What $387m could do for the needy

In a report, Mr Leong Sze Hian reveals that "Only 3,000 people are on the Public Assistance scheme, which pays a paltry 360 dollars (267 U.S. dollars) a month" and that it was "last disclosed in Parliament that, in a year, 50 percent of applicants were rejected." It was also reported on CNA that the government will have spent S$386 million on the Youth Olympic. I shall not comment on whether I think the government should spend this amount of money to host the YOG. But I shall show what the same amount could have done if it were spent in another area, such as helping needy Singaporeans.

To put this amount in perspective, I shall use an example of what it can do for 3,000 persons on a sustainable basis if it were deposited in a CPF account paying 4% interests per year. Since the CPF is what most Singaporeans are familiar with, such an example should be easier to understand. At this writing, the CPF pays an interest of 4% per year for Medisave, Special and Retirement accounts, so I shall take this rate as the basis of my illustration. CPF members are allowed to make withdrawals from these accounts for a wide range of approved investment, healthcare and retirement income purposes.

In the following spreadsheet, we can see how much each of these 3,000 persons could receive in withdrawals every month if:
1) We start with an amount of $387m in the morning of 01 Jan, 2010
2) At afternoon, we withdraw 3.6% of the balance ($13,932,000) and pay it to the 3,000 persons once a month over the 12 months in 2010.
3) With this $13,932,000, we can afford to pay each person $387/month in the year, 2010
4) After making the $13,932,000 withdrawal, the fund is reduced to $373,068,000 at the end of the day, 01 Jan, 2010
5) At the end of the year, on 31 Dec, 2010, this balance accumulates interests of 4%, so it grows to $387,990,720
6) In the following year, on 01 Jan 2011, we make another withdrawal. This time, we withdraw 3% more than what we did in 2010. We withdraw $13,967,666. In subsequent years, we also increase our withdrawal by 3% over the previous year.
7) This allows us to pay each person $387.99/month in 2011. The 3% increment is to cushion the inflationary effects. In subsequent years, the monthly amount that each person may receive also increases in this way, by 3% over the previous year.
8) This fund can sustain itself if we assume an interest rate of 4% and a 3% annual increase in withdrawal and monthly pay-out. 100 years later in 2110, the fund size grows to $499,744,802, from the $387,000,000 it was started with in 2010.

Year	Balance on Jan 01	Withdrawal Amount on Jan 01, starting with 3.6% of $387m (increases by 3% pa)	Withdrawal distributed to 3000, each gets this mthly)	Balance after Withdrawal	Balance plus 4% interests on Dec 31
2010	$387,000,000	$13,932,000	$387.00	$373,068,000	$387,990,720
2011	$387,990,720	$13,967,666	$387.99	$374,023,054	$388,983,976
2012	$388,983,976	$14,003,423	$388.98	$374,980,553	$389,979,775
2013	$389,979,775	$14,039,272	$389.98	$375,940,503	$390,978,123
2014	$390,978,123	$14,075,212	$390.98	$376,902,911	$391,979,027
2015	$391,979,027	$14,111,245	$391.98	$377,867,782	$392,982,494
2016	$392,982,494	$14,147,370	$392.98	$378,835,124	$393,988,529
2017	$393,988,529	$14,183,587	$393.99	$379,804,942	$394,997,140
2018	$394,997,140	$14,219,897	$395.00	$380,777,243	$396,008,332
2019	$396,008,332	$14,256,300	$396.01	$381,752,032	$397,022,114
2020	$397,022,114	$14,292,796	$397.02	$382,729,317	$398,038,490
2021	$398,038,490	$14,329,386	$398.04	$383,709,105	$399,057,469
2022	$399,057,469	$14,366,069	$399.06	$384,691,400	$400,079,056
2023	$400,079,056	$14,402,846	$400.08	$385,676,210	$401,103,258
2024	$401,103,258	$14,439,717	$401.10	$386,663,541	$402,130,083
2025	$402,130,083	$14,476,683	$402.13	$387,653,400	$403,159,536
2026	$403,159,536	$14,513,743	$403.16	$388,645,792	$404,191,624
2027	$404,191,624	$14,550,898	$404.19	$389,640,726	$405,226,355
2028	$405,226,355	$14,588,149	$405.23	$390,638,206	$406,263,734
2029	$406,263,734	$14,625,494	$406.26	$391,638,240	$407,303,769
2030	$407,303,769	$14,662,936	$407.30	$392,640,833	$408,346,467
2031	$408,346,467	$14,700,473	$408.35	$393,645,994	$409,391,834
2032	$409,391,834	$14,738,106	$409.39	$394,653,728	$410,439,877
2033	$410,439,877	$14,775,836	$410.44	$395,664,041	$411,490,603
2034	$411,490,603	$14,813,662	$411.49	$396,676,941	$412,544,019
2035	$412,544,019	$14,851,585	$412.54	$397,692,434	$413,600,132
2036	$413,600,132	$14,889,605	$413.60	$398,710,527	$414,658,948
2037	$414,658,948	$14,927,722	$414.66	$399,731,226	$415,720,475
2038	$415,720,475	$14,965,937	$415.72	$400,754,538	$416,784,719
2039	$416,784,719	$15,004,250	$416.78	$401,780,469	$417,851,688
2040	$417,851,688	$15,042,661	$417.85	$402,809,027	$418,921,388
2041	$418,921,388	$15,081,170	$418.92	$403,840,218	$419,993,827
2042	$419,993,827	$15,119,778	$419.99	$404,874,049	$421,069,011
2043	$421,069,011	$15,158,484	$421.07	$405,910,527	$422,146,948
2044	$422,146,948	$15,197,290	$422.15	$406,949,658	$423,227,644
2045	$423,227,644	$15,236,195	$423.23	$407,991,449	$424,311,107
2046	$424,311,107	$15,275,200	$424.31	$409,035,907	$425,397,343
2047	$425,397,343	$15,314,304	$425.40	$410,083,039	$426,486,361
2048	$426,486,361	$15,353,509	$426.49	$411,132,852	$427,578,166
2049	$427,578,166	$15,392,814	$427.58	$412,185,352	$428,672,766
2050	$428,672,766	$15,432,220	$428.67	$413,240,546	$429,770,168
2051	$429,770,168	$15,471,726	$429.77	$414,298,442	$430,870,380
2052	$430,870,380	$15,511,334	$430.87	$415,359,046	$431,973,408
2053	$431,973,408	$15,551,043	$431.97	$416,422,365	$433,079,260
2054	$433,079,260	$15,590,853	$433.08	$417,488,407	$434,187,943
2055	$434,187,943	$15,630,766	$434.19	$418,557,177	$435,299,464
2056	$435,299,464	$15,670,781	$435.30	$419,628,683	$436,413,831
2057	$436,413,831	$15,710,898	$436.41	$420,702,933	$437,531,050
2058	$437,531,050	$15,751,118	$437.53	$421,779,932	$438,651,129
2059	$438,651,129	$15,791,441	$438.65	$422,859,689	$439,774,076
2060	$439,774,076	$15,831,867	$439.77	$423,942,210	$440,899,898
2061	$440,899,898	$15,872,396	$440.90	$425,027,502	$442,028,602
2062	$442,028,602	$15,913,030	$442.03	$426,115,572	$443,160,195
2063	$443,160,195	$15,953,767	$443.16	$427,206,428	$444,294,685
2064	$444,294,685	$15,994,609	$444.29	$428,300,076	$445,432,079
2065	$445,432,079	$16,035,555	$445.43	$429,396,525	$446,572,386
2066	$446,572,386	$16,076,606	$446.57	$430,495,780	$447,715,611
2067	$447,715,611	$16,117,762	$447.72	$431,597,849	$448,861,763
2068	$448,861,763	$16,159,023	$448.86	$432,702,739	$450,010,849
2069	$450,010,849	$16,200,391	$450.01	$433,810,458	$451,162,877
2070	$451,162,877	$16,241,864	$451.16	$434,921,013	$452,317,854
2071	$452,317,854	$16,283,443	$452.32	$436,034,411	$453,475,787
2072	$453,475,787	$16,325,128	$453.48	$437,150,659	$454,636,685
2073	$454,636,685	$16,366,921	$454.64	$438,269,765	$455,800,555
2074	$455,800,555	$16,408,820	$455.80	$439,391,735	$456,967,405
2075	$456,967,405	$16,450,827	$456.97	$440,516,578	$458,137,241
2076	$458,137,241	$16,492,941	$458.14	$441,644,301	$459,310,073
2077	$459,310,073	$16,535,163	$459.31	$442,774,910	$460,485,906
2078	$460,485,906	$16,577,493	$460.49	$443,908,414	$461,664,750
2079	$461,664,750	$16,619,931	$461.66	$445,044,819	$462,846,612
2080	$462,846,612	$16,662,478	$462.85	$446,184,134	$464,031,499
2081	$464,031,499	$16,705,134	$464.03	$447,326,365	$465,219,420
2082	$465,219,420	$16,747,899	$465.22	$448,471,521	$466,410,382
2083	$466,410,382	$16,790,774	$466.41	$449,619,608	$467,604,392
2084	$467,604,392	$16,833,758	$467.60	$450,770,634	$468,801,460
2085	$468,801,460	$16,876,853	$468.80	$451,924,607	$470,001,591
2086	$470,001,591	$16,920,057	$470.00	$453,081,534	$471,204,795
2087	$471,204,795	$16,963,373	$471.20	$454,241,423	$472,411,080
2088	$472,411,080	$17,006,799	$472.41	$455,404,281	$473,620,452
2089	$473,620,452	$17,050,336	$473.62	$456,570,116	$474,832,920
2090	$474,832,920	$17,093,985	$474.83	$457,738,935	$476,048,493
2091	$476,048,493	$17,137,746	$476.05	$458,910,747	$477,267,177
2092	$477,267,177	$17,181,618	$477.27	$460,085,558	$478,488,981
2093	$478,488,981	$17,225,603	$478.49	$461,263,377	$479,713,913
2094	$479,713,913	$17,269,701	$479.71	$462,444,212	$480,941,980
2095	$480,941,980	$17,313,911	$480.94	$463,628,069	$482,173,192
2096	$482,173,192	$17,358,235	$482.17	$464,814,957	$483,407,555
2097	$483,407,555	$17,402,672	$483.41	$466,004,883	$484,645,078
2098	$484,645,078	$17,447,223	$484.65	$467,197,856	$485,885,770
2099	$485,885,770	$17,491,888	$485.89	$468,393,882	$487,129,637
2100	$487,129,637	$17,536,667	$487.13	$469,592,970	$488,376,689
2101	$488,376,689	$17,581,561	$488.38	$470,795,128	$489,626,934
2102	$489,626,934	$17,626,570	$489.63	$472,000,364	$490,880,378
2103	$490,880,378	$17,671,694	$490.88	$473,208,685	$492,137,032
2104	$492,137,032	$17,716,933	$492.14	$474,420,099	$493,396,903
2105	$493,396,903	$17,762,289	$493.40	$475,634,615	$494,659,999
2106	$494,659,999	$17,807,760	$494.66	$476,852,239	$495,926,329
2107	$495,926,329	$17,853,348	$495.93	$478,072,981	$497,195,900
2108	$497,195,900	$17,899,052	$497.20	$479,296,848	$498,468,722
2109	$498,468,722	$17,944,874	$498.47	$480,523,848	$499,744,802
2110	$499,744,802	$17,990,813	$499.74	$481,753,989	$501,024,148

Using the above assumptions to illustrate, with $387m, we could provide 3,000 needy people with a monthly income of $387+3% increment every year perpetually.

Some Random Thoughts on CPF Reform (1)

Some Random Thoughts on CPF Reform (1)

There are some ways to improve upon the current CPF system in order for the system to serve the needs of average Singaporeans better.

(1) Define Secure Retirement Savings Goal (SRSG) and use it—beside a fixed retirement age-- as an alternative basis for CPF draw-down age.

(a) Define the Secure Retirement Savings Goal (SRSG) in terms of the CPI-adjusted life-time income that may be generated a balance in CPF saving, based on a person's age.

(b) For example, a male aged 65 may be able to secure an annuity income of 6% of his CPF balance, while a male aged 40 may only be able to secure 4%. The reason why the older man is able to secure a higher income is, he is more likely to die earlier, hence receive less years of annuity income from the annuity provider.

(c) For example, the SRSG for year 2010 may be S$6,000/year. Adjusted for inflation, this becomes $6,300 in 2011 if the inflation rate is 5%. The SRSG is then readjusted on a yearly basis based on the recent year's inflationary rate.

(d) Using the above examples, for a 65-year-old to “make it” to the SRSG, he'd need an amount of $100,000 in his CPF balance. With this amount, he receives 7%, which is the SGSR of $60,000/year, inflation-adjusted. Similarly, a 40-year-old with a balance of $150,000 today should also be able to “make it” to SGSR, because, at 4%, that amount would also generate $6,000/year for him, inflation-adjusted, for life.

(e) The present CPF system mandates a fixed retirement age. However, while many would like to retire at 65, others may want to retire much younger. Some of these people need to enjoy their fruits younger because they have poor health, and may not expect to live far beyond age 65. We should give such people an option to do so providing they are able to prove that they have become equally financially secure at a younger age. A system that dictates that everyone can only receive their CPF income from ages 55-65 is too rigid.

(2) Allow for Earlier Withdrawal for those who've 'made it' younger and encourage Singaporeans to save more when they are young and healthy

(a) Having explained the SGSR concept above, I want to move on to suggest that those who have made it to the SGSR be allowed to make CPF withdrawal from as young as age 40.

(b) This encourages younger Singaporeans who are still healthy and productive to cultivate the habit of regular saving. If we ask a person aged 20-plus to save more today, he may not be as motivated because the withdrawal age is too far away for him. But if we were to allow him to make earlier withdrawal if he “makes it” earlier, he may well be motivated to save more.

(c) Encouraging our younger citizens to save more when they are young is important. As we know, we may not enjoy good health till age 65. The economy and the job market may, likewise, not be rosy till then. More importantly, if we cultivate the habit of saving younger, we become more psychologically, culturally, and economically as a nation, resilient to financial crises which a small island-nation with little natural resources like ours are vulnerable to.

(d) I must emphasise that giving the option to make withdrawal younger doesn't equate to forcing those who have “made it” to make withdrawals or to stop working entirely. These people are, of course, given the option to not make withdrawal and to continue to work and make additional CPF contributions. Many millionaires are still working despite that they can afford to retire.

(3) Allow Medisave & Medishield to be used for Approved overseas medical treatments

(a) To make medical services more affordable for the poorer Singaporeans, and especially those with limited Medisave balances and no health insurance, we should liberalise on the use of CPF Medisave fund and Medishield insurance for treatments in MOH-accredited overseas facilities. These facilities should include hospitals, community hospitals, dialysis centres, clinics, nursing homes and mental health institutions, and the overseas locations, Malaysia, Indonesia, Thailand, China and India.

(b) For example, just across the Causeway, dialysis can be done at a much lower cost. Similarly, nursing homes, hospitals, clinics, and probably other types of healthcare facilities in JB, Malaysia charge much less than those in Singapore. Many retirees do not mind travelling to JB to save a few dollars for their hair-cuts, groceries and foot massage. If they could use their Medisave and Medishield for their healthcare services, they could be able to save a significant % of their monthly expenses. This is especially so for those retirees who spend a significant % of their monthly expenses on medical treatments like dialysis, chronic diseases (such as diabetes, high cholesterol, high blood pressure and heart disease). As we know, Malaysia has effectively controlled its medical inflation by having 50 One-Ringgit public clinics nationwide, which charge only one ringgit (S$0.45) for each GP consultation inclusive of medications. This results in the private clinics there being under constant pressure to keep costs low in order to survive.

(c) Many drugs prescribed in Singapore are original versions which cost more to import. On the other hand, many generic versions of the same drugs are available at much lower costs in Malaysia, India and Thailand. For example, HIV drugs may cost more than S$1,500/month whereas they could be had for under S$400/month in Thailand or India, which produce their generic versions.

(d) Our Mandarin-speaking citizens may find it easier to seek treatment in China, while our Indian-speaking citizens in India and our Malay-speaking citizens in Malaysia. By accrediting hospitals and other facilities in each of these foreign countries, we provide more choices for our citizens.

(e) This may also help our local hospitals alleviate their occasional crowding problem. Those patients requiring non-urgent treatments who have the time and willingness to to seek quality treatment overseas should be allowed to, and by allowing them to use Medisave and Medishield overseas we make it easier and more affordable for them to do so.

(4) Allow CPF to be used for more types of insurance schemes

(a) Beside Home Insurance, Dependent Protection Scheme, Eldershield and Medishield, CPF should also be used for purchasing (Occupational) Disability Income insurance and Unemployment Insurance (UI)

(b) The Eldershield insurance protects against “Severe Disability” which is defined in the disability to perform 3 out of 3 Activities of Daily Living (ADLs) such as washing, feeding, and toileting. On the other hand, Occupational Disability Insurance (ODI) protects against the disability to engage in one's occupation from which he earns an income. I think ODI is equally if not more important considering that a person's ability to earn an income and contribute to CPF depends usually on whether he is able to continue to work. He may not lose the ability to wash and feed himself, but still be unable to earn an income if he suffers a lesser degree of disability.

(c) An UI scheme should be set up to protect working citizens from unemployment after 3 months active search for jobs. This is important considering that many Singaporeans are surviving from pay checque to pay cheque, so may not have sufficient savings to make ends meet if they are without a job for more than 3 months. A UI payout of a few hundred dollars a month for, perhaps, 3-6 months, could mean a lot for them if they can't find a job.

(5) Create a new Account called Basics Account under the umbrella of CPF Accounts

(a) Beside Ordinary, Special, Medisave, and Retirement Accounts, we could have an additional Basics Account. This enjoys the same legal protection from creditors and is meant to pay for one's basic necessities like food, utilities, public transport, school fees and primary healthcare.

(b) It could be made voluntary. Singaporeans could be allowed to make voluntary contributions to their BA. The balance is legally protected just like other CPF Accounts and earns an interest. The balance could then be used for the member's and his dependents' (including Spouse, Children, Parents, Grandparents and occupationally disabled siblings):

i. Staples (bought at approved outlets such as Fairprice stores).

ii. Milk powder and diapers for those below 3

iii. Primary care (essential check-ups and consultations and medications in polyclinics)

iv. Public transport fare

v. School and exam fees in public schools and tertiary institutions and approved essential books

vi. Meals bought in school canteens in public schools and tertiary institutions and approved essential books (subject to a daily limit)

vii. town council fees, property tax for HDB flats, water and electricity (subject to limits for each category and each year)

(c) The above limits could be programmed into an electronic payment card such as iNets or Ez-link. There's a cap for each year. This is to prevent abuse.

(d) When a person is holding a stable job which pays a regular income, he may choose not to utilise this account so that he may earn more interests. However, if he runs into financial trouble, this account is protected from his creditors. He may use it to pay for his and his children's basic needs while he becomes bankrupt or is finding a job.

(e) Contributions to one's own, spouse's, parents', grandparents', children's and disabled siblings' BA should be tax-deductible, up to a certain yearly limit. This encourages Singaporeans to make make contribution to their non-working dependents' BA. Once an amount is paid into one's child's BA, for example, it cannot be withdrawn for other purposes. It means that a gambler who had been a good father contributing to his son's BA years back cannot now make withdrawals from his child's BA to gamble. So, his child can still afford to pay his school fees, bus-fare, textbooks and canteen meals by making BA withdrawals for these approved purposes, even if the gambler father is now unable to. Similarly, the child's mother can still afford to buy food for the family, pay for her medical consultations in the polyclinic and bus-fare for fetching her child from school, with BA withdrawals. The gamble, in this example, may be troubled by his own folly, but his family members can pay for their basic needs as long as the latter have balances in their BA. Even if the gambler's creditors were to sue him in court, whatever contributions he had paid into his dependants' BA for their basic needs would be legally protected.

(6) Allow 100% of CPF Special Account to be invested, but keep the threshold for investable CPF-Ordinary Account fund

(a) The rational is simple. Special Account cannot be withdrawn early for housing, education, etc. purposes like Ordinary Account could, so the time horizon for SA is much longer. This means that it is generally more suitable to invest it in higher-risk investments such as unit trusts which have a significant portion allocated to stocks. So, locking up $40,000 in a low-risk, interest-bearing CPF SA may not allow this amount to grow as quickly as it could if invested in unit trusts or ETF.

(b) On the other hand, the first $20,000 in OA should remain uninvestable because balances in OA may have shorter time horizon for investment.

(7) Allow younger CPF members to opt in to CPF Life

(a) As explained above, those who have proven that they have made it to the SRSG, and also that they have sufficient OA to pay their outstanding HDB mortgage (if any) and the Minimum Medisave (minimum Medisave should be adjusted according to age. A younger person should have a higher minimum because he is expected to live longer and need more savings for healthcare and insurance premium), should be allowed to withdraw from their CPF, in the form of purchasing a CPF Life annuity and receiving the annuity income monthly.

(8) Create one more option under CPF Life's range of annuities: CPI-linked annuity

(a) In order to do this, the government should develop the bond market in Singapore by issuing inflation-protected bonds (just like TIPS in the USA).

(b) Next, the CPF Life should have the 5th Option: Inflation-Adjusted Annuity.

(c) Those who opt for Inflation-adjusted annuity instead of fixed-amount annuity income receive a lower amount of income initially. But the amount is adjusted yearly based on the inflationary rate.

(9) Drastically increase the Absolute Income Base (AIB) for CPF and SRS

(a) This allows Singaporeans to save more in their CPF and SRS when they are still young and healthy. The current cap for CPF is based on only the first $4,500/month of one's salary. I think the cap should be increased to at least $6,000, and preferably $8,000. This means the AIB should be increased by at least 30%.

(10) Universal Health Insurance: Legally require every Singaporean and PR to be insured under Medishield

(a) The Obama Administration had made a very difficult but necessary decision to provide every citizen health insurance. Without making it compulsory, many Singaporeans may lose their insurance and become uninsurable later. We must not repeat the mistake that the Americans made by making it optional for Singaporeans to have health insurance.

(b) Those who are not insured should be systematically enrolled into either the existing Medishield or another health insurance scheme. Those who have Medisave should use it to pay the premium while those without sufficient savings and can prove that they cannot afford the premium should have their premium paid for by the government. A special Fund should be allocated for this purpose.

(11) Medisave & Medishield for Primary Healthcare

(a) Allow use of Medisave for the following:

i. Essential and economically profitable health screenings. (with co-payment and deductible in cash)

ii. consultation and medication in polyclinics (with co-payment and deductible in cash)

iii. Approved vaccines (with co-payment and deductible in cash)

(b) Medishield should cover polyclinic treatments, with co-payment and deductible in cash.