Executive house when their children grow older. Soon later,

Executive Summary

There are many types of CPF schemes but many Singaporeans, like Peter and Cassandra, are uncertain about the CPF schemes and various uses.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The purpose of this report is to help Peter and Cassandra study their current financial situation and predict their future financial position by analysing the CPF schemes and various uses.

 

Background

Peter and Cassandra Loh are both aged 34 have two children, Timothy and Claire aged seven and four respectively. Peter Loh is a payroll manager, and Cassandra is a HR Executive, earning $5000 and $3000 a month respectively. They had both recently bought their 4 room HDB flat two years ago but needed to get a bigger house when their children grow older.

Soon later, they will welcome their third child into the family, and have to pay for maternity and delivery charges. If any medical needs arise in the family, they would have to use their CPF Medisave accounts. In fact, Claire is diagnosed with Hand, Foot, Mouth disease and was hospitalized at KK Women’s and Children’s hospital, incurring more expenses.

 

Cassandra is having thoughts of becoming a full time homemaker to focus on raising their kids. This will result in having one less portion of income for the family.

 

Peter and Cassandra aimed to retire comfortably at age 62, with $171,000 in the CPF as their full retirement amount. They also know that they need to have the basic amount of $85,500 in each of their CPF accounts when they turn 55.

 

History

CPF was introduced in 1953 before coming into effect on 1 July 1955, the CPF is a compulsory savings scheme that requires all employers and employees to contribute a portion of the employee’s monthly gross salary to the provident fund. Before the introduction of CPF, many workers, except those working in the civil service or in some of the larger companies, were not provided with any form of retirement benefits by their employers. As a result, the workers had to depend on their personal savings after retirement, which was insufficient. To solve this problem, the government set up the CPF to ensure workers could support themselves in retirement. The idea of setting up the CPF was raised in the Legislative Council on 22 May 1951 when the Central Provident Fund Bill was introduced. The bill was passed by the Legislative Council on 24 November 1953.

 

    

Background of Medisave

Medisave is a national medical savings scheme which helps individuals put aside part of their income into their Medisave Accounts to meet their future personal or immediate family’s hospitalization, day surgery and certain outpatient expenses.

 

In this scheme, every employee contributes 8% – 10.5% (depending on age group) of his monthly salary to a personal Medisave account. The savings can be withdrawn to pay the hospital bills of the account holder and his immediate family members.

 

Background of Medishield Life

Medishield Life is a basic health insurance by the CPF board. Medishield Life provides protection and payouts so patients pay less with Medisave or cash for large hospital bills. It is for all singaporeans and permanent residents, protecting them for life. Medishield subsidies treatment in public hospitals, with the higher the class ward you choose to stay in, the lesser the subsidies.

 

Topic B

 

1) Will Peter and Cassandra be able to meet their family’s health/medical expenses using CPF?

 

Yes.

Through the help of Medisave, CPF is able to assist Peter and Cassandra in their family’s medical expenses by subsidising to cover for some of the expenses. As they can use Medisave. Medisave is national savings scheme to save for future medical expenses.

 

Medisave can be used for a wide variety of treatments, however there is a limited amount they can use from their Central Provident Fund. They can only be approved if it is listed in the types of treatments list on their website. Next, they also must go to an approved medical centre and the list can also be found on their website. Once the form is approved, maximum amount will be deducted.

 

Peter

Age

Wage

CPF

Medisave

Monthly

24-35

$3000

37%

0.2162

$239.98

36-45

$5000

37%

0.2432

$449.92

46-50

$7000

37%

0.2702

$599.84

51-55

$7000

37%

0.2837

$629.81

56-60

$7000

37%

0.4038

$629.93

61-65

$7000

37%

0.6363

$629.94

 

Cassandra

Age

Wage

CPF

Medisave

Monthly

24-35

$2500

37%

0.2162

$199.99

36-45

$3000

37%

0.2432

$269.95

46-50

$5000

37%

0.2702

$499.87

51-55

$5000

37%

0.2837

$524.83

56-60

$5000

37%

0.4038

$524.94

61-65

$5000

37%

0.6363

$524.95

 

 

With reference to the tables above, Peter and Cassandra currently has $23917.84 and $21598.92 in their Medisave respectively.

 

Peter

Cassandra

Wage = $3000, CPF contribution = 37% of wage, Medisave contribution = 0.2162

Wage = $2500, CPF contribution = 37% of wage, Medisave contribution = 0.2162

Years = 34-24
          = 9

Years = 34-24
          = 9

Medisave amount (monthly) = 3000*37%*0.2162 = 239.98

Medisave amount (monthly) = 2500*37%*0.2162 = 199.99

Medisave currently = 239.98*12*9 = 25917.84

Medisave currently = 199.99*12*9 = 21,598.92

 

This is assuming that they started working at 24 years old. Their CPF will accumulate over their lifetime and can be used on themselves and their immediate family. For Medisave, it is used to cover healthcare payments. An example is their daughter, Claire, is in KK Women’s and Children’s Hospital which is an approved hospital and if she is hospitalised for 8 hours or more, Peter and Cassandra can use medisave to pay up to $450 per day. If Claire has to stay for a day, they will be able to use $450 from their CPF. Therefore, assuming that she was hospitalised for 5 days, they will still have $45266.76 left combined so they will be able to pay for their family’s health or medical expenses.

 

 

2) Can Cassandra use her CPF to defray maternity costs incurred for the delivery of their third child? Why?

 

Yes, Cassandra Loh is able to use her Medisave account to pay for the maternity costs incurred for the delivery of her upcoming third child. Assuming that Cassandra is earning $3000 a month working as a Human Resource Executive, She will have to contribute $7200/per annum and her boss will need to top up $6120/per annum take it as Cassandra Loh has work in the company for 15 years she would have contributed $199,800 into her cpf account. Since, Cassandra is 34 years old this year, $15,984 ( 8%) of her cpf will be allocated into Medisave Account.

The calculation for the allocation of medisave   $199,800*8%=$15,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For example, if Cassandra is to have caesarean delivery and she stays in the hospital for 3 days, she will be able to claim $1350 for (3 days of hospital stay/$450 medisave claimable per day), $2150 for the delivery surgery and $900 on prenatal expenses therefore, the total claimable is $4400 for caesarean delivery 

 

For example, if Cassandra is to have Vaginal delivery and she stays in the hospital for 3 days, she will be able to $1350 for (3 days of hospital stay/ $450 medisave claimable per day), $750 for the delivery surgery and $900 on prenatal expenses therefore, the total claimable is $3000 for vaginal delivery 

 

During the arrival of her newborn third child, Cassandra Loh will received Medisave grant of $4000 which will be pay out in 2 separate instalments and the grant can be used to pay for MediShield life premiums, child vaccinations, hospital charges and approved outpatient treatments. There is two ways to delivery the baby by vaginal or cesarean delivery. To conclude, Cassandra Loh has $15,984 in her medisave account and it is more than enough to cover the cost for either Vaginal or Cesarean delivery.

 

3) Will they have sufficient funds in their medisave account to sustain the medical expenses or to meet any other health/medical contingencies? Why?

 

Firstly, Peter and Cassandra must check if they meet all the requirements for claiming from Medisave. The first requirement is that the family member is an immediate family member, which are spouses, children and grandparents and they can be of any nationality, except for the grandparents as they need to be Singaporeans. The second requirement is checking if their family member is at an approved medical institute, which can be checked from a list on their website. The third requirement is whether the medical conditions or illness is an approved treatment from the types of treatment list on their website. The last requirement is whether their family member has stayed in the hospital for 8 hours or more. Then, they will be able to use their CPF

 

Four of the approved treatments are selected to calculate if Peter’s and Cassandra’s Medisave is enough for the treatments.

 

First is the inpatient hospitalisation. Inpatient hospitalisation is when a patient is given a doctor’s letter to stay at a hospital. If this happens, they can use up to $450 a day and the limit is based on the table of operations, the highest limit is 7C of $7500, the lower limit is 1A of $250. If Peter and Cassandra chose 7C, their family member can stay for 16 days. However, if their family member is inpatient hospitalised for a psychiatric treatment, the family will be able to use $150 a day and up to $5000 a year. This means a person can stay up to 33 days. As Peter and Cassandra have $45266.76 in their CPF, they have sufficient funds from their CPF to pay for their medical bills.

 

Second is approved day surgeries, meaning that a person is hospitalised as he or she has a surgery that day. For this hospitalisation, Peter and Cassandra can use $300 a day from their CPF account and the limit also follows the table of operations, thus the highest amount deductible is 7C of $7500. Therefore, if anyone family member falls under this category, Peter and Cassandra have sufficient funds from their CPF to pay for their medical bills.

 

Third is diabetes. Diabetes is chronic disease caused by having abnormally high sugar level. If a family member is diagnosed with diabetes, they will have to go through this treatment, which they can use $400 a year per account and 15% cash up front, because this is a lifelong disease, they will likely to have to use their CPF on this yearly. However, Peter and Cassandra have $45266.76 in their CPF, they will be able to use cover 113 times, as they have 2 accounts. As 113 times is higher than a person’s average lifetime, they have more than enough money in their CPF to cover for this medical contingency. Therefore, Peter and Cassandra has sufficient funds to cover a part of their medical bill.

 

Last is hyperbaric oxygen therapy, which is a treatment of serious infections, wounds that won’t heal due to diabetes and many more. If a family member requires this treatment, CPF can cover $100 per treatment. Assuming that a family member needs to go through this treatment three times, they will have to pay $300 in total. Thus, with $45266.76, they will be able to pay a certain amount of their medical bills using CPF, Medisave.

 

Recommendations

How can the above schemes be further enhanced to meet the medical needs of CPF members?

 

For Medisave, If the individual does not have enough money in their medisave account to pay for the medical bill, he/she can use the ordinary account funds to offset the medical bills. However, the catch is he/she will need to contribute 40% of his salary into the cpf account until the amount used is cover back into the ordinary account he/she will go back to contribute 20% of the salary into CPF.

 

For Medishield, to assist the lower and middle income groups and senior citizen, the Government can add more illness/diseases into the medisave claimable list so that this group of people can utilize the medishield life insurance to its maximum. Provide special service for the pioneer generation and senior citizen. For example one to one personal counselling and priority queue when visiting medical clinic for appointment and to provide them with support for life.

 

Part 2

How did CPF Retirement Scheme evolve and develop since it was established?

 

The Central Provident Fund (CPF) scheme was originally a retirement scheme introduced by the colonial government in 1953. It was a scheme that would benefit all employed personal. It was a retirement scheme based on contributions of employees and employers that resembled a savings bank with compulsory membership as well as a compulsory deposit of interest. It was a simple savings scheme to help give low-income securities in their old age. However, under the British rule, it was tradition for workers to look for his employer rather than the state when needing medical care as well as other benefits. As a result, when dealing with unemployment, the state would often send workers back to their country as well as restrict immigrants until the general welfare of the public improved. However, the CPF scheme was more of a self-funding model that the British used to ensure that the funds used to look after the colonies would not be drained.

When Singapore gained independence in 1965, the People’s Action Party government took over the scheme and made gradual and innovative changes to the scheme. Since the inception of the scheme, the focus of the scheme was to provide an income for elderly at old age. The CPF board only allowed withdrawal of savings upon retirement despite the calls from unions to allow workers to withdraw the savings in their CPF account. This carried on for over a decade until the government decided that the CPF could be used in various methods such as and need not be limited to monthly pay-outs.However, the government studied various ways to use CPF savings for various other functions. In 1968, the home ownership development scheme was developed to allow the public to finance the purchase of the HDB flat to purchase houses.This has allowed Singaporeans to pay for the mortgages of their HDB flats, using their CPF savings enabling them to have more freedom in using their pay. This has helped to increase the affordability of housing and as a result, home ownership has risen giving the citizens more security in retirement. In 1970, the special account was implemented and in 1987, the retirement sum scheme was implemented to help provide monthly income for members during retirement. There have been improvements in the scheme where in 2009, CPF Life was introduced to help people who would outlive their savings by providing lifelong monthly payout. The CPF has been liberalized to meet the needs and wants of the public. Today, members of the public can use their CPF savings for a host of schemes such as retirement, housing, investments, insurance and even education.This allows citizens to use their CPF in various methods. However, the basic principles of the CPF are still applied and the main purpose is still retirement.

 

 

 

How does CPF aim to help Singaporeans like Peter and Cassandra Loh meet their retirement needs? 

 

CPF enables Singaporeans to have a secure retirement by having monthly contributions into their CPF account since the day they start their work. Since the revamp of the CPF scheme Singaporeans will not be able to withdraw all of their CPF money at their retirement age, the money will be given out monthly to the retirees at the age of 65. CPF helps Singaporeans by having a basic retirement amount as well as basic healthcare amount so that all Singaporeans will be able to meet their retirement needs. The basic retirement amount is set at $85,500 when we turn 55 as well as $171,000 as our full retirement amount. We are also able to top up our CPF account to up to $256,000 to enable enhanced retirement amount. There are 3 accounts in the CPF system which is the Ordinary Account, Special Account and the Medisave account. Ordinary account is used for buying property, paying for CPF approved insurance, investment as well as education. Singaporeans like Peter and Cassandra Loh which is married and have kids will be able to pay for their education fees using their CPF Ordinary Account. Special Account is used for old aged and investment in retirement related financial-products. Medisave Account used for hospitalisation expenses and approved medical insurance. Medisave is really important at retirement age as we will face many health issues when we grow older and thus Medisave will help us in reducing the healthcare fees we have to pay in cash when we grow older. At the age of 55 Retirement account will be set up which will put in money from the Ordinary Account as well as the Special Account to help in retirement which is optional to withdraw. CPF encourage Singaporeans to not withdraw their CPF amount by introducing higher interest rates returns of their CPF Savings Account. This will help in more monthly returns when we retire.

 

 

Will Peter and Cassandra Loh have sufficient funds to sustain a basic standard of living during their retirement years? Why?

 

Peter and Cassandra are both 34 currently and assuming that they have started working when they graduated from university, they would have begun work a age 24 which is the average age of a Singaporean who has just graduated from college. They average college graduate would earn about $3000 based on the average pay of a freshly graduated degree holder. However the starting pay differs for different genders and Peter and Cassandra will have different starting pays when they begin their careers. As a result, their CPF amounts will differ from each other. Peter and Cassandra will probably have money deposited in their CPF Ordinary and Special accounts at the age of 34. Assuming that Peter had a starting salary of $3000, he would have to contribute a portion of their annual wage to their CPF ordinary and Special Account.Based on this, I have calculated their CPF Ordinary and Special accounts values based on the different percentages of wage they have to contribute to their CPF. (See appendix for values)

 

Peter

 

 

 

Age

Monthly Salary

Ordinary Account

Special Account

24-35

$3,000

$99,360

$25,920

36-45

$5,000

$126,000

$42,000

46-50

$7,000

$79,800

$33,600

51-55

$7,000

$58,800

$44,100

56-60

$7,000

$50,400

$10,500

61-65

$7,000

$14,700

$8,400

 

 

$429,060

$174,520

Cassandra

 

 

 

Age

Monthly Salary

Ordinary Account

Special Account

24-35

$2,500

$82,800

$21,600

36-45

$3,000

$75,600

$25,200

46-50

$5,000

$57,000

$24,000

51-55

$5,000

$42,000

$31,500

56-60

$5,000

$36,000

$7,500

61-65

$5,000

$10,500

$6,000

 

 

$303,900

$115,800

 

 

They both qualify for their monthly payouts based on their Retirement account savings which they set aside which is $174,520 and $115,800 for Peter and Cassandra respectively. Peter will receive a slightly higher monthly payout at $1320 to $1410 while Cassandra will receive $720 to $770. The could also use the money in the ordinary accounts to invest in investment products such as fixed annuities where they will be able to receive a huge payout at the end of their insurance life. They will also have their own personal savings to supplement their retirement. In Conclusion, Peter and Cassandra will have sufficient funds to support their basic needs in retirement years.

 

Recommendations: How can the above scheme be further enhanced to meet the retirement needs of CPF members?    

 

Only half of singaporeans can meet the required minimum retirement sum. This is because they face difficulty of having enough funds to pay for their mortgages or changed property. In addition, due to the job nature, singaporeans earn different amounts of salary, so the CPF savings and personal savings would also vary. One way to help meet the retirement needs of CPF members is for CPF to allow professional reliable investor like Temasek Holdings to invest in financial schemes, shares, property, or a commercial venture, and in the case of profits exceeding a certain percentage, CPF members can be paid some percentage of returns as well. Currently, there is up to 5% interest rate CPF members can earn. But if we could also share a little of the profits of the investments from Temasek Holdings, it could also help ease the little CPF savings we have, and at the same time, make full use of our money in the CPF accounts.

 

However, the most realistic way to raise CPF is to lower housing prices. Around half of CPF savings has been given to purchasing housing, which is why many singaporeans could not meet the required minimum retirement sum.

 

 

Suggestions: Give suggestions on how CPF Board can disseminate information on the above schemes more effectively to its use`7 rs.  

        

CPF board can engage Singaporean Youtubers like Jianhao Tan and Nightowl Cinematics to create an awareness video to educate young working adults on the CPF schemes.

This will be an easier way to reach out to young working adults who hardly read the newspapers or watch the television, but instead are frequently on their social media.

The videos will not be a typical television of the CPF schemes, but instead infuse humour and sadness to catch their attention, and at the same time educate them.

 

CPF board can also use radio advertising to inform the older working adults on the CPF schemes. In 2014, 92% of radio listeners actively listen to the radio. Since radio is heard by a wide range of audience, it is effective and fast to disseminate information using radio informative advertising.