Sunday, November 02, 2014

The Delight in Unreachable Pennies

Singapore’s main pension system, the Central Provident Fund (CPF) has been going through a bit of bashing recently. The finance industry has been capitalizing on the fact that CPF savings are insufficient for people to actually retire on and the newly found group of activist have had a field day accusing the government of misusing the “people’s money.”

Some of the bashing is deserved. The biggest source of frustration lies in the simple fact that CPF money is the money of the individual. Unlike “Social Security” in the USA, where the funding comes from the current generation of workers, CPF functions pretty much like a giant savings account. The individual stashes away 20 percent of his or her gross wages, while the employer matches another 13 to 16 percent. The funds pile up on a monthly basis and every year there is an interest payment of two to four percent (compared to commercial banks paying 0.025 percent on a fixed deposit). In theory one is not allowed to touch these funds until one reaches 65. The main exceptions to this rule are when one wants to buy a house (hence Singapore’s high percentage of home ownership) and when one needs emergency medical treatment.

However, this simple scenario has been tweaked so much that things are no longer simple. The retirement age has been raised from 55 to 62 and now to 65. With increasing life expectancy, there’s no reason to imagine that the age may be raised yet again. This is on top of the limitations on the things that one is supposed to be able to use the money for. The biggest example is the case of medical care. My dad found out the hard way. When he needed to go for a hernia operation last year, he found that he could only use S$5,000 of his MediSave (the portion of the CPF system devoted for medical needs) to pay for an S$30,000 operation. As such, having it done in Thailand proved to be a more economical option.

The reason for everyone’s frustration is obvious. This has become a game where the goal post have shifted constantly. Imagine working hard for 40-years, expecting to get your savings at the end, only to find that you can’t.
Having said all of this, there is another side of the story – namely life without CPF savings, which was pretty much my position until 2012, when I took the job in the restaurant. I escaped self-employed contributions to my MediSave account and cruised below the radar of the Central Provident Fund Board.

I call what I did youthful arrogance. I thought I could plunge straight away into doing my own thing. I left my first job with a local printer/designer because I thought the Old Rogue was offering me a chance to build up his magazine. There was no steady CPF but it looked more fun and so, much to the annoyance of my father, I jumped ship. I did get a small salary and I did earn a bit of commission. Then in my second job, they decided to cut the CPF portion to save the company money. I went along with it because it felt like what a good employee should do and I had the boss telling me, “Ehh – better for you – you get more money.”

What I didn’t learn until much later on in life was that its virtually impossible to save money unless you have cash flow and that life’s unexpected expenses have a way of popping up and thumping you on the head on a rather frequent basis. It didn’t help that I had a few hanger on’s who seemed more content to add to my bills rather than my wallet. So, whatever little savings I had, found a way of drying up pretty quickly.

With the exception of the stint with Asher Communications and BANG PR, I actually made through life without a CPF contribution. I had retainers from Alcon and Mark Goh & Co and a few pennies in savings thanks to the Indian IT industry.

However, the retainer clients did not continue and the projects dried up. I also didn’t realize that the poor are sometimes the way they are because they deserve it. Thought God might actually benefit me if I put an unemployed friend of mine to work trading hi-fi (he’s a hi-fi enthusiast) equipment. My savings went into buying hi-fi equipment, which never got sold but buying him decent meals didn’t exactly stop.

So, at the end of 2010, I was stuck with no income, no savings including the ever elusive CPF. In short, I looked like I’d end up old and broke.

I am not going to say that I won’t die old and broke but I’ve reduced those chances. Ah Huong tells me that marrying her was the best decision I made. I leave time to be the judge of that but I will credit her with doing things like finding odd jobs for me whenever I’ve been down. There’s also plenty to be said about having a somewhat emotionally stable partner in life. I had a more intense relationship with Joyce, but I ended up being less productive.

Downgrading on the social scale to work as a regular waiter proved to be a good decision. The income was low and remains low, especially for the hours I work. However, I had an income to pay my daily expenses. What money I made from projects like SIPF and IIMPact 2013, went into the cash savings that are now locked away with RHB across the Causeway in a fixed deposit. Passive income from that is not great but there’s enough to buy myself a cup of tea.

The part of having a regular job so to speak is the fact that I got CPF contributions. The contributions were small but grew bigger as I worked longer hours in the restaurant. 

Since IIMPact 2013, I’ve not had a big project. However, I’m now working two jobs. By day, I work in liquidations and I continue at the restaurant. Both jobs pay me CPF and while I’ve not saved cash in the conventional sense of the word, I’ve managed to grow my CPF.

In my last CPF statement, I’ve managed to double the total amount in my CPF in the last 15 months. The job in liquidations has helped with larger and more regular contributions.

This is money I can’t touch. So I can’t say that my lifestyle has improved dramatically. However, there’s a hope of sorts.  I can entertain the idea of buying a house from the government. CPF savings are partially paid by someone else and they are steady enough to keep the banks happy. I can even afford to get sick, though I wouldn’t rush out to expose myself to every germ known to man.

CPF is not a perfect system and I don’t think it has been managed as well as it should be. However, I think of my Dad who, upon hearing I left a CPF job said, “You’re not going to make any money without CPF.” It’s my personal shame that I took so long to understand that he was right. 

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