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The Budget – and my two cents worth

In Money, News Reports, Politics on February 24, 2015 at 3:51 am

First, an announcement: Sin taxes have NOT been raised. I guess that’s a small reprieve for those who smoke and drink, especially those who are unhappy at not being able to drink in public places after-hours…There’s nothing on property either, so your home is safe…

Okay. That was just an attempt at light-heartedness.

So what is it about the Budget that will make anyone, including me, happy? I am UNhappy that my CPF contribution rate is going up, although the euphemism used is “normalised’’. Having enjoyed a little bit more take-home pay for a few months after turning 50, that little bit is going to go back into CPF. The plus point is that my employer also has to pay its 1 per cent portion. Yes, yes, I know all the big picture arguments about retirement adequacy…Still I was hoping that only the employer contribution rate went up, not mine!

That’s the trouble isn’t it? We’re all looking at what’s in it for us.

Drivers are fuming at the extra duty on petrol, after enjoying lower petrol prices over recent months. Even though the higher duty isn’t going to push pump prices back up to where it was, it just seems like a little windfall has been taken away. Then comes the argument: What is all this about taxing road usage, rather than ownership then? Point to ponder: The G needn’t have upped petrol duties, but upped ERP rates instead – and earn curses everyday from drivers who have to pass through gantries. Petrol duties are….well…subtle.

Actually much of Budget 2015, dubbed the Jubilee Budget even by the PM, was anticipated:

– The CPF review panel and the NTUC recommended the “normalisation’’ of CPF contribution rates for older workers, and so it happened.

– The panel also suggested raising the CPF salary ceiling from $5,000 to $6,000 while  NTUC wanted it in two steps – in $500 increments. The G did it in a single bound.

– The NTUC wanted some kind of training account to encourage workers to upgrade. It happened. The SkillsFuture credit is going to be set up with $500 in the first instance. And those aged 45 and above can get up to 90 per cent of their continuing education courses subsidized. I suppose we’ll hear more about how this “credit’’ will be administered. Maybe a sort of Edusave account for workers?

– Businesses wanted a moratorium on foreign worker levies. It happened. They are “safe’’ for two years although Finance Minister Tharman Shanmugaratnam made it plain this was no rewind, just a pause.

– Businesses wanted more restructuring support, such as the continuation of the Productivity and Innovation Credit scheme and Wage Credit Scheme. They’re still alive, although the co-funding portions have been lowered. Nothing was said about monitoring or tracking the usage of PIC which, I suppose, will be raised by the MPs. Nor was more said about driving up our dismal productivity figures, which I thought would feature majorly…

– The Silver Support scheme announced during the National Day rally was fleshed out, with about $600 going to seniors and up to $750 to the really badly off group every quarter. Now, that’s a windfall. The G seems to be conscious about how people will grumble about eligibility criteria and has decided on a mix of past income, household type, level of support. The Manpower ministry will sort this out. I wonder why. Shouldn’t this come under the Ministry of Social and Family Development?

Now for what’s not anticipated:

At the low end:

Although the CPF review panel had suggested raising the salary ceiling and older worker contribution rates, it didn’t dwell very much on the issue of retirement adequacy. It’s been getting some brickbats for this. After all, there’s no point tweaking the nomenclature surrounding the Minimum Sum if people don’t have a minimum sum to speak of. Now, the G has loaded another 1 to 2 per cent interest for those with low CPF balances. I wonder how this will pan out in concrete terms – how many people will achieve the minimum sum levels when they hit 55?

At the high end:

The higher personal income tax for top earners hadn’t been expected, and seems to be bucking the trend of lower income taxes worldwide. It has always amazed me that so many people here do not pay tax at all. BT says 90 per cent of the people here account for just 20 per cent of direct taxes (GST is an indirect tax). I guess some people will sniff and say that the G “taxes’’ in other ways, through levies and fees ecetera.

With these changes to make the system more progressive, I had expected the term income inequality to be used and references made to the Gini co-efficient. Instead, Mr Tharman took a big sweep of history talking about the rise in median incomes since 1965 and how they compare with other countries. Conclusion: We’re better-off. The “median Singaporean worker’s wage” (Mr Tharman didn’t say how much) is now the highest among the Asian newly industrialised economies and just 10 per cent lower than Japan. Over the past decade, “median household income per person” has increased, in real terms, by 36 per cent, he said.

I am no economist but I gather there is some concern about Temasek Holdings being included into the Net Investment Return framework. In case you don’t know what this means, here’s, hopefully, an accurate idiot-proof version: Currently, when MAS and GIC invests money, there is a return on investment that is projected/calculated. Half of this “projection’’ – whether it comes through or not – can be used by the G. Now, the concern is whether Temasek belongs in the same category as MAS and GIC which both invest conservatively. Temasek is supposed to be more “adventurous’’ – so you can’t be that sure about returns. I guess it’s a way to bolster our revenues and, another guess, to show detractors that Temasek’s money is being put to public use.

As I said, I am no economist but it does look like a lot of long-term thinking went into the budget. Some will say it is the work of civil servants. Even if so, I would think they would need some political direction. I frankly don’t care if it’s an election budget or not – oh, we’re all still getting GST cash rebates – but it does make me ask myself if any other political party will be able to produce a Budget that is so wide-ranging and finely-calibrated.

Anyway, let’s see how the MPs do during the debate on the Finance Minister’s statement. I hope they will cut to the chase and raise pertinent issues rather than merely laud it with nice-sounding adjectives. In other words, I hope to see, in productivity parlance, some “value-added’’.

Relating to the related third parties

In Money, News Reports, Politics on February 14, 2015 at 2:59 am

I wonder what sort of Valentine’s Day Mr Danny Loh and Ms How Weng Fan are having today? It can’t be comfortable for the husband-and-wife team to hear themselves being mentioned so many times in the august chamber of Parliament. What’s worse are all the innuendoes and sometimes blatant charges levelled against them by the People’s Action Party ministers and MPs.

Like,

  1. How they took advantage of their membership in the Workers’ Party and their friendship with its chief to set up a money-spinning commercial vehicle in the form of FM Solution and Services.
  2. How they over-charged the town council for managing fees, by about $1.6million a year.
  3. How, despite their double-hatting, it was not clearly stated in documents for all town councilors to know.
  4. How they were invoicing, approving and signing cheques from the town council to themselves.

The WP, to give its due, tried to defend its agent.

Like,

  1. How the couple stepped in when nobody else wanted the job.
  2. How they went from employees in Hougang town council to setting up a company because the entity made it easier to manage a town council which now had to deal with Aljunied and Punggol East as well.
  3. How the fees were settled via open tender.
  4. How they had no say in other tenders and that it was the WP MPs who co-signed cheques anyway.

Needless to say, the WP’s position cut no ice with the PAP side, who used words such as integrity, honesty, pattern of denial and deflection and even (gulp!) unlawful to describe the WP’s relationship with their managing agent. The WP said it wasn’t as though no one knew of the managing agent’s antecedents. Everything was out in the open (just not in the books…) But the PAP’s reply is that this is not the way things should be done, not by Financial Reporting Standards required by law anyway.

The G ministers keep asking the WP if it would sue the managing agent. The couple, as well as fellow shareholder Yeo Soon Fei must be wondering what their political masters will do now.

If the WP sues, then it would be like caving in to the PAP and turning around to slap a friend who had helped in time of need, as Mr Low Thia Kiang had described them. If it does sue, who knows what else would be unearthed that would do the party more harm than good? The trio might well hit back to protect themselves.

What about that “forensic’’ audit that the PAP side keeps calling for? The Auditor-General Office didn’t do a full audit, but a partial one over a limited period, which was why it could only say that it didn’t have enough information to ascertain if there was any wrong-doing.

One definition forensic audit: An examination and evaluation of a firm’s or individual’s financial information for use as evidence in court. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims. In addition, an audit may be conducted to determine negligence or even to determine how much spousal or child support an individual will have to pay.

So the PAP is calling on the WP to get someone to comb through its finances and, presumably, make good its boast that no money is missing. It is not unlike the case of the National Kidney Foundation, when auditors KPMG produced a report for the new NKF board which led to the civil suit with the old board and T T Durai. National Development Minister Khaw Boon Wan, who was Health minister at that time, referred to this yesterday, adding: “I’m not sure if this may happen in the case of the town council.’’

Precisely. Why would the WP investigate itself? Or are we talking about the “new’’ town council after the next general election?

Hmmm… what new regulations the G will come up with now that Parliament has unanimously approved a motion for stricter oversight over town councils? Besides having the authority to compel town councils to submit reports, I wonder if it will include giving the G the authority to order a forensic audit (if it already does not have the power).

I hope the media aren’t waiting for the Committee of Supply debate next month to give us the next instalment of the saga. In fact, the people behind FMSS should have been chased down way long ago. What are they up to now? They are no longer managing the town council right?

What saddens me is that this is really a grassroots saga and there seems to be little movement on the grounds of Hougang, Aljunied and Punggol East. One resident asked WP’s Yee Jenn Jong about the report a couple of nights ago “but he didn’t answer and walked away quickly’’, according to Education Minister Heng Swee Keat. (Wow. PAP’s got ears peeled in opposition territory.)

Nobody else deluging the town council with email? Crowding Meet-the-People sessions for an answer? Calling for a meeting with their MPs, just like the Sengkang residents did when they heard that a columbarium was coming up?

Is that why WP MPs could tell the PAP side in Parliament that they were only answerable to residents – because residents couldn’t be bothered? I would be surprised if residents think that all is okay in their town council. At the very least, they should get a full accounting of how the town council intends to pull up its socks. Residents don’t need to be PAP or WP supporters to ask questions of their elected representatives. They would simply be exercising their rights as citizens.

Tomorrow’s pre-CNY fireworks

In Money, News Reports, Politics on February 11, 2015 at 2:42 am

I wish I could be in Parliament tomorrow to watch the fireworks. So the National Development Minister will be moving a motion to discuss the governance of town councils, in the wake of a pretty damning audit of the Workers’ Party town council’s finances conducted by the Auditor-General’s Office.

I have been wondering why the AGO was taking so long to make its audit public since it got the job from the Finance Minister early last year. Now, I know why. Seems plenty of time, energy and manpower was needed to locate the mountain of documents, match figures and get answers from various parties involved in the management of Aljunied GRC, Hougang and Punggol East. And it seems that that still wasn’t enough…

The motion itself looks pretty innocuous, at least the first part, about upholding standards of governance and the like, and to express “concern’’ over the AGO’s report. The second limb, about getting MPs’ support for stiffer penalties for those in charge, seems to indicate that the G already has some kind of legislation in the works to tighten up the Town Council Act. Which again makes me ask: Whatever happened to the town council review that Senior Minister of State Lee Yi Shyan was supposed to lead?

In any case, the ST reported that the National Development Minister can only intervene in a failing town council “only when a certain threshold is crossed’’. It didn’t say what. But there is this in the Town Council Act on the occasions when the Minister can appoint someone to work in the town council:

(a) that a Town Council has failed to keep or maintain any part of the common property of any residential or commercial property in the housing estates of the Board within the Town in a state of good and serviceable repair or in a proper and clean condition; or

(b) that any duty of a Town Council must be carried out urgently in order to remove any imminent danger to the health or safety of residents of the housing estates of the Board within the Town.

Going by the annual audit reports of town council work, the estate that the WP runs doesn’t seemed to have reached such a state in which rubbish has been piled up storeys high in the chutes or the lifts are death traps…

BT reported that only three offences attract fines under the Town Councils Act: the wilful withholding of information from an auditor, the misuse of council funds and contraventions of the rules of the lift-upgrading programme. The first offence attracts a fine of up to S$1,000; the other two offences have maximum fines of S$5,000. Nothing is said though about being able to compel town councils to submit information. That’s why the WP Town Council was able to keep the data on service and conservancy fee arrears to itself for a couple of years….

The premise, I believe, is that the town councils are supposed to be directly accountable to their residents.

Looks like we have been nurturing a strange animal. Town councils were set up to decentralize management of estates and link the people’s vote to the ability of candidates to run their surrounding environs.

I can’t help but think that the Act was formulated on the basis that the People’s Action Party will always be in power, hence the limited controls over the town council MPs. Or maybe, the legislators then believed that voters would take a more active part in the work of TCs to exercise oversight – remember how there was so much talk about getting residents to sit on committees etc and have town hall meetings? Much like the way private estates are run?

I don’t think this is happening. As an activist grassroots experiment, my guess is that it never took off. Instead, we now see the MPs as people we hired on a four or five year contract which we can renew or terminate. The question now is whether four or five years in between elections is too long (or too short) a time to let town councils decay to the point when it has an impact on residents’ lives – and on their vote.

Evidently, the G and other experts think more oversight is needed. And it would probably be put in the hands of the National Development ministry.

BT reported NUS Business School associate professor Mak Yuen Teen as saying that clearer and stronger penalties for non-compliance is only half the equation; the independence of the enforcement body must be scrutinised too.

He said: “We currently have a convoluted governance arrangement (for) town councils. With MND supervising the town councils, it’s a bit like how people say the SGX (Singapore Exchange) has a conflict of interest in regulating listed companies … If we do strengthen the legislative framework (of the Town Councils Act), the independence of enforcement becomes very important.”

Associate Professor Lan Luh Luh at the National University of Singapore (NUS) Business School and Faculty of Law was also quoted: “I don’t think passing (a more stringent) Act is very difficult – the difficulty is in finding a legitimate, independent body to control the town councils. Which organ should oversee the town council because of its political nature? If it’s any ministry, it would be a bit odd because (these are helmed) by the ruling party. I think that’s the key thing that has to be resolved.”

Yup, the town council is a political animal. The G might swear that it is the G, and not the PAP, and that it has a duty to safeguard the interests of residents regardless of their political inclinations. But you can bet that more G intervention would lead to charges that it was intervening in places where it had no business to be.

In fact, one view could be this: Residents have to live with the consequences of their vote. One day, they will wake up and find their rubbish hasn’t been collected and lifts can’t work because they haven’t been thinking very much over the way their town council is managing their finances. Serve them right! This was a warning in the past remember?

The other view is that the country is too small a place to let things deteriorate to such a stage for even one GRC and two single-seat wards with thousands of households. Just think of the “cleaning up’’ that will have to be done by whoever takes power next. Better to over-protect the residents even if they don’t care.

One issue that deserves focus during tomorrow’s session is the business of double-hatting. A husband-and-wife team seem to have pretty much full rein over the finances because they are both managing agents and office-bearers. Some have pointed out that managing agents in PAP town councils are also office-holders in the councils. But it seems that these people are employees and not owners, as in the case of the WP TC. Nor do these employees have the kind of authority as the duo in terms of authorizing payments – to themselves.

The WP has said it is well aware of the double-hatting and it wasn’t as though something surreptitious was going on. But it does seem to me that some demarcation should be drawn so that all transactions are clearly above-board.

The AGO has not said anything about whether it uncovered dishonesty or criminal behavior (which might lead to CPIB or CAD investigations). In fact, it keeps telling the WP that it can’t tell based on its audit. But the way the WP TC works and its shoddy practices surely invites dishonesty or, at the very least, loss of funds through negligence.

I know nothing about auditing but there is something I really like to know which hasn’t been explained. How in heaven’s name did an operating surplus of $3.3million in 2010 become an operating deficit of $734,000 in two years?

Are these figures correct?

WP town council’s shambolic finances

In Money, Politics on February 9, 2015 at 10:52 am

Okay, the Auditor-General’s Office report on the Workers’ Party town council is better examined by bean-counters and those who can make sense of the various financial regulations required by law and the Town Council Act. My eyes glazed over the figures. To recap, the AGO was ordered by the Finance Minister to go over the TC’s accounts after the TC’s own auditors said it couldn’t an express an opinion on them because it didn’t have enough info to do so.

Actually, all I wanted to know if there was money missing or anything underhand in the town council which comprises two single-seat wards and a GRC. The Aljunied/Hougang/Punggol East town council is gigantic. Maybe a small outfit can run a small place like Hougang, but can it do the same for a bigger entity with big money?

We’re not getting any definite answers on what sort of money is really in the TC bank accounts or whether anything has been lost because the short answer is that even the AGO can’t tell based on the information it has.

“Unless the weaknesses are addressed, there can be no assurance that AHPETC’s financial statements are accurate and reliable and that public funds are properly spent, accounted for and managed.’’

So it’s shoddy financial and management practices, lack of transparency, no followups, wrong figures entered, tardiness, confused accounting, no oversight, little or lost or no documentation…you name it, the WP committed it, going what the AGO said.

Its main report is a catalogue of sins:

a. failure to transfer monies into the sinking fund bank accounts as required by the Town Councils Financial Rules;

This is a very complicated thing about what sort of money goes where and what can be taken out from where for what purpose. Seems that when the WP got Aljunied and Punggol East in 2011, everything went topsy turvy so all the numbers were mixed up and you don’t even know where some money came from or went to.

b. inadequate oversight of related party transactions involving ownership interests of key officers, hence risking the integrity of such payments;

This is about how the members of the company managing the estate also sit as town council officers and therefore are more or less paying out from the town council to themselves. It’s a conflict of interest which the G has raised time and again, especially over large project management fees. The WP didn’t have a system in place to make sure no hanky panky took place.

c. not having a system to monitor arrears of conservancy and service charges accurately and hence there is no assurance that arrears are properly managed;

This is a big issue because the arrears chalked up were so large it was frightening. The AGO doesn’t say if its recent account that the arrears are about 5 per cent is correct. But it does take issue with WP’s reasons about IT failure, the G format of giving arrears reports.

d. poor internal controls, hence risking the loss of valuables, unnecessary expenditure as well as wrong payments for goods and services; and

This is a crazy patchwork of how the TC could have over-billed, under-billed or over-recovered or under-recovered money. Parties don’t just involve tenants and vendors but also the HDB, NEA, and the previous PAP-run town councils and the Citizens’ Consultative Committee. Also over who signs payment vouchers, cheques and access to the safe.

e. no proper system to ensure that documents were safeguarded and proper accounts and records were kept as required by the Town Councils Act.

Some documents got, some don’t have. Some supposed to have but don’t know where. (I don’t even know where to begin)

As I said, I don’t even know where to begin. The kindest thing I can say about the Workers’ Party is that it was overwhelmed by having to run a far bigger place than just Hougang. The WP put up a defence for some of its tardiness and keeps insisting that the AGO found no money missing nor “any criminal or dishonest activity’’. To which the AGO rather tersely countered that the town council’s “broad conclusion cannot be derived” from its audit.

The WP also said, quite cheekily, that it was thanks to the AGO and the Audit Act that it got more information from G agencies, which also benefitted other town councils. But the AGO said most of the information came from what documents the TC had and it could have got the info too if it had bothered to find out.

Some of the WP’s defence is pretty familiar. It goes somewhat like this:

WP: When we got Aljunied and Punggol East, we had so much to do to align everything. Remember there were boundary changes as well? We’re inexperienced. In any case, we wanted the previous managing agents to stay but they wouldn’t even extend their contract by six months. Then some of our staff involved in the handover resigned.

AGO: Aiyoh, you were given six months lead-time and you still couldn’t settle everything? You didn’t make sure you looked at what documents were handed over and kept them safe?

WP: Plus there were all these complications about what we owe or can claim from HDB, NEA and the CCC. These fellas seemed to be deliberately stalling or rejecting our stuff. As for service and conservancy charges, we relied on an IT system to account for service and conservancy charges but it had a bug in it. We needed some historical data from the old vendor but could only get some bits – not everything. What made it worse was that the silly G wanted a complicated format so we had to do some manual work. That’s how the mistakes came about. Anyway, it’s been cleared up now.

AGO: Oi. You could have followed up with these people.

WP: As for the managing agent, we already know they wear two hats – so it’s not as though we were clueless. The G should lay out some clear specs on this thing called Related Third Party transactions.

AGO: Errr, it’s in the Singapore Financial Reporting standards.

WP: But we’ve noted what the AGO said. In fact, we had already started making some changes and then had to stop when the AGO stepped in. We’re such a small outfit but we still went on looking after the TC even as we were helping the AGO.

So there you have it. A quick and dirty account of the town council’s tangle. I’m sorry if I sound too casual. You can be sure that the words used were far more elegant than this. But I think I’ve got the gist of it – please correct me if I am wrong.

What to make of the report then? So the AGO went in, and found that the WP’s auditor was right that it can’t pass an opinion on the results.

What happens now? The Finance Minister has the report and he surely has to do something with it right? What? Punish it with some penalty that will also rebound on the residents? Send in reinforcements to …hmmm…help a political party he doesn’t belong to?  I suppose the G and the PAP MPs are now sharpening their knives. But you know the phrase….people in glass houses…They should hope/know that their own TC finances are in good shape before throwing stones.

For me, this whole exercise has been an education in town council financing. I wonder what it will mean to the residents in Aljunied, Hougang and Punggol East….

We’ll probably know soon. At least by January 2017.

The magic number is 65

In Money, News Reports, Politics on February 6, 2015 at 12:21 am

The problem with trying to please people is that you end up pleasing no one at all. And so the CPF review panel is finding itself in this conundrum almost immediately after its proposed changes were made public. How come?

  1. People had expected some changes to the rate of interest, which is now at 4 per cent for Special Account. Hey, the fund manager, GIC, sometimes makes more than this so how come it’s not higher?
  2. People thought that when there was talk about a lump sum withdrawal, it would be at age 55, not 65. After all, it wasn’t not too long ago that people can withdraw as much as half, instead of the measly $5,000 if you don’t have enough in the Minimum Sum.
  3. People thought that the draw-down age was set at 62, which is the retirement age. Sure, there are the re-hiring laws but it’s no guarantee that you would be re-hired right?
  4. People thought that more will be done for those with low balances but there’s nothing in the proposals about helping those with less than the minimum sum raise the amount. Nothing new at least.
  5. People thought that they could make a property pledge to make up half of the minimum sum. But it seems the property pledge which had people worried about having their homes taken away from them isn’t a big deal at all. It’s unnecessary. That’s good news but sheesh…why even have it in the first place?

Notice I use the word “people’’ – so yes, I’m generalizing here. “People’’ were expecting some massive changes to the CPF system but it looks like tweaks here and there. That’s because “people’’ forgot about the parameters that had been set for the review panel.

To recap: The panel was supposed to see

  1. How the Minimum Sum should be adjusted beyond 2015, in order to meet the objective of delivering a basic monthly retirement payout for life;
    (So it depends on what you mean by “adjust’’. Looks like there is no way the sum can be lowered unless we experience deflation. The panel hence came up with a three-tier Minimum Sum, now to be called Retirement Sum. And a 3 per cent increase – it’s $161,000 now- until 2020)
  2. How to enable CPF members to withdraw more as a lump sum upon retirement, and the circumstances for their doing so, taking into consideration the impact on retirement adequacy for different groups;

(It doesn’t say at what withdrawal age, whether at 55 or 62 or 65. The panel decided on 65 so I think we can presume that the retirement age will go up to that in the near future….Also, we can withdraw 20 per cent of whatever is in our retirement account in 10 years time. If we don’t, we could have bigger monthly payouts.)

So the panel’s proposals revolved on those two parameters. To come are its recommendations to do with:

  1. How to provide an option for members who prefer CPF payouts that are initially lower but rise with time to help with increases in the cost of living; and
  2. How to provide more flexibility for members who wish to

    i. Seek higher returns while balancing the higher investment risks involved, through private investment plans;

    ii. Invest in private annuities when they retire as an alternative to CPF LIFE

I know I sound like the panel’s mouthpiece but seriously, there is little it can do when the parameters set by the Prime Minister are so tight. In fact, that was the grouse when PM Lee Hsien Loong first announced the panel’s formation and its work. It means that we won’t be looking at the CPF system as a whole, such as whether housing is playing too big a role. The CPF system, the G maintains, is fundamentally sound. Providing for housing is good as it is an asset that can be monetized for retirement needs – although it would take quite a mindset change on the part of CPF members for that to happen. With such a narrow focus, the panel would be hard put to assure  ” retirement adequacy’’ for CPF members. For that, you need a jump in CPF contributions in some way, or higher interest rates paid out to Ordinary and Special accounts.

The panel did say something about making the CPF pot bigger, framing them as suggestions that the G might want to take up.

There were two ideas that could fit the “financial adequacy’’ portion.

  1. The proposal to equalize the CPF contributions of those aged between 50 and 55 to the same level as younger workers.

Now, I have to declare my interest in this. I was flummoxed to find that my take home pay had gone up, until I realised that my CPF contribution rate had been lowered, from 37 per cent to 35 per cent. So I’m getting one per cent of my money back to spend and my employer saves on the other one percent. I know employers will grumble about having to pay the extra money if the rate goes up. They will say it will make it less attractive to hire older workers. But with the retirement age at 62, those aged 50 aren’t exactly THAT old. Also, if the rates are equalized, I too will miss that one per cent spending money. I don’t suppose there’s any way to just have the employer’s 1 per cent go into the CPF without touching the worker’s pay? Like I said, I have an interest in this.

2. Raise the salary ceiling for CPF contributions now set at $5,000. The NTUC wants it to go up to $5,500 and later, $6,000. I rather wonder about this because those at the top of the salary ceiling will probably have more than the minimum sum already by the time they hit 55. I guess the idea is to increase the collective pool to raise payouts further. Could some kind of transfer be effected at this stage to help those with low balances?

And there was one idea to ensure more people are covered

  1. Allow spouses to top up or set up CPF LIFE accounts for their non-working partners. The worry is that women outlive men and not all women work. And there may not be any money in the spouse’s account by the time he leaves the world. This will probably be the case if his balances were low in the first place. o while he gets a payout until he dies – which might be even more than he had initially in his account like any annuity– there’s just no money leftover for his dependents.

What, however, to make of the panel’s recommendations? Take your pick.

  1. It is caving in to populist pressure, yet not quite. Those who want all their money at 55 will still be unhappy. There will still be charges of a “nanny state’’ seeking to control the money of its citizens or worse, allegations of some mischief by the G in retaining the CPF money.
  2. It is making the prudent worry that most people will withdraw that 20 per cent, and end up with less money for their old age never mind how carefully the sums are calculated now. Are we able to say” You reap what you sow’’? Or will there be pressure for yet more support structures for them?
  3. It is likely that those who can’t afford it are those who will withdraw the money, leaving them with even smaller payouts – so how is this serving the neediest group? The  answer: plenty of financial counselling – and some as-yet-to-announced incentives.

The thing is, the CPF system has been deemed a sacred cow. It can’t be slaughtered although we can tweak its innards. We’ll have to live it. Going by the systems in other countries, ours doesn’t look bad at all. In fact, I am inclined to leave my money in it because the interest rate is simply un-beatable – and I am not sure I can do better.

The trouble is this magic number: 55. Several cohorts and generations have passed and it’s still age 55 that we cling to. It’s even more deep-rooted than another number, 6.9 million. To accept the CPF system is to accept a new number: 65. Howe Yoon Chong tried and failed some years ago to shift this number; I guess he was way ahead of his time. We have got to start thinking about the meaning of retirement – at a later age. We have to accept that most of us will live way longer than 55, or even 65.

Like previous generations who looked forward to hitting 55, we should think about hitting 65 and then kaboom! Money! Yeah!

Unless future cohorts live to be 100-plus years old. But that’s not our problem….right?

CPF minimum sum – in Small, Medium and Large

In Money, News Reports, Politics, Society on February 4, 2015 at 1:54 pm

I was thinking of doing a listicle, a brainless but, hopefully, funny way of conveying information. Except that the CPF review panel’s recommendations have left me brain-dead and I am not feeling terribly funny. Bear with me please because I think this is too big an issue not to destroy some brain cells over.

Now, the panel wants us to leave this gawdawful term “minimum sum’’ alone for the moment and work backwards. Let’s not think about how much money we have in our CPF when we turn 55, it says, but what we hope we will get when we turn 65, when monthly payments kick in.

Here’s how the panel wants the changes framed:

If you are 55 now, in 10 years, you’ll need about $650 to $700 a month. The panel has factored in inflation AS WELL AS rising standards of living. So it’s not just for bread and water, but kaya and kopi as well.

To get this kind of payout means leaving $80,500 in your CPF. That is, if you own your home. Why? You can rent it out if you need money. If you sell it because you prefer to rent a home, the CPF money you used to pay for it will still go back into your CPF – so it’s back up again. (Forget everything that has been said about being able to pledge your property ecetera. Serious.)

If you do not own property, that $80,500 is doubled to $161,000 (Yup, that’s the minimum sum for those turning 55 next year) It means higher payout which is also to cover for expenses like rent, which a homeowner wouldn’t have to worry about.

If you actually want to put in more money into your CPF, you can. Up to $241,500. Now, why would anyone want to do it? Because, hey, the CPF pays better returns than the banks or even commercial insurance companies. And yes, even higher payout of close to $2,000 a month

So that’s why the panel doesn’t want to use the term “minimum sum’’ anymore but RETIREMENT SUM. Besides sounding like a ransom demand, it now applies to three different S/M/L sizes – Basic, Full and Enhanced.

To recap:

Basic is $80,500

Full is $161,000 (doubled)

Enhanced is $241,500 (tripled)

In case you’ve forgotten everything about what happens at 55…

  1. You can take out everything in excess of Basic if you own your home. If you don’t even have a Basic, you can take out $5,000. Yup, nothing has changed.
  2. What’s new: that Basic sum will increase by 3 per cent a year so that you wouldn’t be so suddenly surprised by an announcement when you’re 54.

But quite a lot can happen in 10 years time when you hit 65.

  1. You can decide to withdraw 20 per cent of the sum you left inside. It’s been accumulating interest after all (and you need to pay for your son’s wedding or your daughter’s overseas education). Remember though that getting a lump sum early means smaller monthly sums later on. So you can expect some incentives from the G to get you to leave your 20 per cent alone. Now, for those with really really low balances, it’s no-go.
  2. You can decide to leave your money in there because you really don’t need it yet. Instead, you can accumulate even more interest and get a bigger pay-out – about 6 to 7 per cent more – later. You can do this at most for five years. (The CPF isn’t supposed to make your fortune but provide for retirement after all.)

Okay, so far, the panel hasn’t said anything about those with not enough to meet even the Basic. First off, they aren’t going to be penalized or have their homes taken away from them. They will still get an income until they die, albeit a smaller sum. Still, what can be done to help them?

There are some things in place already such as an extra 1 per cent interest for those with $60,000 in CPF balances. Plus there is the Work Income Supplement for the lower paid which also goes into their CPF. (I guess we have to see what the Budget will bring but there is a Silver Support in the offing in which the G is expected to give cash/CPF bonuses to older folk)

The good news is that increasingly over the years, more and more people will be able to meet the Basic sum. Right now, 55 per cent of CPF members can. And by 2020, 70 per cent will be able to do so. Hey, that’s what the panel says okay…!

Those are the panel’s key recommendations but it also raised other matters for the G to consider. For example, the panel…

  1. Agreed with the NTUC’s suggestion to bring back up the CPF contribution rates of those aged 50 to 55 who are working. This was cut to encourage employers to employ older workers and it’s working well enough already it seems.
  2. Like the NTUC, it wants the salary ceiling for CPF contribution, which is now $5,000, raised. In two swoops, voila! More CPF money! (Although how employers will react to this I don’t know)
  3. Wants spouses to be allowed to start CPF Life accounts for their non-working partners.

As you can tell, I am not commenting on the changes because I am still trying to wrap my head around them! At first glance, they seem populist, a bid to satisfy as many differing demands as possible (except the Return my CPF at age 55 lobby). Or it can be framed as a matter of choice and giving people a bit more control over their money. The panel prefers to use the word “flexibility’’. Flexibility is so complicated isn’t it? And that’s just Part 1 of the recommendations. Part 2 will be about “flexible’’ payouts.

Don’t forget that there isn’t just one CPF Life plan, but a few…you pick one. I’ll bet anything that most people have forgotten this.

Come out swinging? Or whinging?

In Money, News Reports on December 4, 2014 at 12:44 am

What does the term “come out swinging’’ mean? That’s how an ST writer described Magnus Bocker at a press conference yesterday on yet another glitch in SGX.

Now, the term comes from boxing – a boxer who immediately begins a boxing match by aggressively throwing punches. But the next phase kills me. He came out swinging, the article goes, “explaining in painstaking detail what happened in the bourse operator’s latest “incident”, what it plans to do next, addressing whether he would step down from his job and apologising for good measure’’. And there I was thinking that I was going to read a really dramatic defence and maybe some scolding from Mr Bocker!

Language aside, read BT for the best coverage of what happened at SGX especially the cost to brokers, investors and the reputation of our exchange.

A brief run-down: A software glitch occurred overnight which screwed up some numbers and it left brokers with not enough time to “reconcile’’ them before market opened. So the opening was delayed by more than three hours. In the meantime, lots of stuff were happening in Hong Kong and people who could have made money, couldn’t because the exchange wasn’t opened. When it was, it was a bit too late because the Hong Kong market was back to normal. (Please pardon my very, very laymen language.) People are getting upset because this is the second time something like this has happened in less than a month. On Nov 5, there was a three-hour breakdown in the day.

A couple of things I read in the media which I can’t quite understand.

– BT reported Mr Bocker saying that less than a third of market participants were affected, mostly retail investors. Hmm, and that makes it okay? I confess I don’t know.

– ST reported another SGX guy saying that despite the glitch, it traded close to $900m in turnover yesterday, which is 80 per cent of a trading day’s volume done in half a day. Hmm…so what does that mean? That it wasn’t so bad?

– ST also used a phrase from Mr Bocker “bad luck’’, although he quickly said that’s no excuse. What’s luck got to do with it?

Now, Mr Bocker has appeared in public to apologise unlike the last time when SGX gave a bland statement about the inconvenience caused. Now, he is on record as taking “full responsibility’’ for something that “should not have happened’’. People are calling for his head, which he made clear he intends to have firmly fixed to his body. Hmm…that’s really not for him to say methinks as he still has to report to his bosses, the SGX board.

The regulator was pissed enough to threaten “supervisory action’’ – but there’s nothing in media about what sort of “supervisory action’’ it can take. Shut down the bourse? Move in and take over? Supervisory action doesn’t sound like a penalty or punitive measures although people are asking for compensation for loss of income. After all, in one month, it’s about six hours of no trading in all and some people must have lost money through no fault of their own? Brokerage fees forgone? Thing is, what other bourses abroad do in cases like this? The SGX can’t be the only bourse in the world with technical screw ups which led to losses….Hmmm…right?

Another impact is on Singapore’s reputation. Can’t be good for us if the financial people elsewhere to keep looking at a “we are closed for renovations’’ sign twice in a month.

As usual, an extensive/intensive/thorough/full review will be done. BT reported that the Small and Middle Capitalisation Companies Association calling for an independent review elevated to an inquiry commission. Hmmm. If the glitches were technical in nature, it makes more sense to send in some really, really super-duper IT fellows to go in and trouble-shoot and make sure it doesn’t happen again no? The public “accounting’’ and calls for the pound of flesh to be extracted later can come later methinks.

Climbing the corporate ladder – systematically

In Money, News Reports on November 13, 2014 at 12:08 pm

There’s a story in MSM today that you probably missed. It’s to do with the progressive wage model. Sounds “blah’’ I know but I have been trying to wrap my head around this concept that the labour movement has been promoting for some time now. Most of us would probably associate the model with cleaners who now operate with a minimum wage floor that will go up when they obtain skills or can do “high-order’’ work. More recently, the security industry was announced as sector number 2, to begin in 2016, to be followed by workers in landscaping. I can understand the need for a wage floor for the lower paid because they simply are paid too poorly. In fact, for cleaners, adoption of the model is part of a licensing scheme that all cleaning companies must get before they can bid for contracts.

But I can’t seem to wrap my head round why other better-paid sectors would need it. So the NTUC is happy that nearly 270 unionised companies have come on board to adopt the model, which is basically a career and wage progression ladder. I would have thought private sector companies, especially the big ones, would have human resource departments which have already mapped out how their employees should be assessed and paid or promoted. It seems the private sector already does plenty of merit-based promotion and payment but the labour movement wants to make this process more systematic and transparent. I wonder how many companies actually want to tell their employees how they promote and pay people. After all, this an important lever for a company to get more from its workers. And would they want to be bound by a wage structure that says when and how they should promote? Seems to me a bit like tying the hands of employers. At the very minimum, they have to abide by a wage floor for employees.

Looking through the case studies presented by NTUC at its conference yesterday, I was surprised that Singapore Airlines and SMRT were among the companies that have recently adopted the model. SIA promotes not just on merit, but also level of competency. Here’s what its human resource person said: “In the past, promotions were hard to come by. People had to wait for vacancies to arrive through resignation. Our staff are loyal so the attrition rate is low, as far as our general staff are concerned, so you had to wait a long time for vacancies to arrive.” Since it implemented the model, it has promoted 85 general staff.

I guess that’s a point in employees favour. Too often, they look up at the seniors in the company hierarchy and wonder when they will be pushed off their perch so that a vacancy is available. It must be pretty demoralising for a young person to see so many not much older people above him on the ladder. It’s a temptation to job-hop, to seek better prospects elsewhere. Yet, I wonder too how the companies feel about having a bigger and bigger wage bill, unless of course, it is accompanied by bigger and bigger output.

It seems some people in the F&B sector are taking on the model with a starting pay of $1,300 a month for service crew, instead of $1,200 a month. Instead of five levels to the top, which is Operations Manager, it created another two rungs in between. I think employers will have to keep persuading staff that this isn’t a way to slow down progression, which will be how some people will see it (as road blocks rather than rungs). I had a look at the ladder and the good thing is that the top level can stand to earn at least $4,500 a month instead of the current maximum of $3,800. Of course, how long it will take to get through seven levels instead of jumping through five….It seems that the labour movement wants these companies to be a nucleaus of sorts to infect the rest of the sector and has set up tripartite sectoral committees which will decide on wage increments and any changes to the ladder. It’s like price-fixing with a floor, except that both employers and unions have a hand in it.

I asked NTUC why employers would even want to be part of this and the answer that came back: Labour crunch. Employers would want their workers to stay on rather than job hop to the next employer who pays $10 more. I suppose in this full employment period, this is the best time to press employers to raise wages in accordance with skills and more or better service. I hope though that it isn’t the case that just because someone has a diploma or two, it means an automatic push up the ladder. Because it can turn the phrase “life-long learning’’ into a weary paper chase. And we thought we left school a long time ago!

Notes on the news

In Money, News Reports, Politics on November 5, 2014 at 3:55 am

Weighing the WP’s worth

In Parliament, we have the Workers’ Party worrying about the independence of the judiciary, which it argues might be compromised if the Constitution is amended to have retired judges back to serve short stints. The WP wanted secure tenure for judges who should have a higher retirement age than 65.

In Aljunied-Hougang housing estate, the WP town council is chalking up arrears in service and conservancy charges. Seems three households in 10 haven’t paid their S&C fees for at least three months by end-April last year. It stopped submitting monthly reports from the next month on despite reminders. I wonder what has happened since then? Have they collected everything that’s owed or are households owing even more and how much is that in dollar terms? You wonder how the WP manages to fund the needs of the estate like this. Or (gasp!) have the rest of the HDB households outside the WP areas actually been paying too much in S&C fees??

Anyway, I thought today’s news reports on WP highlight the role of MPs very well – as a check on the G and as estate administrators. Put to the vote, the amendment got through of course. The WP made an interesting point about judges but I wish it had done more homework by suggesting where to get/find more judges. If more were available, there would be no need for Judicial Commissioners, a sort of temporary judge, introduced in 1979. Lawyers in private sector prefer short term stints at the Bench, but not many want to do it for a lifetime.

I wonder what is more important to the Aljunied/Hougang voter : the need for a contrarian voice in Parliament or a well-run housing estate.

A case of interest

So a review committee wants a 4 per cent cap on what licensed money lenders can charge in interest. And the licensed money lenders are very unhappy. They charge at least 20 per cent. Now, either their current rates are too exorbitant or the new cap is way too low. You wonder then about the people on the review committee. Some moneylenders sit on it too and they would surely have raised whatever objections then. Actually, while a low interest payment makes it easy for debtors, doesn’t it also encourage more people to take out more loans? Or is the position to make it attractive for debtors to go to licensed moneylenders than the loan shark, never mind if the licensed money lender can’t make as much money as before and might exit the business altogether?

Cabby, cabby, quite contrary, how does your wallet fare?

Plenty of cabby stories today, including an ST report that a simpler fare structure is going to be announced soon. Excellent! The report said that there are now close to 10 different flag-down fares, from $3.20 to $5, three different metered fare structures and more than 10 different types of surcharges. Seems ST got word that the new flag down rate that will apply to all taxis is going to be $3.80 and distance- and time-based interval jumps of 30 cents, rather than the 22,30 and 33 cents today. I’m sure passengers will welcome this, although what the taxi companies will say about such interference in the business operations is another matter. They must be doing okay, since there’s also news that Trans-Cab is going to be listed on the stock exchange.

And they must be pleased too that the Land Transport Authority is looking to regulate the likes of Easy Taxi and GrabTaxi, apps which are taking away their call bookings. The G is thinking of regulation that will protect the passenger, like methods of redress should disputes arise. Cabbies like the apps because their takings go up, although transport experts warn that the apps have not yet been monetised and money is likely to be clawed back from the drivers. Another worry is that over-regulation will kill innovation.

No need to be so jolly

So Christmas came early for manufacturers, crowed the ST on Page 1 today. Well and good! Then comes several paragraphs on how October Purchasing Managers’ Index is up, and at the highest level since April 2011. There was an “uptick’’ in orders from the US. You have to get through eight paragraphs before a note of caution is sounded that it might just be a seasonal thing with Christmas round the corner. I seriously wish ST would stop taking a rah-rah tone and provide a fuller picture quickly for those with short attention spans. Whatever happened to what is known as the double-barrelled intro?

BT has this:  SINGAPORE’S factories were busier than expected in October, with the latest purchasing managers’ index (PMI) rising 1.4 points to 51.9 – a level not seen since April 2011. But economists are downplaying the uptick, chalking up the expansion to year-end seasonal effects, and warning that a patchy global recovery will continue to weigh on manufacturing performance.

Let it grow, let it grow, let it grow

I did a double take when I read that the three-month delay in the completion of the National Stadium meant that the grass did not have time to grow. Seems that the grass had an extra three months to grow! Or do you build the concrete stuff first and then lay the grass? Does it then mean we should have delayed the OPENING of the stadium then? If the Sports Hub people “misjudged’’ the impact of that the events calendar will have on the pitch, then you wonder if what sort of “green’’ expert it has on board. Or whether the targets that it has to fulfill (or does it set them itself?) in terms of events and revenue led to the packed calendar.

Pieces of productivity

In Money, News Reports, Politics on November 4, 2014 at 3:23 am

a) Those who have been scamming the PIC had better watch out. All that equipment being bought for business and charged to the Productivity and Innovation Credit scheme have to be “in use’’ and on the company premises before cash claims can be made. I’m glad. I’ve heard too much about how the PIC is great because it gives out cash for anything to do with a business. There’s another bit in the legislation that was passed by Parliament yesterday. It’s about companies “engaged in objectionable arrangements which seek to abuse the scheme’’, according to an ST report. I suppose it refers to so-called consultancies which have sprung up to help people take advantage of PIC? It’s a maximum of three years jail and $10,000 fine.

b) It’s bound to come up. With our dismal productivity record, which averaged just 0.1 per cent from 2011 to second quarter of this year, someone is going to say if we’re measuring it right. So more indicators will be put up for the different sectors, according to the G. MTI’s Lee Yi Shyan said the construction sector, the laggard, uses value-add per worker but this might not be “reflective’’ of growth. If square metre constructed per man day is used, then you’ll see some progress. “If this increase is not reflected in the prices of their contracts, then the net effect may be a reduction in productivity.’’ In retail, there could be other indicators such as sales per square foot of retail space and the turn of inventory.The G might well be right that we need more specific measures, but I can’t help but think we’re also shifting the goal posts a bit because we can’t seem to score?

c) BT has some comments from the Monetary Authority of Singapore about productivity, more or less reiterating the point above. MAS said productivity growth can’t be an end in itself. We need to be more productive so that real wages will rise. It’s MAS’ job to make sure inflation stays low. Also, that low productivity doesn’t mean that welfare has deteriorated. More labour would be needed to ramp up construction, for example, and, mathematically, productivity will go down. I think to prevent people from rolling their eyes whenever they hear the word productivity, we might want to turn the discussion to the end result of productivity growth – more money in the wallet to buy more things. That’s something people can definitely understand

d) In any case, I noticed something interesting in both BT and ST.

Both practically gave the same background information which seems like a response to those who say that the target 2 to 3 per cent annual productivity growth is too high.

BT quoted an MTI statement: “While it was ambitious, it reflected the room for improvement after just 1 per cent growth on average in the decade up to 2009. Productivity is now expected to grow by slightly over 2 per cent per year on average in the first five years of the target period, but with almost all the gains being achieved in 2010 when the economy recovered strongly.”

ST quoted DPM Tharman who spoke on the matter last week: “We had in early 2010 set an ambitious target of achieving 2 to 3 per cent in annual productivity growth over a decade. We are now coming to the half-way mark at the end of 2014. In the first five years, productivity is expected to grow by slightly over 2 per cent per annum on average, but almost all the gains were achieved in 2010, when we were recovering from the recession.’’

Why this reiteration? And I STILL don’t understand what the phrase “almost all the gains achieved in 2010’’….So we already hit the target or what?

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