2 per cent of the downpayment in
cash. From Jan 1, this will increase to 4 per cent, followed by a further 2
per cent increase until it reaches 10 per cent on Jan 1, 2008. More
banks seem to be offering cash-back for housing loans.
Cash-backs also appear to be more generous now in that they may be
based on the purchase price instead of the loan amount which is normally 20
per cent lower.
Does this mean that even if you do not have the required cash
downpayment, it is less of a problem now because the bank will give you
cash-back? Will this not nullify the original objective of the policy change
for increasing HDB cash downpayments, so that flat buyers may be more
financially prudent in that they can only buy a flat when they have enough
cash for the downpayment?
If cash-back is not allowed for CPF investments, why is it allowed for
housing loans?
In the end, the net effect of requiring higher cash downpayments may be
that flat buyers may actually be borrowing more and/or paying higher
interest rates and/or committing to longer redemption penalty lock-in
periods, in order to get cash-back. This may mean more financial stress in
future as the monthly mortgage repayments may be correspondingly
higher.
Perhaps we should consider going back to the old policy of allowing the
full downpayment to be paid out of CPF?Leong Sze Hian Singapore
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: CAO fiasco a timely reminder
Author: Leong Sze Hian, Singapore
Date: December 3, 2004
I REFER to the reports 'CAO shock raises major questions'; 'Option bets
likely cause of CAO losses'; 'CAO blocked from trading on Platts';
'China listings on SGX bruised by CAO fallout'; 'Chen Jiulin - a fallen
star'; 'Shockers from the past'; and 'Don't let CAO tarnish SGX's good
name: SIAS' (BT, Dec 2).
On Dec 2, 1985, trading on the Singapore stock market was suspended for
three days following the Pan-Electric Industries crisis, and a $180
million lifeboat fund for the stockbroking industry was set up.
On Dec 2, 1995, Nick Leeson was sentenced to six-and-a-half years'
jail, for incurring about $2.2 billion in trading losses which sank
Barings, Britain's oldest merchant bank.
Is it a coincidence that the media reported on the same day (Dec 2),
the three largest financial collapses in Singapore's history, or just a
poignant reminder of the need for diversification and not putting all or
most of one's eggs in one basket?
The problem is not so much that 7,000 CAO shareholders may have lost
all their money, but how many of them lost what they could ill-afford, in
proportion to their net worth.
Despite the Straits Times Index hitting a 4-year high, according to
MSCI Singapore Index (Morgan Stanley Capital International), the annual
compound rate of return of the Singapore stock market for the last 10
years was minus 0.95 per cent.
Dec 2 is a timely reminder of the risks of investing to Singaporeans,
as according to the CPF Board, 69 per cent of CPFIS (CPF Investment
Scheme) investors lost money on a cumulative basis for the past 10 years
since the start of the CPFIS, as they did not beat the 2.5 per cent
interest per annum paid on the CPF Ordinary Account.
Author: Leong Sze Hian, Singapore
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: CPF investors fared less well last year
Date: October 8, 2004
WE REFER to the letter, 'Have CPF investors fared better since
1993-2002?' (ST, Oct 1). Mr Leong Sze Hian asked for an update on how investors
have fared on a cumulative basis under the CPF Investment
Scheme-Ordinary Account.
From Oct 1, 1993 to Sept 30, 2003, about 31 per cent of CPF investors
made net realised profits after deducting interest which they would have
earned in their CPF accounts. Another 45 per cent made realised profits
but these profits were less than the interest they would have earned in
their CPF accounts; 24 per cent of investors incurred realised losses
before offsetting the CPF interest.
In comparison, CPF investors fared slightly poorer, compared to the
period from Oct 1, 1993 to Sept 30, 2002 where 35 per cent of investors
made net realised profits after deducting interest which they would have
earned in their CPF accounts. Forty-five per cent made realised profits
but these profits were less than the interest they would have earned in
their CPF accounts while 20 per cent of investors incurred realised
losses before offsetting the CPF interest.
SOH CHIN HENG Director (Retirement and Investment) Central Provident
Fund Board
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Have CPF investors fared better since 1993-2002?
Author: LEONG SZE HIAN
Date: October 1, 2004
I REFER to the articles, 'New rules give CPF investors more legal
protection' (ST, Sept 29) and 'CPF sounder way for retirement' (ST, Sept
15).
According to the CPF website (www.cpf.gov.sg), the number of people
investing their CPF under the CPF Investment Scheme (CPFIS) has increased
by 103 per cent, from 359,675 in 1996 to 729,666 this year. The total
amount invested has increased by 195 per cent, from $8.2 billion in 1996
to $24.2 billion this year.
How has CPF investors fared over the years?
Last year, I wrote to the Forum, asking for the cumulative rate of
return for CPFIS investments. The CPF Board replied that 65 per cent of CPF
investors did not beat the 2.5 per cent interest rate on the Ordinary
account, on a cumulative basis for nine years, from Oct 11, 1993, to
Sept 30, 2002.
Now that another year has passed, and the CPFIS crosses its 10th
anniversary, I would like to ask whether the statistics have improved.
While a fully self-reliant retirement system has its merits, it would
seem that the majority of Singaporeans may not have done well, relying
on the CPFIS.
Author: LEONG SZE HIAN
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Better to pay overtime than give days off - Leong Sze Hian,
Singapore
Date: September 24, 2004
I REFER to the article 'Yesterday in Parliament: More flexibility on
work schedules for employers' (BT, Sept 22).
If 20 per cent of current pay is from overtime, giving you time-off
instead of money is effectively a pay cut.
Also, since the timing of days off in lieu is at the discretion of your
employer, you may be given time off when you don't want it - for
example, when your spouse is working and your children are in school.
At present, when employers want to give you more work they have to
worry about overtime costs. But with time off in lieu they may not have to
think so much about giving you more work, because there may be no
actual overtime costs.
It is in a sense ironic that with the Civil Service and schools going
on a five-day work week you may be working longer without actually
getting paid for it, while your spouse and children have more time.
It is lower-income people that generally depend on overtime for a
portion of their total pay, because those earning over $1,600 a month are
typically not paid for working overtime.
For some, time off in lieu may mean having to take on a second job to
meet expenses and commitments. Worse still, some may have to resort to
borrowing.
To remain competitive, more firms will adopt flexible methods to pay
overtime. But how much weight will employers give this new flexibility
when making retrenchment decisions?
Despite repeated assurances that more flexibility to employers means
less retrenchment and a better economy, profitable companies like SIA and
SATS have recently announced retrenchments and out-sourcing, and the
Civil Service is cutting staff by 3 per cent.
Which is worse? Retrenchment for some, or less money for those who
currently earn overtime pay?
It has been reported in the media that Singapore workers do not score
very highly in terms of motivation, initiative, happiness and
productivity relative to some other countries.
Flexible methods of overtime payment could make some even less
motivated.
Consequently, work standards may deteriorate, customer service may
suffer, and so on.
Overall, we may end up with a less motivated work force but more
motivated employers.
In a way, with variable wages, CPF cuts, lower CPF for older workers,
this may be the last (fourth) straw that breaks the camel's back in the
context of workers' attitude.
Perhaps one good thing that may come out of flexible overtime payment
is that more people may be discouraged from being employees and will
become entrepreneurs, because working overtime for yourself could be more
rewarding.
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Little use for property pledging soon
Author: Leong Sze Hian Singapore
Date: September 22, 2004
I REFER to 'CPF says it won't review housing withdrawal limit' (BT,
Sept 20).
Although property can still be pledged for up to half of the Minimum
Sum of $120,000 in 2013, this may in effect be negated by the following:
CPF members who have between $10,001 and $240,000 will, by 2013, no
longer be able to withdraw up to 50 per cent of the total balance in the
Special and Ordinary Accounts. This is because from Jan 1, 2009, those
who reach 55 can only withdraw 40 per cent of their account balances
after meeting the Minimum Sum and required Medisave Minimum Sum. The
percentage of withdrawal will go down by 10 per cent each year until it
becomes zero in 2013.
Currently, if you have less than the Medisave Minimum Sum of $25,000,
you are not required to top it up from your Ordinary or Special
Accounts. However, from 2004, you must top up your Medisave Account for the
required amount of $2,500, increasing by $2,500 a year until $25,000 in
2013. In other words, by 2013, the Minimum Sum is $120,000 plus $25,000
for the Medisave Account. As the Medisave Minimum Sum is adjusted for
inflation every year, it was increased to $25,500 on July 1, 2004.
Therefore, the required Medisave Minimum Sum may be much higher by 2013.
For the pledging of private property, it is the lower of the purchase
price or valuation, subject to the outstanding housing loan. The Minimum
Sum and Medisave Minimum Sum keep going up every year, and since
private property prices are 40 per cent below their 1996 peak, are we not
being disadvantaged? Even when prices do rise above the original purchase
price in the future, we may still be disadvantaged because it is the
lower original purchase price that will then be taken. In contrast, for
HDB flats, it is the HDB's quarterly average valuation price. Why are
private properties being treated differently, and, in a sense, being
discriminated against?
Since the current Minimum Sum of $85,000 will increase by $35,000 to
2013, plus the Medisave Minimum Sum top-up requirement of $25,000, making
a total of $60,000, this in effect erodes entirely the $60,000 that can
be pledged with property.
Perhaps in many ways, as highlighted above, it is as good as saying
that the pledging of property for some Singaporeans may count for very
little in the future.
Author: Leong Sze Hian Singapore
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Medisave a big burden for the low-income
Author: Leong Sze Hian Singapore
Date: September 21, 2004
I REFER to the article 'Medisave: CPF cracks whip on self-employed'
(BT, Sept 17).
Self-employed people who earn more than $6,000 a year have to make
Medisave contributions of up to 8 per cent. So a person who earns $6,001
has $460 a month to live on after paying Medisave.
About 20,000 households are said to be more than three months behind on
their HDB mortgage repayments or utility bills. And the number of
households three months or more in arrears on mortgage repayments reportedly
rose almost 15 per cent from 2002 to 2003.
Pay-as-you-use meters will be introduced soon to make sure 'poorer'
families don't have their electricity cut off. And about 15,000 households
are said to be unable to pay their children's school fees.
Is it any wonder that if can't pay your power bill or your children's
school fees, you can't pay your Medisave either?
The economic crisis, 9/11, Sars and stubbornly high unemployment have
made it hard for some self-employed people to pay Medisave. On the other
hand, Medisave contribution rates have increased from 3 per cent in
1992 to 8 per cent now for those aged 45 and over.
For self-employed people to renew their licence, evidence of Medisave
contributions must be produced. So chances are that some people may have
had to give up their trade and look for alternative work because they
were unable to pay Medisave.
Before 2003, those who had not previously been issued a Notice of
Assessment/Non-tax advice from Iras had to contribute Medisave based on an
assumed income of $6,000 a year. But this was raised 50 per cent to
$9,000 in 2003 at the height of the economic downturn, increasing the
burden on some self-employed people.
With such people already finding it hard to get by, should we be adding
to their stress by threatening to take them to court?
Author: Leong Sze Hian Singapore
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: CPF Board helps members make better investment decisions
Author: SOH CHIN HENG, Director (Retirement and Investment Division),
Central Provident Fund Board
Date: September 13, 2004
WE REFER to the letter 'Why unit trust levies performance fees?' by Mr
Leong Sze Hian (ST, Aug 31) in which the writer expressed concern about
a fund management company (FMC) levying performance fees some years
after the initial launch of its fund, in addition to the high expense
ratio of the fund.
The Central Provident Fund Board shares the writer's concern about the
high investment cost. It has stressed to FMCs from time to time to take
steps to reduce the costs of their funds, as they erode the returns of
the funds.
However, the board does not interfere with the fee structure. These are
business decisions which the respective FMCs will have to justify in
order to persuade investors to stay with them.
The board advises CPF investors to be vigilant and to monitor the
expense ratio and any other investment cost, as well as performance of their
funds.
It has included an investor education section in its website
(www.cpf.gov.sg) to help CPF members learn how to invest their CPF savings.
Among others, the section publishes information on the funds with the
highest and lowest expense ratios, as well as funds with the best and
worst returns.
These will go some way to help members make better investment
decisions.
Author: SOH CHIN HENG, Director (Retirement and Investment Division),
Central Provident Fund Board
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Time to revise housing withdrawal limit
Author: LEONG SZE HIAN
Date: September 7, 2004
FOR HDB-flat loans, the use of CPF is capped by the Available Housing
Withdrawal Limit (AHWL). The AHWL is 80 per cent of the gross CPF
savings in a member's Ordinary and Special accounts in excess of the Minimum
Sum. Gross savings include savings already withdrawn for housing,
investment and education.
Some HDB-flat loan borrowers, who have made lump-sum CPF partial
redemptions to reduce their outstanding mortgage, have suddenly been informed
by the CPF Board that as their AHWL limit has been reached, they can no
longer use CPF to pay the monthly mortgage repayments.
Another problem is that despite the CPF cuts, lower contribution for
older workers, increasing Minimum Sum, and the fact that property can no
longer be pledged for half the Minimum Sum by 2013, the AHWL
computation has remained the same. This may mean that more Singaporeans will
breach the AHWL, and realise too late that their entire monthly mortgage
has to be paid in cash, even if they have funds in their CPF account.
The AHWL needs to be revised to reflect the effects of policy changes
like CPF cuts.
Author: LEONG SZE HIAN
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Why unit trust levies performance fees?
Date: August 31, 2004
I INVESTED some of my CPF funds in a unit trust a few years ago.
Recently, I received a letter from the unit-trust company, informing me that
it will start to impose performance-based fees: 'Such fee will be
equivalent to a maximum of 25 per cent of the outperformance of the funds
against their respective benchmarks.'
When I purchased the unit trust, the fee was a fixed annual management
charge, with no performance-based fees.
I understand that this means that the unit trust will still levy the
annual management fee, in addition to the performance fee.
The unit-trust company in question has a range of funds available to
CPF investors and the funds have annual expense ratios as high as 13.03
per cent.
With such high expense ratios, why is it that it still wants to charge
more by way of performance fees?
Why is it that the CPF Investment Scheme allows unit trusts with such
high expense ratios to be available for investment?
The last three years have been one of the worst periods for the equity
markets and, globally, equity markets are still about 30 per cent down
from their peaks in 2000. Now that the markets are coming back up, is
it fair for the unit trust to start imposing performance fees?
Is there anything that one can do when a unit trust decides to impose a
performance fee?
How does the CPF Board protect CPF investors from such arbitrary
changes in investment charges?
Moreover, particularly at the end of a reporting period, fund managers
might be tempted to take even greater risks and bet heavily to cross
the benchmark threshold, in a 'all or nothing' gamble. This could affect
market movements, similar to the problem of 'window dressing' by fund
managers at the end of reporting periods.
According to a study by Elton and Gruber, Nomura professors of finance
at New York University, and Blake, Associate Professor of Finance at
Fordham University, 'incentive-fee (performance-fee) funds take more
risks than non-incentive fee funds, and they increase risk after a period
of poor performance. Incentive fees are useful marketing tools, as more
new cashflows go into incentive-fee funds than into non-incentive fee
funds'.
The study also states that 'incentive fees are not widely used by the
mutual-fund industry. In 1999, only 108 out of a total 6,716 bond and
stock mutual funds used incentive fees'.
Consequently, performance fees may mean more risks for the market as a
whole. In 1971, the United States Congress prohibited mutual funds from
employing asymmetric performance-fee schedules, whereby fund managers'
percentage share of the gain exceeded the percentage share of loss.
In other words, the fund manager has likewise to be compensated less
for under-performance and not just be compensated for over-performance.
Why do we still allow such a practice in Singapore?
If other fund managers follow suit and impose performance fees,
Singaporeans will be paying more, ending up with even less funds for their
retirement.
LEONG SZE HIAN
I REFER to the report, 'AIG's move to close 12 funds baffles industry'
(ST, Aug 27).
Brochures for unit trusts traditionally carry a warning that prices can
move up or down.
It should be mandatory in future for the brochures to also carry a
prominent caution that the unit trusts may be liquidated at any time the
managers decide to do so.
DENIS DISTANT
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: SMRT explains fare adjustment and that 'spike' in profits
Date: August 28, 2004
I REFER to the letters, 'Fare hike justified?' by Mr Leong Sze Hian
(ST, Aug 13) and 'Explain spike in SMRT profits' by Mr Narayana Narayana
(ST, Aug 18).
Fare adjustments for public transportation are approved on a
retrospective basis. The last fare adjustment, effective from July 2002, was
approved in consideration of higher operating costs incurred in FY2001 and
FY2002. (SMRT's financial year is from April 1 to March 31 of the
following year).
Costs had risen despite measures taken by the company to contain them
through improving productivity.
However, the fare adjustment in 2002 had only partially defrayed the
increase in operating cost and investments made to improve our MRT, LRT
and bus services.
At that time, improve-ments made to the MRT system had cost more than
$193 million cumulatively since year 2000. The improvements included the
purchase of 16 new trains to augment service frequencies and
installation of the Rail Travel Information System and Automatic Train-borne
Information System to provide passengers with up-to-date train-service
information and better quality in-train announcements.
Since 2002, SMRT has not applied for a fare adjustment. And the
company's revenue growth has been diluted by the absorption of Goods and
Services Tax (GST) increases and the negative impact of the North-East Line
(NEL).
Commuters have been paying lower fares because of our absorption of the
increases in GST by 1 per cent in January 2003 and a further 1 per cent
in January this year. Furthermore, with NEL in operation since June
2003, the sharing of fares and boarding charge paid by transferring
passengers between our line and NEL has led to a decrease in the average
fare, which resulted in lower MRT fare revenue.
Notwithstanding the above, SMRT has continued to adopt a proactive
approach towards enhancing customer service and contributing to the
community. For example, in 2003, we contributed $1 million to NTUC and CDC's
Public Transport Fund to help offset transport expenses of low-income
families with school-going children.
With regard to the 175 per cent increase in net profit in Q1 FY2005, we
wish to clarify that it appears significant because it was compared to
a low net-profit base of $7.3 million in Q1 FY2004, a quarter that was
hit by Sars.
For a more meaningful comparison, excluding tax write-backs, our
pre-tax Q1 FY2005 result was $7.4 million or 46.5 per cent higher than
pre-Sars Q1 FY2003 figure.
The increase was due to lower depreciation as we had delayed the
replacement of non-safety related assets, and reduction in staff and related
costs as the CPF rate was cut by 3 per cent.
GOH CHEE KONGVice-PresidentCorporate Communications SMRT Corporation
Ltd
Copyright, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Do more for cabbies
Author: LEONG SZE HIAN
Date: December 18, 2002
I REFER to the articles, 'Comfort tops up cabbies' CPF for their
retirement' and 'More taxis may go on road if cap ends' (ST, Dec 6).
In the first article, it was stated that the scheme will cost the
company $1 million annually. I would like to applaud Comfort for
implementing this new benefit for its taxi drivers.
I understand that Comfort's profits for the last financial year was $68
million, and for the current half-year, $53 million.
I believe the $1 million annual payout is probably less than 1 per cent
of its profits, going forward, for the full year.
The annual payment to taxi drivers with at least 10 years' service
(3,600 cabbies out of 22,000) is between $100 and $400. This is about $8 to
$33 a month.
I understand that the scheme is only for taxi drivers who are hirers,
and does not include relief drivers, whom I believe account for about
half of Comfort's drivers.
I would like to enquire as to whether the other taxi companies have
similar schemes and, if so, when were they implemented.
Taxi drivers have made a significant contribution to Singapore's
economic deve-lopment and the efficiency of our transport services. Those who
have lived in the 1950s and 60s will recall the chaos of the private
taxis and unregulated taxis.
It is a tough and physically demanding job, particularly in the current
economic slowdown, as I understand that their first four hours or so of
driving is sometimes just enough to cover their daily rental and costs.
I urge Comfort to enhance its generous gesture, to consider whether it
is possible to increase the payout to taxi drivers, in future years, by
adjusting for inflation and/or relating it to profits.
Perhaps more Singa-poreans will take Comfort taxis, knowing that the
cabbies are driving happily on the road to retirement.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Buying new HDB flats has advantages
Date: December 5, 2002
I REFER to the letter by Leong Sze Hian, 'New or resale HDB flats?
Decision not a simple one', (BT, Dec 3).
The 40 per cent depreciation in prices in the past six years that Mr
Leong erroneously refers to relates to the resale HDB Index.
Despite the downturn, 50 per cent appreciation is possible when one
buys a new HDB flat. Residents of Woodlands have enjoyed this in the past
five years as the transport system and amenities were gradually
developed there.
Indeed, this is further justification to prefer new HDB flats, which,
because of the considerable subsidy, have downside protection that
resale HDB flats do not enjoy.
Mr Leong also expressed reservations in respect of my 'recommendation
to sell a new HDB flat after five years to buy a re-sale flat, to reap
the 50 per cent profit in the context that the risks of a re-sale flat
may be higher, because the bank has first charge and due to the 120 per
cent cap on the use of CPF'.
I would argue that the risks are well controlled if the gains are
invested in a balanced portfolio (50 per cent equities and 50 per cent
bonds) and the home owner can easily sell his investments to service any
mortgage payments.
In fact, a home owner who hasn't unlocked capital for investments would
have a harder time servicing the mortgage loan should the crunch come.
While I agree that the 'interest rate differential is $122,400', Mr
Leong missed the big picture. As long as the investment's value ($574,000)
at the end of 30 years is greater than the increased interest cost
($122,400), it is worth pursuing. The underlying principles behind my
article are straightforward:
It is difficult to lose if you can buy an asset from the state way
below market value, albeit coming with minor inconvenience.
How do we monetise this advantage to fund our retirement? In fact, this
advantage is exclusive to Singaporeans as there must be at least one
Singapore citizen to form a family nucleus to be eligible to purchase a
new HDB flats. In other words, buying a new HDB flats is a reward for
Singapore citizenship - a six-figure retirement fund ($574,000 - $122,400
= $451,600).
I think Robert Kiyosaki, who retired at age 47 through his property
investments, would have wished for a similar advantage in his early
days.Chong Kok PengIndependent Financial AdviserNew Independent
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: New or resale HDB flats? Decision not a simple one
Author: Leong Sze Hian Singapore
Date: December 3, 2002
I REFER to the article 'New or resale HDB flat?' by Chong Kok Peng and
Vincent Lim (BT, Nov 20).
The illustration of a 50 per cent capital appreciation after five years
on a new HDB flat is based on an assumption that the annual rate of
return will be 8.4 per cent.
The rate seems rather high, and I wonder what the historical rate of
return is on HDB flats. I understand that for the past six years or so,
there was a depreciation of about 40 per cent.
The recommendation to sell a new HDB flat after five years to buy a
re-sale flat, to reap the 50 per cent profit, should also be viewed in the
context that the risks of a re-sale flat may be higher, because the
bank has first charge, and there will be a 120 per cent cap on the use of
CPF, on top of the higher market interest rate of say 4.5 per cent
versus the current 2.6 per cent rate on new HDB flats.
The interest rate differential for the $320,000 loan for 30 years is
$122,400. ($340 difference in monthly mortgage repayment x 12 x 30).
Perhaps, one may need to think more carefully when deciding between a
new or resale HDB flat.
Author: Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: CPF doesn't dictate fund fees
Author: Matthew Wong, Manager (Public Affairs), Central Provident Fund
Board
Date: November 28, 2002
I REFER to the letter 'Look at impact of low-cost pension funds' by
Leong Sze Hian (Mailbag, Nov 22).
Mr Leong was concerned about the high cost of investing in unit trusts
under the CPF Investment Scheme.
He also made some suggestions on issues to look at when studying the
inclusion of private pension funds.
On the issue of cost of investment, the CPF Board tracks the expense
ratios and agent bank charges of CPFIS-included products. The board will
seek clarifications from the fund managers concerned where it is
necessary to ensure transparency of information. However, under the current
CPF Investment Scheme, the CPF Board does not dictate the charges or set
a cap on the charges imposed by service and product providers.
Ultimately what, and how much, to charge is a business decision the fund
managers have to make. They would have to persuade their customers that their
rates are competitive.
Nonetheless, the board shares Mr Leong's concerns about the cost of
investment for CPFIS-included products. We will continue to look for ways
to help bring down the cost of investment for our members. In this
respect, the board will be appointing an investment consultant to assist in
the design and structure of a framework for low-cost pension plans.
Details will be announced when the framework is ready.
On Mr Leong's call to study the impact and implications of a low-cost
pension funds, he would be pleased to know that the board is currently
studying the mechanics and implications of pension fund schemes of other
countries.
Ultimately, the board will be guided by the objective that any such
scheme will have to meet the retirement needs of Singaporeans.
We thank Mr Leong for his feedback and comments.
Author: Matthew Wong, Manager (Public Affairs), Central Provident Fund
Board
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Look at impact of low-cost pension funds
Date: November 22, 2002
I REFER to the articles 'CPF takes in consultant for low-cost pension
plans' (BT, Nov 14), and 'Navigator shows the way' (BT, Nov 20) by
Genevieve Cua.
I would like to support the recommendation of the Economic Review
Committee's CPF working group that the government facilitate the provision
of low-cost private pension plans for CPF members.
I would like to ask whether a consultant was appointed when unit trusts
were first included in the CPF Investment Scheme.
If one had been appointed, maybe we need to find out how the current
high costs of investing has come about.
According to the CPF website, the typical charges for investing CPF
funds in unit trusts are a transaction fee of between $2 and $2.50 per
lot, service charge of $2 per unit trust fund per quarter, with a minimum
charge of between $2 and $5; sales charge of up to 5 per cent; annual
operational charges or expense ratio of between 0.8 and 5.6 per cent of
the NAV (net asset value); redemption charge of up to 6 per cent of
NAV; and annual performance fees of up to 20 per cent of excess returns
over benchmark for the unit trust.
In addition to looking at low-cost pension funds, I would like to
suggest that the consultant examine the feasibility of putting a cap on the
total expense ratio (investment fund's expense ratio plus CPF agent
bank's charges) of existing investment vehicles included in the CPF
Investment Scheme.
I understand that in the United Kingdom, a cap on the expense ratio of
pensions was introduced about two years ago, after a study showed that
consumers were paying higher investing costs than a decade ago.
I believe it has been suggested that Singapore follow Sweden's low-cost
pension system. I understand that Sweden is the worst-performing stock
market in Europe, having lost 62 per cent since its record high.
Why is the country having one of the best low-cost pension systems in
the world also the one with one of the worst-performing stock markets?
In this connection, I would also like to suggest that, perhaps, the
consultant could also look at the likely impact and implications of
low-cost pension funds on the stock market, financial services industry,
unemployment, and the economy, in addition to the merits and mechanics of
such pension funds. Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Look at impact of low-cost pension funds
Date: November 22, 2002
I REFER to the articles 'CPF takes in consultant for low-cost pension
plans' (BT, Nov 14), and 'Navigator shows the way' (BT, Nov 20) by
Genevieve Cua.
I would like to support the recommendation of the Economic Review
Committee's CPF working group that the government facilitate the provision
of low-cost private pension plans for CPF members.
I would like to ask whether a consultant was appointed when unit trusts
were first included in the CPF Investment Scheme.
If one had been appointed, maybe we need to find out how the current
high costs of investing has come about.
According to the CPF website, the typical charges for investing CPF
funds in unit trusts are a transaction fee of between $2 and $2.50 per
lot, service charge of $2 per unit trust fund per quarter, with a minimum
charge of between $2 and $5; sales charge of up to 5 per cent; annual
operational charges or expense ratio of between 0.8 and 5.6 per cent of
the NAV (net asset value); redemption charge of up to 6 per cent of
NAV; and annual performance fees of up to 20 per cent of excess returns
over benchmark for the unit trust.
In addition to looking at low-cost pension funds, I would like to
suggest that the consultant examine the feasibility of putting a cap on the
total expense ratio (investment fund's expense ratio plus CPF agent
bank's charges) of existing investment vehicles included in the CPF
Investment Scheme.
I understand that in the United Kingdom, a cap on the expense ratio of
pensions was introduced about two years ago, after a study showed that
consumers were paying higher investing costs than a decade ago.
I believe it has been suggested that Singapore follow Sweden's low-cost
pension system. I understand that Sweden is the worst-performing stock
market in Europe, having lost 62 per cent since its record high.
Why is the country having one of the best low-cost pension systems in
the world also the one with one of the worst-performing stock markets?
In this connection, I would also like to suggest that, perhaps, the
consultant could also look at the likely impact and implications of
low-cost pension funds on the stock market, financial services industry,
unemployment, and the economy, in addition to the merits and mechanics of
such pension funds. Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Lowering CPF rate will cut spending
Author: Leong Sze Hian Singapore
Date: November 12, 2002
I REFER to the article 'Clear and present danger' by Joseph Chong (BT,
Oct 30).
It states that one anti-deflationary measure is to lower the minimum
guaranteed rates of return in the CPF accounts.
Now, lowering the CPF rates means less is available for housing
repayments, medical expenses, insurance premiums, children's tertiary
education, retirement funds, etc.
In the current economic downturn, it is already tough enough to deal
with increases in bus and MRT fares, parking, hospital charges,
recommendations to increase the maid levy, etc. Consumer sentiment is probably
at such a low ebb now that the reduction of CPF rates of return may only
lead to even further dampening of sentiment.
Maybe, the net effect would be so much unhappiness among Singaporeans
that there may be a decrease in spending, further price falls, less
growth, fewer jobs, etc. According to James C Cooper and Kathleen Madigan,
modelling the effects of the national mood (sentiment) is where it gets
tricky in forecasting and in constructing econometric models. We should
fight deflation with measures other than tinkering with the CPF rate.
Author: Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Beware the high hedge-fund fees
Author: LEONG SZE HIAN
Date: October 24, 2002
I REFER to the article, ''SEC probing if hedge fund portfolios are
inflated'' (ST, Oct 19).
Singaporeans may soon be able to invest their CPF and cash in hedge
funds, with the planned launch of retail hedge funds.
The more-than-two-year global equities bear market has led to more
money flowing into hedge funds.
The problem of over-capacity could arise, as more money and hedge funds
try to chase similar ''market neutral'' strategies.
It could become increasingly more difficult to find sufficient
inefficiencies to exploit, produce and replicate the returns of the past.
An increasing proportion of the world's hedge-fund holdings is being
bought by other hedge funds, which repackage the holdings collectively
into funds of funds (FOF). These try to diversify to reduce the risks of
investing in single hedge funds.
However, what this may really mean is that hedge-fund managers are
becoming, in a sense, arbiters of one another's performance and
reliability.
I understand that the typical FOF has two layers of management and
performance fees of up to 2.5 per cent plus 1.5 per cent of the portfolio,
and 20 per cent plus 10 per cent of the gains respectively.
For capital-guaranteed hedge funds, there may also be a fee payable to
the third party providing the guarantee.
If the gross return is 10 per cent, is the net return to the investor
only 3 per cent (10 less 3 per cent performance fee less 4 per cent
management fee)?
In this example, does it mean that the fees are more than twice the net
return to the investor?
Investment vehicles with strategies that can give potentially higher
returns with lower volatility, in both bear and bull markets with low
correlation to both equities and bonds, sound too good to be true.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Manage CPF property cap with planning
Author: LEONG SZE HIAN
Date: October 17, 2002
I REFER to the article, 'Calculate again before buying a home' (ST, Oct
5), by Vladimir Guevarra.
The National University of Singapore (NUS) Department of Real Estate's
study recommends that Singaporeans have at least $70,000 in their
Central Provident Fund Ordinary Account, to be able to afford a $400,000
condominium unit.
This recommended minimum CPF balance is increased to $210,000, if one
decides to buy the same unit in 2008, when the CPF withdrawal limit for
housing is reduced to 120 per cent.
It is probably not very realistic or practical to expect young
Singaporean couples to wait until they have the above amounts in their CPF,
before buying a home.
In all probability, I think many will continue as they are doing now,
in that they will purchase a home once they have the 10 per cent
($40,000) cash downpayment, and the other 10 per cent downpayment in their
CPF.
One possible strategy, if one decides to do this, is to calculate the
estimated housing-loan outstanding balance, when the CPF withdrawal cap
is reached.
For the example cited in the study, for a 30-year housing loan of
$320,000 at 4.5 per cent interest, the cap would be reached after 28 years.
The outstanding loan balance then would be $23,607.
One could start a dedicated monthly cash savings and investment plan
at, say, a projected return of 6 per cent, and target an accumulated
amount equal to the loan balance, when the cap is reached.
This would ensure that in the worst-case scenario, one would have the
funds to pay off the loan, when CPF money can no longer be used.
If this accumulated amount is not required then, it could be utilised
for other purposes, such as for one's retirement plans.
For this example, the home-owner starts with regular monthly savings of
$16, increasing at 5 per cent per annum (saving more as one's salary
increases in future), for 28 years, in order to accumulate $23,607.
Similarly, for the 120 per cent cap which will apply in five years, the
cap will be reached after 22 years, with a loan balance of $130,513.
The home-owner would be required to start with monthly savings of $155.
Perhaps only time will tell whether most Singaporeans can manage the
risks and implications of the CPF changes, through financial-planning
strategies such as the one described above.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Data on funds' expense ratios readily available
Author: MATTHEW WONG, Manager, Public Affairs, Central Provident Fund
Board
Date: October 11, 2002
I REFER to the letter, 'Bar high-expense unit trusts from CPF scheme'
(ST, Oct 3), by Mr Leong Sze Hian, who suggested that unit trusts with
high annual expense ratios should be excluded from the CPF Investment
Scheme (CPFIS).
The CPF Board shares Mr Leong's concern over the high expense ratios of
CPFIS-included funds.
The board tracks these expense ratios and, where the figures are high
relative to similar funds, the fund managers are asked to explain the
high ratios and urged to take action to control or reduce expenses, such
as absorbing some of them.
However, the issue of controlling expense ratios is ultimately a
business decision which lies with the fund manager.
We urge CPF investors to use the information published in the quarterly
Performance and Risk Monitoring Report for CPFIS-Included Unit Trusts
and Investment-Linked Insurance Products.
The report, prepared by Standard and Poor's Fund Services Asia,
discloses the performance of the wide range of CPFIS unit trusts and
investment-linked insurance products, as well as their expense ratios. It can
also be found at the Life Insurance Association's website asp.lia.org.sg
Investment Management Association of Singapore's website
www.imas.org.sg and CPF Board's website at www.cpf.gov.sg.
The board is also looking to help provide low-cost privately-managed
pension funds to CPF members under CPFIS, and will announce details when
the framework is ready.
Author: MATTHEW WONG, Manager, Public Affairs, Central Provident Fund
Board
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Bar high-expense unit trusts from CPF scheme
Author: LEONG SZE HIAN
Date: October 3, 2002
I VISITED the CPF Board's website -www.cpf.gov.sg - and discovered in
the 'Performance Evaluation Report For Unit Trusts Included Under CPFIS
(CPF Investment Scheme) For 3 Year Period Ending 28 June 2002' that the
highest annual expense ratio for a unit trust was 5.83 per cent.
If the gross return of the unit trust is 8 per cent, does this mean
that the net return to the CPF account investor is only 2.17 per cent (8
minus 5.83)?
I understand that the annual expense ratio does not include the CPFIS
agent bank's charges for maintaining one's CPFIS account. Therefore, the
total expense ratio could be higher than the annual expense ratio, if
we account for these charges too.
Many Singaporeans may not be aware of the above, as I had to surf
through several links, namely For Members - CPF Schemes - Asset Enhancement
- Performance And Risk Monitoring Report For Unit Trusts, before I
found the expense ratio.
Perhaps the relevant authorities could ensure that unit trusts with
such high annual expense ratios are excluded from CPFIS.
In this example, more than 73 per cent of the gross return has gone to
paying investing costs.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Higher risk of losing HDB flats and CPF
Author: LEONG SZE HIAN
Date: September 4, 2002
THERE seems to be some misconception that when banks have first charge
on property purchases and re-financed housing loans from Sept 1, the
risk of bankruptcy is significantly reduced because banks will mostly get
back their money when a property is sold, even at a loss, and thus one
is unlikely to be sued for bankruptcy.
CPF members won't be required to top up CPF money lost in such
circumstances.
While the risk of bankruptcy may be reduced, the risk of losing your
house and CPF has increased.
Is it better not to be a bankrupt, but lose your house and CPF; or be a
bankrupt and still have your house to live in, and have your CPF
protected from the bank?
Banks have been less inclined to foreclose when a property is in
negative equity because, with the CPF having first charge, they may not
recover the outstanding mortgage. So, one has a better chance of keeping the
house.
HDB flats and CPF are now protected from creditors but when banks take
over the financing of mortgages for HDB market-rate loans from Jan 1
next year, there will be the risk of losing one's HDB flat and CPF to the
bank.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Trailer fees not always beneficial
Author: Leong Sze Hian Singapore
Date: July 24, 2002
I REFER to the letter 'CPF funds: put people's financial welfare first'
by Peter Edmund Mullins (Mailbag, July 15).
Paying a 5 per cent up-front sales charges on an investment fund with
no trailer fees and a lower expense ratio may be relatively better than
one with a lower 2.5 per cent front-end with trailer and higher expense
ratio.
Investment funds that pay trailer fees to distributors typically have
higher expense ratios and also charge switching fees of around one per
cent.
In the long run, what really matters to investors is the average annual
total expense ratio for their time horizon.
Thus, one may be better off with funds that do not pay trailer fees and
have free switching.
Trailer fees do not always work to the advantage of the investor.
Sometimes, the same investment fund can be bought through the same
distributor who has the option of using either a vehicle with or without
trailer fees, and switching fees.
Author: Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: More may buy private property
Author: LEONG SZE HIAN
Date: July 24, 2002
I REFER to the article, 'Major change for home loans' (ST, July 23).
I understand that the rationale for the 150-per-cent cap on the use of
CPF savings for private property is to discourage over-investment in
property assets, so that Singaporeans will have more cash for retirement.
However, the change from Sept 1, to allow CPF to be used for 10 per
cent of the down payment, may have the opposite effect of encouraging more
property purchases.
Many who would otherwise not be able to purchase private property
because they do not have the 20-per-cent cash down payment, will be able to
do so from that date.
The net effect of the changes may lead to even more Singaporeans being
property-asset rich and cash poor in retirement.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: A better unit trust, ILP comparison
Author: Leong Sze Hian Singapore
Date: July 19, 2002
I REFER to the article 'Thinking of ILPs? Be clear on your priorities'
by Ben Fok (BT, July 3).
Mr Fok cites from CPF statistics an average expense ratio of 2.15 per
cent for unit trusts, and 1.5 per cent for ILPs. In his example of a
35-year-old investing $100,000 in an ILP, the insurance mortality charge
is $15.50 in the first year. The charge will typically decline as the
value of the investment increases, and disappear once the investment
value exceeds the sum insured of $125,000. This adds 0.015 per cent to the
expense ratio, giving a total expense ratio of 1.515 per cent (1.5 +
0.015).
According to the Centre for Fiduciary Studies in the United States, the
most significant factor impacting long-term success in investing is
costs. Thus, perhaps the more appropriate comparison between a unit trust
and an ILP in the same asset class and category is to compute and
compare the average total expense ratio over the investment time horizon -
accounting for all costs like the front-end charge, expense ratio
(annual management fee + fund expenses), mortality, administration,
transaction, CPF agent bank quarterly maintenance, switching and rebalancing
charges.
Author: Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: CPF changes may see more defaults on housing loans
Author: LEONG SZE HIAN
Date: July 16, 2002
I REFER to the Central Provident Fund (CPF) changes announced
yesterday, capping the use of CPF for private property purchases at 150 per cent
of the purchase price.
Using the example of a $500,000 property with 20-per-cent downpayment
and 80-per-cent loan at 5-per-cent interest for 30 years, the monthly
mortgage repayment of $2,147 can be serviced using CPF for only 25 years
and three months.
After that, the mortgage repayment will have to be serviced from cash
funds.
When the cap is reduced gradually to 120 per cent in five years' time,
CPF can be used for only 19 years and five months.
This increases the risks involved in buying property and may lead to
higher defaults on housing loans.
Author: LEONG SZE HIAN
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: Little fallback for private home owners
Author: Leong Sze Hian Singapore
Date: June 5, 2002
I REFER to the report 'Redas: Don't aim CPF changes at private homes''
(BT, May 21).
The potential negative financial implications of any CPF change are
probably more acute for private home-owners than HDB home-owners.
HDB has various schemes - interest-only repayment, reduced repayment,
delayed repayment, extension of loan period, inclusion of other family
members, use of Special Account, etc - to alleviate any financial
hardship an HDB flat owner may face.
These are typically not available to private home-owners, who thus have
a higher risk exposure to negative equity, foreclosure and insolvency.
Author: Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Business Times, The (Singapore)
Title: A mindset problem regarding CPF?
Date: May 24, 2002
I REFER to the article 'Loan interest eating into CPF: Boon Heng' by
Andrea Tan (BT, May 11).
When the CPF could only be used for housing, it fuelled the property
market. When it was extended to Singapore shares, it fuelled the
Singapore stock market. When the use of CPF to invest in unit trusts and
investment-linked products was liberalised, it fuelled the flow of money into
such investments. Now that we realise that many Singaporeans have not
done very well out of property and equities, we are debating how much of
one's CPF be used for housing.
It is a mindset problem - and will persist as long as most Singaporeans
think that their ordinary account is for housing, their special account
for retirement and their Medisave account for medical expenses. If we
'total' all three categories, I believe that many Singaporeans'
financial situation during retirement may not be as dire as some seem to
believe. For example, one can always downgrade to a granny flat to free up
the value of one's property as retirement income. Perhaps, it is best to
leave financial decisions to the individual and market forces, rather
than periodic intervention? Leong Sze Hian Singapore
Copyright, 2002, 2004, Singapore Press Holdings Limited
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Paper: Straits Times, The (Singapore)
Title: Charges eat into CPF investment
Author: NOOR
Date: June 10, 2000
Page: 68
I RECEIVED a letter from DBS Bank titled,
CPF/ASPF Investment Scheme - Reduction in Transaction Fee, and an
attachment, CPF/ASPF Investment Account - Schedule of Bank charges.
The schedule stated that the quarterly service charge for shares, loan
stocks and unit trusts was $2 for each counter held, per quarter. A
minimum charge of $5 is levied.
If I have a diversified portfolio of 10 unit trusts of $1,000 value
each, the quarterly service charge is $20 or $80 per year.
According to CPF consultants William M. Mercer's website, the annual
expense ratio of Equity Unit Trusts ranges from 0.9 per cent to 3.6 per
cent.
If the annual management fee of the Equity Unit Trusts is 1.5 per cent
and the annual expense ratio is 1.75 per cent, the total expense per
year is 4.05 per cent.
That is the sum of the quarterly service charge, annual management fee
and the annual expense ratio.
If the gross return on the portfolio is 8 per cent, the net return is
only 3.95 per cent.
Eight per cent less 4.05 per cent, that is, the gross return less the
annual total expense ratio.
The charges paid every year (4.05 per cent) are greater than the net
return of 3.95 per cent.
I really do hope that my understanding of the above is incorrect.
Otherwise, a CPF account may not be enough for retirement.
LEONG SZE HIAN
Author: NOOR
Page: 68
Copyright, 2000, 2004, Singapore Press Holdings Limited
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