Comparing Pension Schemes

I did some googling in order to understand about the types of pension schemes around the world. It’s pretty complex. There are so many versions out there. I can’t put it all down here. So I’ll try my best to summarize it as much as possible.

They have employment based pensions, social and state pensions and disability pensions. Retirement plans can be classified as defined benefits or defined contribution plans. A defined benefit is a plan where workers will accrue their pension and upon retirement, the firm pays them a benefit.

Defined benefit plans may be funded or unfunded. In an unfunded pension, no assets are set aside by the employer. The arrangements are provided by the state and the benefits are paid directly from the worker’s contribution and taxes. This method of financing is known as pay as you go.

A funded plan on the other hand, contributions from the employer and from the workers are invested towards meeting the benefits. All plans must be funded in some way. And then after reading the rest of it online, I got lost in the mumbo jumbo stuff. I know it doesn’t apply to our CPF system.

Then my eyes fell on the part that says defined contribution plans. It’s a pension plan where employer set aside a certain proportion of a worker’s earnings in an investment account and the worker receives this savings and any accumulated investment earnings upon retirement. The contributions are paid into the worker’s account. The contributions are invested . On retirement the members account is used to provide retirement benefits and sometimes through the purpose of an annuity which then provides a regular income. I guess this may sound pretty close to our CPF system but the investment part may not be applicable.

In our CPF system, both the workers and employers will contribute a certain amount based on age and wages and this money will be distributed into 3 accounts namely the ordinary account, special account and medisave account.

The ordinary account may be used for housing loans, education loans and investments such as stocks and  unit trusts apart from retirement. This account only earns 2.5% of interest but this is still better than a bank account. Those who have enough to invest in a property might be able to maximize this value if they know how to.

The special account is purely for retirement purposes and will later be used to fund the retirement account which will then be used to pay for the CPF Life, an annuity. Although it’s possible to invest this amount, it is not encouraged as this account earns 4% of interest. IF you can find an investment that can give you a guarantee returns that is higher than 4%, then you probably have a very good eye for making investment decisions. Otherwise, just leave the money here.

The medisave account cannot be withdrawn at all. It is meant for funding certain medical bills and there are certain limits per year as well as based on the type of treatment. It can also be used to pay for the premium of certain health insurance. The most basic health insurance that anyone can have is the Medishield plan.

There are so many things to digest. This system is trying to take care of so many needs of workers. But what about those who are self employed? I understand that all self employed people have to make a compulsory contribution to their medisave account. The rest of the accounts will be voluntary. I guess that’s it for today. I shall write more as I go along. I’m not an expert in this area but I am learning as I go along.  

S&P 500 Mutual fund for CPF

Right now I notice a lot of folks are buzzing about finding ways to use CPF to buy the S&P500 index and the best way to do it is through a mutual fund. CPF does not allow people to buy foreign ETFs so the only way around it is through a mutual fund in Singapore Dollars. It seems like the main buzz right now is to buy it through EndowUs but frankly I do have reservations about mutual funds aka unit trusts. Based on my experience with them, I've never made much money with unit trusts especially with CPF funds. I rather stick to the usual 2.5% interest. Alternatively I have bought some stocks with it. Not all stocks are performing that well but they still pay some form of dividends and that's good. 

Meanwhile, they are also increasing the CPF contribution rates for senior citizens about 55 and that's a good thing especially for those who are still employed at age 55 and above. They are also increasing the retirement age.

Whenever I look at my parents, it's a stark reminder to me to try to work towards the Enhance Retirement scheme. I am a long way off from achieving that at the moment. With the steep inflation rates, it's not going to be easy to save and top up for my CPF each year. I'll try my best.

GST will also be increasing from 7% to 8% next year and then to 9% the year after.. With so much costs going up, I hope to get a pay increase to help cope with the increasing costs. Will the employer have some compassion on us? Business is also not doing well so what should I do?

I've just started learning some python and I hope to get far with it. Hopefully this knowledge will help me get somewhere in future.

I found this CPF Calculator

Check out this CPF calculator by the Value Warrior. I found it very useful. There is also another CPF calculator under the Endowus Page but I have not included the link here. 

I did do a personal projection of CPF using my excel sheets, however the results are not really the same. I made the assumption that there will be no salary increments and bonuses because my employer is very very stingy and doesn't appreciate the staff. We should even be lucky to still have this job. Anyway, using the most pessimistic assumptions, this site says I have barely reached ERS. But Endowus says I will run out of withdrawal CPF by the age of 82 unless I have invested with them. Should I be worried? Actually I did do my own investments of CPF OA which is not reflected in the predictions. I can't really say the dividends are really generating wonderful amounts but there is some form of capital appreciation as some of this were bought during the market crash during our first year into the pandemic. All these numbers are making my head swim.

Meanwhile, the situation at home is not good. The old parents health are not doing well. They don't have much savings left due to their bad planning and they don't have much medical insurance coverage. The burden will be upon us. They had the money but didn't save and invest well. Now the headache is upon us. I'm determined to top up my CPF again every year but if my parents medical bills suck up my savings, my plans will be derailed. I can only pray for a better job with better pay.

I read horrible news of how scammers also cheated so many people by sending them fake links to banking sites that look like the actual bank. I would like to emphasize never never click on anything from any email, sms and watsapp and wherever.  It's scary and terrible.