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Monday, November 6, 2017

Stretching your dollar with the Supplementary Retirement Scheme

Supplementary Retirement Scheme could also provide some tax savings

Lorna Tan
Nov 5, 2017

If you are looking to reap some tax savings on your assessable income, you still have until the end of next month to squirrel away some cash into the Supplementary Retirement Scheme (SRS).

Not only will this make you eligible for some tax relief, you can also save and stretch your dollar. Banks have got in on the act by offering incentives such as complimentary meals, gift vouchers and cash if you set up an SRS account before Dec 31.

The SRS is a voluntary scheme that complements your Central Provident Fund (CPF) savings for retirement. You can contribute any amount to your SRS account and as many times as you wish within the year, subject to a cap.

The minimum age to open an SRS account is 18. The prevailing cap is $15,300 a year for Singaporeans and permanent residents, and $35,700 for foreigners.

Rather than leaving your SRS funds lying idle in accounts, your contributions can be invested in approved SRS investment options to boost your nest egg.

The SRS is operated by DBS Bank, OCBC Bank and United Overseas Bank, and administered by the Inland Revenue Authority of Singapore (Iras).

Ms Chung Shaw Bee, managing director, head of regional and Singapore wealth management at UOB, notes the interest rate for an SRS account is 0.5 per cent a year, the same as a typical savings account.

"To generate potentially higher returns, investors can invest money they place into their SRS account in a range of SRS-approved products, such as shares, real estate investment trusts (Reits) and exchange-traded funds (ETFs)," she says.

Mr Thomas Tan, OCBC's head of wealth advisory and specialists, adds that the tax savings for individuals can range from $200 to more than $3,000, depending on their chargeable income.

The Sunday Times highlights what you need to know about SRS.

Q How does SRS work?

A Every dollar deposited into your SRS account reduces your taxable income by a dollar. For example, if your annual assessable income is $100,000 and you contribute $10,000 to your SRS account, only $90,000 of your income will be subject to tax that year.

There is a wide range of financial instruments you can invest your SRS funds in to help grow your retirement savings. These include local shares, Reits, ETFs, bonds, fixed deposits, single-premium insurance plans and unit trusts.

Any gains from investments made through SRS funds are non-taxable before withdrawal. Only 50 per cent of SRS withdrawals at retirement age are taxable.

However, you can spread your withdrawals over a period of up to 10 years when you withdraw your SRS at or after the statutory retirement age of 62. The 10-year period begins from the date of your first SRS withdrawal.

So it will be likely that you will pay no or little tax if you have lower or nominal income at retirement.

Hence, you can potentially withdraw up to $40,000 tax-free from your SRS account in a year, or $400,000 over 10 years, assuming you have no other source of income.

This is because only half the $40,000 a year that you withdraw is taxable and the first $20,000 of income is not taxed here. Do note that when you make withdrawals as payouts from life annuities, the 10-year period does not apply, and you may enjoy the 50 per cent tax concession as long as you receive the annuity stream payouts.

SRS withdrawals need not be made in cash. SRS members can withdraw an investment by transferring it out of their SRS account (for example, into their personal Central Depository account in the case of shares).

At the end of the 10-year withdrawal period, if there is still money in your SRS account, 50 per cent of it will be subject to income tax.

As SRS funds are meant to be held until the statutory retirement age, Ms P'ing Lim, head of deposits and secured loans at DBS, notes that some people might prefer to hold on to cash for liquidity. This could explain the lukewarm popularity of the scheme.

Note that for early withdrawals before the statutory retirement age, 100 per cent of the sum withdrawn will be taxed. Additionally, a 5 per cent penalty for premature withdrawals will also be imposed.

Q For whom is SRS more appropriate?

A Ms Kerrie Chang, partner, people advisory services (mobility) at Ernst & Young Solutions, notes that SRS funds cannot be used for buying a house or for medical coverage.

So the SRS will likely appeal to individuals who already have healthy CPF contributions, or have already bought a home and are looking to invest some of their disposable income in a tax-effective way.

"In general, these would likely be higher earners in their 30s onwards, looking to reduce their tax while building their retirement funds, who are inclined to utilise the SRS scheme," says Ms Chang.

"Whether SRS is appropriate for an individual really depends on the 'season of life' the individual is in and their retirement goals."

For instance, a proactive young worker looking to invest some disposable income may choose to invest in the SRS because of the tax benefits.

That said, another young worker may prefer to hold the funds or invest in a more flexible manner in order to increase the pool available for buying a home.

The inflexible SRS features in terms of a long lock-in period as well as the imposition of penalties and taxes on those who withdraw before the holding period would likely deter this person, she adds.

Q Should SRS funds be invested?

A SRS funds contribute to our overall retirement nest egg so it is prudent to manage and review the performance regularly.

The earliest you can make an SRS withdrawal is at the statutory retirement age prevailing at the time of your first SRS contribution. The likely long investment horizon means there is sufficient time to ride out market cycles and volatility. So the earlier you set up an SRS account, the longer your time horizon.

Take a person of 40 years old and contributing $15,300 a year to an SRS account. If he achieves a rate of return of 4 per cent a year, he would have saved $545,000 by age 62.

OCBC's Mr Tan advises customers to first understand the amount of risk they are willing to take.

This is because instruments available using SRS funds vary in terms of their tenor, potential returns and risk levels.

"It is always wise not to place all your eggs in one basket. Some people may have the wrong mindset, that since they cannot touch their SRS funds until age 62, they take aggressive bets and place everything into a single investment. One wrong move can affect your retirement plans," he warns.

Mr Tan adds that customers who are more conservative can consider insurance products like endowments or unit trusts, where overall risk is lower than investing into a single stock.

At the very least, placing funds into a fixed deposit is better than letting them sit idle, earning a mere 0.05 per cent-a-year interest.

Q What is the proportion of SRS money that should be invested and in which investment instruments?

A While cash balances have remained relatively stable at around one-third of the SRS portfolio composition, there has been an increasing allocation to shares, Reits and ETFs, and a declining allocation to insurance products over the years, UOB's Ms Chung notes.

"When deciding the asset class in which to invest, one should consider instruments that generate sustainable income, provide portfolio diversification and have risk controls in place to manage fluctuations in the investment's value," she adds.

For example, you may want to spread your money globally across different geographies and investment types through the unit trusts in UOB Income Builder, which aims to provide regular income through market ups and downs.

Instead of timing the market, you can also consider using your SRS funds to buy stocks or unit trusts monthly through regular saving plans.

Mr Tan says that customers can use SRS funds to buy insurance like single-premium endowment plans, unit trusts or shares through either the Blue Chip Investment Plan or OCBC Securities.

"By contributing to their SRS account, but not investing the funds, capital gains will be minimal, especially if you take into account inflation," he adds.

Q What is the impact of the new personal income tax relief cap?

A Taking effect from year of assessment 2018, there will be an $80,000-per-year cap on the total amount of personal income tax relief an individual can claim. This was introduced to make our personal income tax system more progressive.

This is expected to affect 1 per cent of tax-resident individuals, which means 99 per cent of us can claim reliefs without being affected by the new tax relief cap.

Mr BJ Ooi, head of personal tax and global mobility services at KPMG in Singapore, notes that capping total personal reliefs would not affect the vast majority of taxpayers.

"However, for a particular group of resident taxpayers qualifying for Working Mother Child Relief, they will need to consider if their total reliefs would exceed $80,000 for a given year before making any SRS contributions, since any such contribution is not refundable," he says.

EY's Ms Chang suggests that individuals utilise the Iras calculator to figure out their total reliefs before SRS contributions are made.

She worked out that a working mother earning between $111,445 and $151,860 who contributes to the SRS would be able to maximise the $80,000 personal reliefs by adjusting the contributions accordingly.

"This requires some level of effort and knowledge on their part to be able to take advantage of the tax reliefs available under the SRS," she says.

Hence, a working mother of two Singapore citizen children, earning more than $111,450 a year and contributing the maximum amount to SRS, will potentially be paying more tax than previous years due to the relief cap.

"Given this, it is more likely that working mothers with such profile may look for alternatives, perhaps more flexible or higher-return investment opportunities, as the tax relief is no longer available to them," she says.

Q What are the SRS-related incentives offered by banks until the end of this year?

A DBS/POSB customers can get up to $50 cash if they top up their SRS.

OCBC says the first 2,000 customers to open a new OCBC SRS Account and deposit $15,000 within seven days of the account opening will get $50 worth of gift vouchers.

UOB customers who invest the required minimum amount in an SRS-approved unit trust or insurance plan will have up to $280 credited into their SRS account or they can choose a complimentary buffet dinner for up to a party of four at Singapore Marriott Tang Plaza Hotel.

UOB will credit $30 into their SRS account or they can opt for a complimentary high-tea buffet for two at Marriott Tang Plaza Hotel.

Monday, October 23, 2017

Is the new CPF Life plan ideal for you?

Lorna Tan Invest Editor/Senior Correspondent

With lifelong payouts from the national annuity scheme Central Provident Fund (CPF) Life, we need not worry about outliving our savings. A new CPF Life option - the Escalating Plan - will be available from Jan 1. This plan will be in addition to the CPF Life Standard Plan and Basic Plan. All CPF Life members can switch to the CPF Life Escalating Plan between January and December next year.

With the three plans, members can choose the desired amount of monthly payout they want to receive in their golden years. Of course, this is dependent on your savings in the Retirement Account, which would be used as premiums to buy the CPF Life annuity.

As part of a recent World Economic Forum Retirement Investment Systems Reform project, Singapore's CPF Life scheme was profiled together with different case studies from various countries.

The report highlighted that with CPF's interest rate structure, CPF Life is able to provide an effective annuity rate of 7.1 per cent based on a $100,000 premium.

"This compares favourably with life annuities in most markets," stated the report. The annuity rate was calculated based on the ratio of annual payout to premium paid, for a male member born in 1962, or is 55 this year, who receives payouts at age 65.

It is no wonder that financial experts like Mr Christopher Tan, chief executive of Providend, believes that every retiree's portfolio must include an annuity plan to hedge against longevity risk.

He says: "CPF Life is currently the best annuity plan in the market. It is low-cost and offers high return."

'To receive a higher starting payout under the CPF Life Escalating Plan, members can top up their CPF Life premiums and/or delay their payout start age, up to age 70.

The new Escalating Plan is designed for those with concerns over the rising cost of living and want their payouts to hedge against inflation.'

Do check out the user-friendly CPF Life Payout Estimator tool on the CPF Board's website, to estimate your CPF Life payouts and bequests.

The Sunday Times highlights what you need to know about the CPF Life Escalating plan.


A In a nutshell, the CPF Life Standard Plan offers higher monthly payouts while the Basic plan has lower payouts but allows a member to leave a larger bequest or inheritance to loved ones.

The Standard Plan is the default plan for CPF members who do not choose a plan when enrolled into CPF Life.

The new Escalating Plan is designed for those with concerns over the rising cost of living and want their payouts to hedge against inflation.

Unlike the Standard and Basic plans, which offer monthly payouts that are level throughout a member's life, the Escalating Plan's payouts will increase at a fixed annual rate of 2 per cent, in return for a lower initial payout.

However, the total payout amount eventually exceeds the level payout amount of a Standard CPF Life in later years due to the annual increments.

Mr Brandon Lam, Singapore head of financial planning group at DBS Bank, says: "As members age, inflation may erode the purchasing power of their payouts. This increment helps mitigate the impact of inflation.

"For members under the CPF Life Standard Plan, having a fixed payout in later years may not be able to provide the same quality of lifestyle of their earlier years if they are fully dependent on CPF Life payout."


A All CPF Life members can choose to switch to the Escalating Plan between January and December 2018.

These include members who had switched to the CPF Life Standard Plan in 2013 when the earlier four CPF Life plans introduced in 2009 were reduced to two. Note that if you are already receiving payouts under CPF Life and you need to switch to the new Escalating Plan, your new payout may be reduced by 20 per cent or more from your current payout.

This is because, for the same annuity premium and other factors being equal, a CPF Life plan with payouts that increase over time will have starting payouts that are lower compared to a CPF Life plan with level payouts that do not increase over time. This is based on independent and objective actuarial calculations, said the CPF Board.


A Under the Escalating Plan, all the Retirement Account (RA) savings will be deducted as annuity premium and paid into the Lifelong Income Fund, which will provide a member with a monthly payout from the start age for as long as he or she lives.


A For the same annuity premium and same payout start age, a CPF Life plan with payouts that increase over time would necessarily have starting payouts that are lower compared to a CPF Life plan with level payouts that do not increase over time.

To receive a higher starting payout under the CPF Life Escalating Plan, members can top up their CPF Life premiums and/or delay their payout start age, up to age 70.

Starting later allows you to enjoy permanently payouts of up to 7 per cent higher for every year deferred. The option to delay payouts (up to age 70) until you need them is useful, especially for people still employed.

After all, 40 per cent of Singaporean residents aged 65 to 70 continue to receive work income. Thus, they may not need their CPF Life payouts at, say, age 65.


A For a male member who has an RA balance of $166,000 at the age of 55, and starts his payouts at age 65, the CPF Life Escalating Plan payout takes about nine years to reach the same payout level as the Basic Plan. It takes about 13 years to reach the same payout level as the Standard Plan.

For a female member who has the same RA balance at 55, and starts her payouts at 65, the Escalating Plan payout takes about 11 years to reach the same payout level as the Basic Plan. It takes about 14 years to reach the same payout level as the Standard Plan.

Beyond this period, both members will receive higher monthly payouts for the rest of their lives as their payouts continue to escalate annually.

After about 22 years, the monthly payout under the Escalating Plan for both the male and female members will be about 20 per cent higher than the payout under the level Standard Plan.


A It will take a member about 25 years under the Escalating Plan to receive the same amount of cumulative payouts compared to the Standard Plan.

However, since the payout in the initial years is lower under the CPF Life Escalating Plan, the corresponding bequest (left for beneficiaries) during this period is higher.


A Providend's Mr Tan advises that the first question members should ask is: Would you like your CPF payouts to be hedged against the rising cost of living?

"Although this sounds like a rhetorical question, the truth is, there are members who may want a flat payout and have other ways to hedge against inflation," he says.

If the answer is a "yes", Mr Tan says members would then have to ask if they can accept a 20 per cent lower initial payout than the current Standard Plan. If they can't, maybe because they really do need the higher income for their retirement, they would have two options.

"Option 1: They can defer their drawdown from age 65 to a later age, say maybe age 69, so that the starting payouts can be the same as the Standard Plan," he adds.

"Option 2: They can top up their RA, perhaps by another $40,000 to $50,000, so that the starting payouts can be the same as the Standard Plan."


Experts' choice of CPF Life plan
The Sunday Times asks financial experts which CPF Life plan they would choose.


"I will personally choose the Basic Plan as I have a spouse and children. I would like to leave some cash for them and their children as my unconditional love.

"More importantly, I would like to provide for my spouse as females tend to live longer than males."


"I will probably opt for the Standard Plan and receive the higher payout earlier. I can then have the flexibility to see if I need to spend the money or reinvest."


"Personally, I will choose the Basic Plan. From the mathematical point of view, the Basic Plan makes the most sense to me.

"For a difference of about $100 or more per month between the Standard and Basic plans, the bequest for the Basic Plan is a lot higher than the Standard or Escalating plan.

"The $100 or more per month difference will also not make a big difference to my retirement lifestyle as I have other investment options for my retirement and these investment plans will also take care of the rising cost of living and as such, I do not need the Escalating Plan."


If both options are not possible, members might want to choose either the Basic or Standard plan for higher payouts that would meet their needs, Mr Tan notes.

Ms Chung Shaw Bee, head of deposits and wealth management for Singapore and the region at UOB, suggests taking a look at your overall financial portfolio and determining how much cash savings and investments you hold, and how much of your nest egg you expect to have built when you retire.

"This will enable you to evaluate and to decide on a CPF Life plan that meets your retirement needs," she says.

"For example, if you think that your financial plan is sufficient for you at the point of retirement and meets your lifestyle needs, you may prefer to choose an escalating payout model to ensure a continued cash flow as you grow older."

Other factors to consider include whether a member would be gainfully employed beyond retirement age and if he or she has alternative sources of income like property rents, or is supported by their children, says Mr Lam.

"Members who prefer to maintain their quality of lifestyle throughout their retirement years should consider the Escalating Plan as inflation can erode their purchasing power. The effect will be especially pronounced during their later years," suggests Mr Lam.

Mr Alfred Chia, chief executive of SingCapital, recommends the Basic Plan for CPF members turning age 65 in the next 10 years and who have beneficiaries for whom they want to provide.

"However, if the member is single/widowed and does not have beneficiaries that he needs to take care of, I will recommend the Standard or Escalating plan," Mr Chia says.

Mr Lam advises that while the CPF is an integral part of retirement planning, Singaporeans should pro-actively plan for other sources of retirement income to achieve their dream retirement lifestyle.


A CPF supports your three basic needs of housing, healthcare and retirement income.

It comes with attractive risk-free interest rates of up to 5 per cent a year when you're below 55 years old, and up to 6 per cent when you're 55 and above.

This is how they are structured: CPF savings in the Ordinary Account earn guaranteed interest rates of 2.5 per cent a year, while savings in the Special Account, Medisave Account and RA earn 4 per cent.

The first $60,000 of your combined CPF balances, of which up to $20,000 comes from your Ordinary Account, earns an extra 1 per cent interest a year.

And from last year, an additional 1 per cent interest is paid on the first $30,000 of combined CPF balances for all members aged 55 and above.


A The CPF Board invests members' funds, including CPF Life money, in Special Singapore Government Securities (SSGS), which are guaranteed. Proceeds from SSGS issuance are pooled and invested with the rest of the Singapore Government's funds. Singapore's strong government balance sheet, with a substantial buffer of net assets, enables it to withstand market cycles and meet its guaranteed liabilities, including its SSGS commitments.

This means that CPF members bear no investment risk, regardless of financial market conditions. Interest rates on SSGS match those of CPF savings, with members receiving the annual interest rates promised of up to 6 per cent a year.


Own 100 stocks — be massively diversified

(Oct 23): The idea that to do well in investing one must focus one’s bet on something that one knows inside out is a brain virus that must be terminated. It is responsible for the deaths of many portfolios.

The two famous investors who preach this mantra are Warren Buffett and Peter Lynch. They are advocators of the focused approach to investing and have brought untold misery to many naïve investors.

Buffett advises that, imagine in your lifetime, you can choose only 10 stocks. So, pick only the best. Pick only what you know thoroughly and hold it forever. Pick the businesses with long-term competitive advantages and a defensible moat. “Diversifi cation is protection against ignorance; it makes little sense if you know what you are doing,” he says.

Lynch, in his book One Up on Wall Street, suggests that we should buy what we use, like and observe. So, if you like Starbucks coffee, then buy Starbucks stock. If your child shops at Abercrombie, then buy its stock. (To be fair, Lynch advises checking the financial statements and valuations, but people do not do that nor bother to remember that.)

Advocators of the focused approach suggest that you spend time at your local Starbucks and count the number of coffees that people buy. Then, use that information to form your revenue forecasting model and arrive at your stock valuation decision.

Please do not do that. It will not work. After having sat there for consecutive weekends counting coffee cups, it is hard for you not to buy the stock. You have invested too much emotionally. I would say you have fallen in love with your stock.

Mistakes made in investing are psychological. Treat your stocks like chickens. Imagine you are a chicken farmer. You keep and feed chickens to make them grow fat and then take them to the market for slaughter. You do not name your chickens, such as calling them “Chirpy”. If Chirpy is fat and healthy, you make chicken rice. No hard feelings. The point is, your stocks are here to serve you, pay you dividends and perhaps some capital gains — they are not for you to fall in love with and defend when they have fallen 20%.

Buffett and Lynch are well-meaning and try to give good advice. But if you are an average Joe, it is not going to work for you. Their advice is suitable only for people who are completely detached of emotions, smart and can spend more than 24 hours a day in isolation reading books. If you feel like grabbing a beer halfway, you are not going to make it.

We are average. We are normal. We have children, a career and a life outside work. So, we do something simpler and that is still effective.

Here is the recipe. Buy 100 stocks. Buy them in various countries, industries and currencies. Do not buy only Singapore stocks. Buy South Korea, Malaysia, Taiwan, Japan, Indonesia, China, Hong Kong and so on. Buy only value small caps (see previous article on our website).

Buying 100 stocks yourself is like making your own exchange-traded fund, but you will do better than the ETFs because you are invested in only value small caps.

Owning 100 stocks gives you a psychological advantage and overcomes many emotional biases. As each position is about 1% of your portfolio, you can make decisions in buying, trimming and taking profit in a rational and detached manner. If a mistake is made, only 1% of your portfolio is damaged, hardly anything to lose sleep over. Another advantage is that you can deploy huge sums of money into the stock market — as how can 100 stocks in different countries and industries be completely wiped out?

How do you choose the 100 stocks? Learn to use a stock screener. If you are a beginner investor, stick to low price-to-earnings, high-dividend-yield and low price-to-NTA stocks. Learn to read the financial statements. Understand how the balance sheet changes over time. Examine the cash flows. It is not hard, it just requires some practice and cutting out some TV/internet time.

This article appeared in Issue 802 (Oct 23) of The Edge Singapore.

Sunday, September 10, 2017

Look out for gaps in insurance coverage

Many are under-insured, so do check if you and your loved ones are adequately protected

Lorna Tan
Invest Editor/Senior Correspondent
10 September 2017

No one wants to be caught short when a life crisis strikes, so it's no wonder that the risk of being financially unprepared tops the list of concerns among Singaporeans.

Buying appropriate insurance cover is a way of transferring this risk and getting some protection, but how much is enough and what policies should you consider?

A 2012 study by the Life Insurance Association Singapore (LIA) on under-insurance identified a $462 billion gap for working Singaporeans and permanent residents.

This gap is defined as the protection need (death coverage) of all economically active adults here minus Central Provident Fund savings and existing insurance coverage.

On an individual level, it comes to $242,500 for a working adult or 3.7 times his annual income, after taking into account CPF savings.

Against a backdrop of Singapore's rapidly ageing population, a growing incidence of chronic diseases and escalating healthcare costs, LIA has commissioned a similar protection gap study to assess the current level of under-insurance. The results are expected to be released early next year.

This time, it aims to measure two aspects of under-insurance - the mortality protection gap and the critical illness cover gap.

The 2012 study did not include the critical illness component.

Whether as individuals or families, we are exposed to various kinds of risks, says Manulife Singapore chief executive Naveed Irshad.

"There is the pertinent risk that a critical illness or unforeseen accident could bring about financial disaster in a family - from the sudden financial burden of hefty medical bills to the potential loss of household income due to the inability to work," he says.

"Such unplanned-for problems would put a dent in household finances, compromising the ability to meet financial commitments."

Ms Myra Pang, Great Eastern's head of customer propositions and marketing for group product management, notes that the provider gains assurance when loans, household expenses and education funding are taken care of. With these issues settled, family members will also be relieved of heavy financial burdens.

LIA defined the protection need as the sum required by dependants over a defined period, in the event of the main breadwinner's death, to take care of numerous expenditures such as funeral expenses, personal and housing loans, and ongoing expenses for children, elderly parents and spouses.

What they cover
Term insurance
Payout in the event of death and total and permanent disability within a specified period

Whole life insurance
Provides protection and savings

Critical illness insurance
Lump sum payout in the event of critical illness

Disability insurance
Payout to cover against loss of income in the event of disability due to either an injury or illness

Personal accident insurance
Payout in the event of accidents

Hospitalisation insurance
Protects you from hospital charges

Long-term care insurance
Monthly payouts if you are unable to perform activities of daily living


The protection gap is the protection need less an individual's CPF savings and insurance coverage and other income-producing assets left behind after death. Note that the protection gap is only relevant for economically active adults with at least one dependant.

LIA executive director Pauline Lim says the inclusion of critical illness cover in the protection gap study is timely in view of Singapore's falling old-age support ratio, rising cost of living and increasing incidence of chronic illnesses.

In fact, the rising cost of healthcare continues to be an important issue whether you are planning for retirement or already retired.

A recent HSBC report found that 82 per cent of working-age people believed retirees would have to spend more on healthcare in the future, while 85 per cent were concerned about being able to fund their healthcare.

And 50 per cent of working-age people here are worried about the availability and affordability of healthcare, compared with the global average of 25 per cent.

Mr Andrew Yeo, NTUC Income's general manager for life and health, points out that Singapore has the third-best life expectancy rate in the world, at about 83.1 years, according to the latest World Health Organisation statistics.

"However, Singapore has an average healthy life expectancy of 73.9 years - this refers to the number of years that a person can expect to live in 'full health' without disease and/or injury," he adds.

"This means that the average Singaporean can expect to be suffering from illnesses and/or be afflicted with injuries for almost 10 years of his living years, which could adversely affect the quality of his life."

Mr Brandon Lam, the Singapore head of the financial planning group at DBS Bank, says that a standard rule of thumb is to take 10 times your annual earnings as your protection gap.

However, many factors need to be considered, including your life stage and remaining estimated mortality years, and the number of dependants you have and their ages, as well as any outstanding liabilities such as mortgages, and any inheritance or assets set aside.

For business owners, other considerations would include tax liabilities and/or capital that must be set aside in the event that you are unable to continue working.

Providend chief executive Christopher Tan believes that how much is enough really depends on individuals, so his company does not apply a standard rule of thumb when advising customers.


He suggests calculating the capital that would be needed on your death by multiplying your estimated annual income by the number of years required to replace that income until your youngest dependant becomes independent.

Let's say you are 35 now and your planned retirement age is 65. If by then, you will have no more dependants, you will need 30 years of insurance coverage.

"Take into consideration university education costs for your children, all outstanding loans, gifts to beneficiaries, and additional capital that you wish to give your family to meet unexpected expenses," says Mr Tan.

"Then calculate the existing resources you already have by taking into account your existing death coverage, your company insurance coverage, bank deposits, CPF savings and other investments, and any other income-producing assets (for example, additional investment properties that can be sold)."

The difference between the capital needed and the existing resources that you have is your protection gap.

In addition, you can go to and use the Life Insurance Calculator to work out your protection gap.

Tokio Marine chief executive James Tan says term insurance is a good starting point for an individual who wants to plug a protection gap. The cover is for a specific period, and offers payouts in the event of death or total and permanent disability.

Providend's Mr Tan points out that buying insurance to replace your income in the event of death or total and permanent disability is a temporary requirement. This is because the need for income replacement does not exist once you are retired and your dependants no longer rely on you.

He adds that, for most people, the replacement amount required is typically large, so the most affordable and practical way to get yourself sufficiently covered is through term insurance.

On the other hand, whole-life insurance is useful when your need is a permanent one, such as having to pay for alternative treatment that is not covered by hospital plans when you are critically ill.

In this case, you have to decide if you want insurance cover for such a need or if you prefer to absorb the risk and self-insure. This is because not every risk needs to be covered.

Some people might not feel that compelled to buy cover for alternative treatment, while others might not have the budget to do so. And whole-life and/or critical illness plans are expensive.

Mr Lam of DBS explains that whole-of-life and jumbo universal life plans are cash-value policies and they, therefore, require higher premiums.

"They are suited to individuals who expect the return of cash values upon maturity, or the surrendering of such policies," he says.

"Term insurance does not have any cash value, and is, therefore, more affordable and more commonly used to bridge the protection gap at a lower cost."

First, work out how many years you need the insurance for. The second step is to determine how much you need. You can then look for plans that are the most suitable and cost-effective for you.

It is not always true that the cheapest is the best but, for term insurance, this is generally valid as such plans are plain vanilla, pure protection policies without the bells and whistles of other policies such as whole-life, says Providend's Mr Tan.

Ms Nancy Wu, who heads product management at Etiqa Insurance, suggests you should look at the policy's tenure (whether the coverage period is sufficient to meet your needs), the premiums (whether they are affordable) and whether the cover amount is enough.

Before forking out premiums for a term plan, do assess your financial needs and your budget. It is also prudent to review your financial portfolio regularly, says Ms Ho Lee Yen, AIA Singapore's chief marketing officer.

After all, as you reach different life stages, your financial and health needs will evolve, she notes.

Some financial experts such as chief executive Ian Martin at HSBC Insurance Singapore believe that ways to plug these protection gaps are not limited to just basic term insurance.

Depending on the cover and concerns that a person wants to address, he or she could seek other solutions, says Mr Martin.

For example, you could consider taking up a critical illness plan, particularly if you have a family history of major illnesses.

AIA's Ms Ho says that, beyond just term insurance, which typically covers dependants' expenses if the insured person dies, critical illness insurance is equally important if you fall sick and want to ensure that you can cover any additional expenses and focus on recovery.

Most insurers now offer critical illness plans that cover 102 to 106 medical conditions. The plans pay 100 per cent of the sum assured in the early, intermediate and critical stages (note that terms and conditions apply).

Insurers also offer mortgage plans. This is a reducing term insurance policy that provides financial protection against death and total and permanent disability for a specific period, say, up to the age of 70.

Ms Ho says that it is also important to insure yourself against the loss of income in the event of disability or inability to work due to either an injury or illness.

One plan to consider is AIA Premier Disability Cover, which guarantees a benefit payout regardless of any future changes to your income or payouts from other disability income policies.

This provides vital financial stability and peace of mind while you adapt to your new situation, says Ms Ho.

Mr Daniel Lum, Aviva Singapore's director of product and marketing, recommends looking at long-term care, hospitalisation and personal accident plans as well.

Aviva offers MyCare (ElderShield), which has a default payout period of six years if you are unable to perform at least three out of six activities of daily living, such as feeding and dressing yourself.

Tokio Marine Life Insurance Singapore has TM Protect 1, a disability plan that provides payouts upon the loss of the ability to carry out a single daily living activity.

"Disability income plans provide necessary financial support to individuals at the onset of disability by covering costs, such as those related to rehabilitation and mobility aids," says Tokio Marine's Mr Tan.

Sunday, July 30, 2017

Don’t bank on betting to grow your nest egg

Avoid gambling away your future


For more than two decades, a woman here has bought Singapore Sweep tickets every month and says she’ll retire as soon as she wins enough. She’s still working. Others gamble on 4D or Toto in hopes of improving their finances. There are also those who gamble for fun, to socialise, or just to pass the time. Whatever the reason, gambling can be a costly past-time, and spending less on it can lead to a better financial future.


There are indeed many people here who wager regularly, and gambling is clearly not going to stop anytime soon. Some 44 per cent of Singapore resident adults admitted that they gambled in the last 12 months, according to the latest Survey on Participation in Gambling Activities by the National Council on Problem Gambling (NCPG) in 2014. 4D, Toto, Singapore Sweep and social gambling are most popular, according to the NCPG. The online gambling that became legal last year will make wagering even easier and could increase the numbers further. The Government’s tightening of regulations on jackpot machines in the past week may be indicative of a widespread problem.

Most of these gamblers are hoping to win big, whether it’s striking the jackpot, winning thousands of dollars in 4D or more than S$10 million in the Toto Hongbao. In reality, most gamblers actually lose, regardless of what they say. With odds of winning substantial amounts ranging from about one in 10,000 for the top prize in 4D to about one in 3 million for the monthly Singapore Sweep, most people end up losing far more than they win.

And while gamblers in the NCPG survey said they spent just S$20 per week on their habit, other data indicates that gamblers may actually spend more. The annual report of the Singapore Totalisator Board (Tote Board) – which operates 4D, Toto, Singapore Sweep and sports betting – shows that it reeled in S$7.01 billion in revenue in 2016, which is about S$1,250 for every Singaporean and permanent resident. Since less than half of adults here say they gamble and nearly a million people are too young to gamble legally, the actual amount a gambler spends legally averages out to a little more than S$3,500 per year.

The Tote Board also says that it only paid out S$4.48 billion in prizes, meaning that just 63 per cent of the money went back to the gamblers. While research by H2 Gambling Capital cited in The Economist magazine indicates that the average Singapore resident lost about S$700 on gambling last year, the second highest amount in the world after Australia, the Tote Board numbers indicate that average losses could be more than S$1,250.

By the time they reach their early 60s, average gamblers who lost S$1,250 per year would lose more than S$50,000. Moreover, they would also lose out on investment income from those funds. By investing just half of the amount they lost instead of frittering it away, gamblers could end up with a substantial nest egg and still be able to spend something on their wagers.

If the average gambler cuts back and halves his or her wagers and saves S$50 a month instead of losing it, then invests it to earn a 5 per cent return, the total savings accumulated would be about S$76,000 by the time he or she reaches the age of 60. Gamblers who wager more and save half of a larger amount could end up with an even larger sum.

While S$76,000 isn’t enough to fund retirement entirely, it could make a tremendous difference. An average 65-year-old could increase his or her retirement income by about S$300 per month for the rest of his or her life, even without earning any investment returns. With recent surveys consistently showing that a majority of Singaporeans are worried about not having enough money for their retirement, this extra sum could help alleviate some of those concerns.


Given the likelihood of their losing money, gamblers would clearly be far better off if they stopped gambling entirely. Realistically, however, gamblers are unlikely to stop. What they can more easily look at, then, is how to cut back.

On days when they receive their salary or when nearing the closing date for 4D bets, for example, gamblers can change their routine so that they don’t pass as close to the Singapore Pools outlets or they can socialise with friends and family until after the closing time. Meeting friends for a social gathering at the local coffee shop instead of the club where jackpot machines are located may also help. Experts also suggest that those with gambling problems get involved in activities that they’ve enjoyed in the past and may have given up due to gambling. They can also set a lower cap on their regular gambling amount, or gamble together with friends or family who can help them avoid overspending.

Tracking how much they spend on gambling and how much they win or lose can help, since gamblers will see how expensive a hobby it can be when they track their losses. They should also ignore promotions for “responsible gambling”, since the messages can make gambling seem normal rather than helping to reduce the amount they actually spend.

While problem gamblers and the increasing number of gambling addicts may need special services from the National Addictions Management Service or other centres, the average gambler can do a lot to reduce his or her spending and ensure a more comfortable future.


While gambling may seem like fun, the Singapore Sweep and other games actually squander more money than many people realise rather than helping them with retirement. Even if you don’t want to stop gambling, changing habits and wagering less can bring tremendous benefits that ensure a far better financial future.


Saturday, July 15, 2017

‘Rojak Portfolios’ and ‘poor millionaires’

By: Eric Kong

What do you call a mish-mash of investment products haphazardly acquired throughout an investor’s lifetime, with an overall portfolio return of 0.5% and which the investor can’t even bear to look at? It is called a “Rojak Portfolio”. It happens to most investors.

As an example, see the table below: The “Rojak Portfolio” totals $800,000 and gives an overall return of 0.5% per annum. It is a mixture of blown-up, best-forgotten investments and some cash and blue-chip stocks.

Eight hundred thousand dollars growing at an overall portfolio return of 0.5% for 15 years will amount to $862,146. Hardly substantial. But if one were to invest the same amount in the Singapore stock market exchange traded fund at an 8% rate of return per year, it will result in $2,537,735. That is a tripling of the original amount!

Hence, clean up your “Rojak Portfolio” and make allocations to where it matters most. One may argue that one is happy with $800,000 as a retirement portfolio. That amount is no small potatoes, but we need to do more because times are different today. For example, in 1970, a millionaire was a “real millionaire”. He could buy 50 units of HDB flats at $20,000 each with that amount of money. I call today’s millionaires “poor millionaires”. They worry a lot about their future and their children’s future because they know that a million dollars today can’t do very much.

For example, when you retire and put that entire million into 30-year SGS bonds that pay 2.75% a year, you will get $2,291 in interest income per month. That can pay for the daily papers, kopi and kaya toast and perhaps a yearly trip on a budget airline — hardly a millionaire’s lifestyle. With the ravages of inflation, in 2050, $2,291 will be worth just $863 in today’s money. You might have to be satisfied with just black kopi without the kaya toast in 2050.

The ‘poor millionaire’ really cannot afford a ‘Rojak Portfolio’
I have come across many “Rojak Portfolios” and one thing I notice is that they all have too much cash. This ties in with surveys that show Singaporeans hold between 20% and 50% of their portfolio in cash.

Putting 50% of your portfolio in cash means that only half your assets are being put to good use. If you hold a lot of cash, you will bring down the overall portfolio return. Fixed deposits pay 1% and high-quality bonds pay 3%. The returns are too low to make any difference.

Risky bonds and perpetuals may pay more, but they are not worth the risk for the returns. Furthermore, their returns are still inferior to ETFs, which have a long term rate of return of 7% to 8%. If you want more returns, then arm yourself with knowledge of value investing in stocks. That can bring your returns to 10% per year if you are diligent.

So, why do people hold so much cash? For safety, I suppose. But it doesn’t make sense if one does not need the cash in the short term. Cash earns nothing and after inflation, it is negative. If you have a steady job and your income exceeds your expenses, there is no reason to hold cash because you have a surplus. Invest that cash pile and the surplus!

Some might say “cash is king”. They think they can load up the truck when the stock market crashes. The idea is good, but is rarely implemented. When stock markets crashed in 1997 and 2007, people just panicked and sold their shares, or just did nothing. The “poor millionaire” really cannot afford to hold too much cash.

The writer is fund manager and director of Aggregate Asset Management (AAM) Pte Ltd ( AAM is a no-management-fee value manager that serves high net worth individuals.

Tuesday, June 27, 2017

How to fast-track your retirement

21/06/17, 12:18 pm

(June 21): Some people dislike working. They prefer to retire as soon as possible. This article is for them. To fast-track something is not easy. It requires one to take actions that defy conventional wisdom.

First, “Always be a business owner, not a lender”. 

The easiest way to own a business is to buy shares in the stock market. If you own a share, it means you are a business owner.

Businesses earn the highest returns. The median return on equity of Singapore listed companies is 9%. If you choose to lend money, fixed deposits give you 1% and risky corporate bonds give you 5%.

You get measly returns from being a lender, so be a business owner. Sometimes, the risk you take from buying poor-quality corporate bonds is as much as being a business owner. To retire early, own a business.

Second, “Put 100% of cash you don’t need into stocks”. 

Don’t invest in commodities, gold,land-banking, overseas properties, doughnut shops, hipster cafés, fixed deposits, bonds and flavour-of-the-month unit trusts.

If you do that, your overall portfolio average return will be 2% per year. $100,000 growing at 2% for 10 years is going to be $122,000.

Instead, putting $100,000 into stocks will net you $216,000 over 10 years at an 8% rate of return. The 8% return is the long-term average of the Singapore stock market. $122,000 versus $216,000? You decide.

Third, “Invest only in small capitalisation value stocks”. 

Small capitalisation means small companies. Value is short for “value investing”. Value means stocks that have characteristics such as low price-to-earnings ratios, low price-to-book ratios and high dividend yields. Study after study has demonstrated that they give the best returns over the long term.

If you want to achieve returns of 10% or more per annum, buy small capitalisation value stocks.

Fourth, “Be massively diversified. Own at least 100 stocks in different countries and industries”. 

Most investors have only 10 to 15 stocks. If you have 10 to 15 stocks, you will form an emotional bond with your stocks. If one of them were sick, you would not be able to sleep at night. When you have an emotional bond, you will make mistakes — such as not cutting losses when something is evidently wrong and holding on to your winners till they become losers.

Instead, have at least 100. Don’t just invest in Singapore stocks. Go regional, or even global. Invest in Hong Kong, China, Thailand, Korea and so on. Go to the country that is having a cheap sale in stocks.

Treat your stocks like a farmer treatshis 100 chickens. When they are fattened, slaughter them and bring them to the market. Do not ever give a name to your chickens, or stocks; they are not your pets.

Fifth, “To master risk, change the way you think about risk”.

When you see your share price drop, it does not mean that you participated in a risky activity and you are now paying the price. It just means that some dummy who does not understand the true value of the stock sold it, and someone smarter on the other side of the transaction who understands fair value bought it. The seller probably sold it because he is a nervous chap and he is very worried about The Donald, May, North Korea, Global Warming and the Monster Under His Bed.

Sixth, “The Way to Wealth: Value Investing”. 

Value investing means buying a stock for 50 cents when its true value is one dollar. Why would anyone sell to you for 50 cents? Either they are mad, scared, or both. Humans go berserk from time to time. When that happens, relieve their anxiety and pay them their 50 cents for a dollar’s worth of stock.

Seventh, “Penny pinch. Use that money to buy stocks”. 

You don’t need that German car. Buy stocks instead.


Monday, June 26, 2017

What you need to know about DPS coverage

Lorna Tan
Published Jun 25, 2017

The CPF Dependants' Protection Scheme can be a great help to members, but note its finer points

The Dependants' Protection Scheme (DPS) is a life insurance term plan covering many people here. But ask anyone what it covers and it is likely the details would be hazy simply because the finer points of a policy are not front of mind until something untoward happens. Here are some things that policyholders ought to know about DPS:

DPS generally covers insured members for a maximum sum assured of $46,000 up to the age of 60. It aims to provide Central Provident Fund (CPF) members and/or their families with some money to tide them over the first few years after the insured member dies, or suffers from terminal illness or total permanent disability. The coverage is worldwide.

The scheme works on an automatic opt-in basis. So unless you opt out, the annual premium is automatically deducted from your CPF account.

DPS is extended automatically to CPF members who are working Singapore citizens or permanent residents between the ages of 21 and 60 when they make their first CPF working contribution. Those who are below 21 but above the age of 16 can apply for DPS cover. The objective is to insure members as early as possible when they start working, as they are more likely to be healthy and insurable then.

Those who do not wish to have this cover have to sign an opt-out form and the premium will be refunded to their CPF accounts. DPS is administered by two insurers: Great Eastern (GE) Life and NTUC Income.

DPS premiums can be paid using CPF Ordinary Account (OA) or Special Account (SA) savings. While no out-of-pocket cash is required, it also means that the policy will lapse if we have insufficient CPF savings and fail to pay the premiums using cash.

This was what happened to Mr Henry Li, 59, who died of liver cancer in December last year. His DPS policy, which was due for renewal in May last year, had lapsed as he had insufficient CPF money to pay for it and was unaware that he needed to make a cash payment.

Mr Li and his wife were living in a three-room HDB flat and their CPF savings were being used to pay the mortgage. According to his widow, Mrs Li, her husband had no intention to let his DPS policy lapse.

As his OA savings were running low, Mr Li managed to get some monies transferred from his CPF Retirement Account (RA) to his OA in April last year. He had no money in his SA. Mr Li had believed that these monies could be used for both the mortgage and the DPS premium deductions. But he was wrong.

His widow learnt only after his death that the monies transferred from her husband's RA to OA could be used only for housing payments and not DPS premium deductions. The CPF Board said it had sent a letter to Mr Li explaining this before his death, but his wife was unaware of the letter. She recalled that her husband was disoriented and had memory lapses for several months before he died.

DPS insurer GE could have rejected the DPS claim by Mrs Li on the grounds that the policy had lapsed before her husband died. Instead, it honoured the claim on the basis that Mr Li had suffered from a terminal illness before the lapse of the policy, after assessing his health reports.

Mr Patrick Kok, GE's managing director, group operations, said: "GE took into consideration many factors, including detailed hospital medical reports of the diagnosis of the late Mr Li's terminal illness and the extenuating circumstances, chief of which were the actions taken by Mr Li to ensure that his policy did not lapse by arranging for continued payment of his premium through his CPF savings, notwithstanding that he was unaware that this is not permitted."

He said that in addition to delivering on its contractual promise, GE is also committed to "honouring the spirit of the policy and to paying every legitimate claim sensitively, compassionately and efficiently".
GE informed Mrs Li that she would be receiving the full sum assured plus bonuses, which worked out to be about $53,000, after a nominal deduction for outstanding premiums.

Note that you can continue to use your OA savings for insurance premiums under the DPS and the Home Protection Scheme, after setting aside your retirement sum at age 55. However, if you do not have enough savings in your OA, it would be advisable to ensure that you have alternative funding, such as relying on cash payments instead of your CPF savings. This is to avoid the undesirable situation where your insurance plans lapse because there are insufficient CPF savings for premium deductions.

The CPF Board advises that besides OA savings, RA savings in excess of the Basic Retirement Sum can be used for housing purposes. These savings will be transferred to the OA upon request and specifically earmarked for the members' housing needs. Members above 55 can pay their DPS premiums in cash if there are insufficient OA savings.

It advises members who have problems paying their DPS premiums to approach the Board and it will assess such requests on a case-by-case basis.

The annual premiums of DPS range from $36 to $260, depending on which age band you fall into. For those below 34, the annual premium is $36. Premiums for the age band of 35 to 39 are $48; for 40 to 44, it is $84; 45 to 49 is $144; 50 to 54 is $228; and 55 to 59 is $260.

Here's what retirement adviser Providend found out after comparing DPS premiums with those of NTUC Income's iTerm plan, which offers sums assured as low as $46,000. Most term plans' sums assured start from $100,000.
Compared with iTerm, DPS is cheaper in the early phase of life. However, from the age of 45 onwards, the premium increase is significant, meaning that purchasing a private term plan could be cheaper than DPS. This assumes that you have no pre-existing illness by then.

If DPS is kept throughout your working years from age 25 till 60, the total premiums work out to be $4,180, significantly higher than those for iTerm which would be about $1,717 for a woman and $2,268 for a man.

Providend says that DPS policyholders in good health may wish to review alternative plans as they reach 40 to take advantage of the lower premiums.

For national servicemen, a good alternative or add-on is the affordable group term insurance offered by the army.

One downside to DPS is that the cover ceases at the age of 60. As term insurance is meant to cover the policyholder in his working years, the scheme should take note of the current higher retirement age by aligning it with the payout eligibility age for the national annuity scheme CPF Life, which is 65 for those born in 1954 and later.

Unlike DPS, most conventional term plans now provide cover till at least age 70 and up to age 99.

If you have opted out of DPS, you can apply to be insured at a later stage with either Income or GE directly. You will be subject to medical underwriting then.

Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so as we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954.

The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing. Nevertheless, until the scheme is enhanced, for many Singaporeans who do not have adequate life cover, DPS is still a real benefit to families who are left behind to fend for themselves when a breadwinner dies or becomes disabled.

Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so when we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954. The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing.

Friday, June 9, 2017

Hill Street Tai Wah Pork Noodle stall is No. 1 in the Top 50 World Street Food Masters list

Published Jun 7, 2017
Kenneth Goh

SINGAPORE - The one-Michelin-starred Hill Street Tai Wah Pork Noodle stall in Crawford Lane has emerged tops in this year's Top 50 World Street Food Masters list.

The list, which ranks street food eateries around the world, is put together by
the World Street Food Congress that was held in Manila in the Philippines. The
five-day event wrapped up on June 4.

The judging panel said of Hill Street Tai Wah Pork Noodle: "They are the first
family behind this Singapore-invented dish and the second-generation owner,
already in his 60s, has now received worldwide attention as one of the first
street food hawkers to obtain a Michelin Star. The sambal and black
vinegar-laced pork noodle is the stuff addiction is made of and the wait for an
order is about 90 minutes today."

The panel included food commentators, writers and professionals, who looked at
criteria such as ingredients, food hygiene, and quality and flavour of food.
They also factored in the eateries' ability to create job opportunities for the
displaced and disadvantaged in their respective countries.

Joining Hill Street Tai Wah Pork Noodle on the list are 13 other Singapore

They are Chey Sua Fried Carrot Cake in Lorong 1 Toa Payoh (No. 10), Master Tang Wanton Mee in Sixth Avenue (No. 16), An Ji Sang Mee in Chinatown Complex Food Centre (No. 24), Tan's Kueh Tutu in Havelock Road (No. 26), KEK Seafood in Bukit Merah Lane 1 (No. 28), Hoy Yong Cze Cha Seafood in Clementi Avenue 2 (No. 30), Sin Kee Famous Chicken Rice in Holland Drive (No. 33), Hwa Heng Beef Noodle in Bendemeer Road (No. 40), Kim's Fried Hokkien Mee in Jalan Eunos (No. 42), Soon Wah Fishball Kway Teow Mee in Newton Circus Food Centre (No. 44), Heng Kee Curry Chicken Noodle in Hong Lim Food Centre (No. 45), Ambeng Cafe in Upper Changi Road (No. 48) and Ah Lim Oyster Omelette in Berseh Food Centre (No. 50).

The judges also lauded these eateries, which they call "one-dish entrepreneurs".
They said the eateries sell food that are " comforting to their communities" and

Other countries in the list include the United States, Thailand, Mexico,
Malaysia, Indonesia, Vietnam, China, the Philippines and India. The other stalls
that make up the top five are Franklin's BBQ in Texas, Che Paek Pu Ob Woon Sen in Bangkok which sells seafood glass noodles, Aling Lucing Sisig in Pampanga, the Philippines, and noodle stall Pak Sadi Soto Ambengan in Jakarta.

The World Street Food Congress is organised by Singapore food company
Makansutra, which is founded by KF Seetoh. The congress' council members include American celebrity chef Anthony Bourdain, veteran Indonesian chef William Wongso and Danish chef Claus Meyer.

Sunday, April 16, 2017

HDB leases and what's in store for retirement as society ages

Ng Jun Sen
Apr 15, 2017

Experts weigh in on how HDB flat owners should prepare for the future as their home ages with them, and how other places have dealt with lease expiry.

National Development Minister Lawrence Wong's blog post of March 24, in which he cautioned buyers of older resale flats against paying high prices on the assumption that their flats would be "Sers-ed", has set some home owners thinking and counting down the remaining years on their HDB flat leases.

Mr Wong made clear that the Selective En bloc Redevelopment Scheme (Sers) - under which the HDB acquires ageing blocks for redevelopment, compensates residents at market rates for their old flats and lets them buy new units nearby at subsidised rates - was never intended for all flats.

Interviews with home owners in three mature estates of Toa Payoh, Queenstown and Geylang - where, from 2014 to last year, there were the most resale transactions of flats with less than 60 years left on their 99-year lease - found that many had indeed expected a windfall from Sers. Mr Wong's word of caution has left young home owners - like the one who gave his name only as Mr Lim, 30, who bought a Lorong 8 Toa Payoh flat two years ago - wondering whether he will still have a home when his lease expires in 57 years.

A Queenstown resident, who owns a three-room Mei Ling Street flat that has 51 years of lease remaining, remains hopeful that he will be among the lucky minority to be picked. "They Sers-ed the Tanglin Halt area nearby. Shouldn't the Government pick us too?"

Then there is IT engineer Andy Zhang, 40, who broke the record last year for spending the most on a standard, non-terraced flat that is more than 40 years old. He paid $950,000 because the flat's location in Bukit Timah shortens his commute to his job in the city and means his seven-year-old daughter can walk to her primary school nearby. Still, he could not hide his look of concern when told the million-dollar flat will turn to zero value in 57 years' time, and the Government will have the right to retake his flat with no compensation.
A chart by Drea, which provides market analysis, showed that in Geylang, Toa Payoh and Queenstown, the average price of a low-floor unit is about the same for a 30-year-old flat as for a 50-year-old one. That suggests home buyers are currently insensitive towards the lease issue.

On Wednesday, Mr Wong once again addressed the issue of HDB leases, but, this time, he assured home owners that HDB flats can still be seen as retirement nest eggs as they "provide a good store of asset value, so long as you plan ahead and make prudent housing decisions".


There are historical reasons for why HDB flat owners expect the value of their home to keep rising. In the 1990s, when asset enhancement was a key goal of the Government, then Prime Minister Goh Chok Tong said in a 1992 speech: "It is in your interest to ensure that the value of your flats continues to rise." That was his argument for why flat owners should support the Government's upgrading programme.

In 1994, then Senior Minister Lee Kuan Yew also spoke of HDB flats as investments: "I would start off with a five-room or an HDB executive... quickly, before my income ceiling takes me beyond that. You buy a flat in Bishan, it's going today for half a million. So I would get there first, stay five years, seven years, and then move out."

For years, HDB prices rose steadily. It was only when recessions hit Singapore around the turn of the century that resale prices went on a roller-coaster ride. By 2013, then National Development Minister Khaw Boon Wan signalled a need to relook the HDB flat's role as an asset. "Looking ahead, as we may no longer get the same kind of returns from reselling an HDB flat as in the past, how will its role as an asset be affected?"

So what does that mean for home owners who need to rely on their HDB flats as a source of retirement income? They should not assume that the price of their flat will go up, says OCBC Bank's vice-president and senior investment strategist Vasu Menon. "Hoping for an HDB flat to appreciate in price by the time you retire, so that you can unlock value by selling the flat, is not a sound strategy."

His advice to HDB dwellers is to have other sources of retirement income, such as investments in stocks, bonds and unit trusts. Then, if the value of their flat appreciates by the time they retire, it will be a "bonus".

Mr Vinod Nair, chief executive of, warns against treating property as "a silver bullet" that will give home owners enough money for retirement. Even before the recent discussion on Sers, it was "fast becoming clear that buying Singapore property for investment was no longer going to be as lucrative as 10 years ago", he adds.

Monetisation schemes are available to HDB owners, and that was a point Minister Wong was at pains to put across in his latest post.

Three options are available.

The Lease Buyback Scheme, launched in 2009, allows owners of four-room flats or smaller to sell the remaining years of the lease back to the HDB. The proceeds go to the Central Provident Fund (CPF) Life national annuity scheme in the flat owner's name, which gives him a lifelong cash payout.

The elderly can also downgrade to smaller flats or HDB studio apartments and benefit from the Silver Housing Bonus scheme, under which the Government gives them a cash bonus of up to $20,000. The proceeds from the sale of their larger flat will go to topping up their CPF Retirement Account. There is also the option of subletting a room for rental income.

But these monetisation schemes depend on prevailing market conditions and come with eligibility criteria. To qualify for the Lease Buyback Scheme, a flat must have at least 20 years of lease left. Five-room and larger flats are excluded.

Home owners who plan to monetise their flats also need to take into account the age of their flats. Those who wish to downgrade and benefit from the Silver Housing Bonus need to be aware that would-be buyers are subject to CPF loan restrictions if a flat has less than 60 years remaining on its lease. The problem is compounded when one considers Singapore's rapidly ageing population. According to the Population White Paper of 2013, the number of those aged 65 and above will hit 900,000 by 2030, when for every one elderly person, there will be only two working adults. That means the older generation will be seeking to downsize their ageing flats, selling to a shrinking pool of younger buyers.

That is why R'ST director Ong Kah Seng believes that "beyond the next 10 years, this (current) set of flat-monetisation options for the elderly may be insufficient as we are entering an ageing society".


Since no HDB flat has yet hit 99 years, no one really knows what will happen when a flat's lease expires. Of the total stock of about one million HDB flats, 70,000, or 7 per cent, are more than 40 years old. About 280,000 units are between 30 and 40 years old.

With about a third of all HDB flats today older than 30, that means that in about 60 years, some 350,000 flats will be seeing the end of their leases if nothing is done about them.

Mr Nair thinks that the Lease Buyback Scheme could be enhanced. Or the Government might come up with a new scheme to help owners of very old HDB flats who wish to live in their flats a while longer.

In Britain, the law states that leases are tenancies, and the leaseholder is essentially a tenant. Unless the tenant or the landlord decides to end the tenancy, it will continue on the same terms after the lease runs out.

This is essentially an automatic renewal of lease, and British law also allows eligible residential owners to extend the lease - by 90 years for a flat and by 50 for a landed house - at a cost pegged to market rates.

In China, Premier Li Keqiang said last month that lawmakers are drafting a real estate provision that would allow property under a 70-year lease to be renewed unconditionally, though details are still not clear. Hong Kong is an interesting case due to its varied history under different rules. Back in 1898, the Chinese government leased the islands surrounding Hong Kong, known as the New Territories, to Britain for 99 years under the Second Convention of Peking. The Special Administrative Region met its own leasehold cliff in 1997, the same year Hong Kong was returned to China. This was dealt with at the stroke of a pen to extend the leases for 50 years without payment of additional premium, but subject to an annual rent of 3 per cent of the property value.

Lease extension and renewal seem to be the textbook solution. But these options will be problematic in high-rise Singapore, where efficient use of land is also a priority. If only a handful of households in a block choose to extend their leases, it would leave them as the only residents in a mostly empty building.

It must also be noted that lease renewal and extensions are not permanent solutions. They merely delay the inevitable, that the lease will eventually come to an end again and create more uncertainties, now that the home is older than before, says Mr Ku Swee Yong, chief executive of International Property Advisor.

Could the solution be an alternative to Sers, such as an en bloc scheme to allow the Government to reacquire sites with less redevelopment potential before lease expiry, but at a lower cost? This "Sers-lite" scheme could work, says Mr Ku. The Government becomes the willing buyer and it can choose to redevelop the site at any time, with less urgency as with Sers. And since there is no need to tear the blocks down right away, the units can still be rented out to the previous home owners, who would be able to pay for it since they would have proceeds from the reacquisition.

The benefits to home owners will not be at the same level as those under Sers, but they would not leave elderly Singaporeans twisting in the wind when their flats reach the end of the road.

But with another 43 years to go before the oldest HDB flats - which are located in Stirling Road - turn 99, there is no need to rush a policy that will have a major impact on Singapore's successful public housing story.

Some may also question whether the Government of today has the mandate to decide the fate of something so far down the line.

By the time Mr Zhang's flat reaches the end of its lease in 2073, he will be 97 years old. His two daughters, now seven and four, will be 64 and 61 respectively. He says with a laugh that, by then, the world will be a very different place.

While the million-dollar flat may no longer be worth anything, the money would have paid for a comfortable and convenient nest for his young family, a place for his daughters to grow, he hopes, to independence.

Monday, April 10, 2017

CPF Life and Medisave

Lorna Tan
Apr 9, 2017

The Sunday Times outlines the CPF Life scheme and the Medisave Account.


Life is a national annuity scheme that provides monthly payouts for as long as you live. This gives you greater peace of mind in retirement as you do not have to worry about outliving your savings. This is especially important as Singaporeans are living longer.

About half of Singaporeans who are 65 today are expected to live beyond the age of 85 and a third of them will live beyond 90. Having an income that will last you for as long as you live is more vital than ever.

You will be placed on CPF Life if you are a Singapore citizen or permanent resident born in 1958 or after, and have $60,000 or more in your Retirement Account (RA) when you turn 65.

If you are not placed on CPF Life, you can apply to join the scheme any time from age 65 to before you turn 80. Alternatively, you can remain on the Retirement Sum Scheme (formerly known as the Minimum Sum Scheme), where you will receive a monthly payout until your RA balance runs out.

The CPF Board will write to you again nearer to your 65th birthday to explain the decisions you need to make.

While you do not need to make any decision or take any action now, it is good to understand what CPF Life plans are available. There are three plans under CPF Life, known as Standard, Basic and Escalating plans.

Each CPF Life plan provides a different combination of trade-offs between the amount of monthly payouts you will receive and the bequest you will leave for your beneficiaries.


Your Medisave contributions will go into your Medisave Account (MA) until the balance reaches the Basic Healthcare Sum (BHS) for that year.

Amounts above this sum will be transferred to your RA or Ordinary Account (OA) to boost your monthly payouts in retirement.

The BHS is the estimated savings you need for your basic subsidised healthcare needs in old age. It will be adjusted annually, in January, to keep pace with the growth in Medisave use by the elderly. The BHS for this year is $52,000.

Once you reach age 65, your BHS will be fixed at that year's BHS for the rest of your life.


If you have not met your BHS, you may apply to transfer the savings in your Special Account (SA) and/or OA to your MA, up to your BHS.

To do so, you have to be aged 55 and above and have the Full Retirement Sum or Basic Retirement Sum with sufficient property charge/ pledge in your RA.

You may also apply to transfer the savings in your SA and/or OA to the MA of your loved ones aged 55 and above, up to their BHS. Loved ones refer to spouses, siblings, parents, parents-in-law, grandparents and grandparents-in-law.

The savings which you transfer to your loved ones' MA can be used to pay for their own and their immediate family members' medical expenses, as well as the premiums of approved medical insurance schemes such as MediShield Life.


CPF series: Something to plan for when you're 54

Using CPF to pay for housing and insurance after age 55

Where to get CPF information

Monday, April 3, 2017

CPF: How you can benefit from enhancements to the system

Lorna Tan
Apr 2, 2017

The Sunday Times focuses on how you can help your loved ones via the Central Provident Fund Topping-Up Scheme.

Many Central Provident Fund (CPF) members have benefited from the recent enhancements to the CPF system.

The improvements include a raised CPF salary ceiling of $6,000 from $5,000, and an increase in contribution rates for those aged 50 and above.

According to the CPF Board, more members are topping up to their own and their family members' accounts via the Retirement Sum Topping-Up Scheme. Last year, 49,000 members - up 27 per cent from 2015 - received cash top-ups of $860 million in total.


In a nutshell, this scheme allows you to build your retirement savings by topping up your own CPF accounts or those of your loved ones, or anyone else. You can opt to top up your own or your loved ones' Special Accounts (below age 55) or Retirement Accounts (RA) for those aged 55 and above.


Many ways to do it

Q How can I do a top-up?

A By any of the following:

•Log on to the CPF website using your SingPass under My Requests.

•Through the e-cashier facility on the CPF website.

•At any AXS station.

•Download and complete the Retirement Sum Topping-up (RSTU) form on the CPF website; mail the completed form and cheque to CPF Board.

•Monthly/yearly Giro deductions

Q When should I top up?

A You are encouraged to make top-ups early in the year to facilitate timely processing.

If you are topping up with a cheque, your application must reach the board by Dec 31 at 10am, to enjoy tax relief for the following year's tax assessment.

If Dec 31 falls on a weekend, your application should reach the CPF on the last working Friday of the year at 10am. This is to allow sufficient time for the cheque to be cleared.

Topping up early will help you earn more interest throughout the year.

Note that all top-ups under the RSTU are irreversible. This means that the savings transferred to your/your loved ones' accounts cannot be transferred back to your originating CPF account.

Lorna Tan


You can make a cash top-up for anyone but it may not result in a tax relief as certain conditions have to be met. In total, you may enjoy tax relief of up to $14,000 per calendar year if you make cash top-ups for:

•Your parents, parents-in-law, grandparents, grandparents- in-law, spouse or siblings. To qualify, your spouse/siblings must either be handicapped or have income that did not exceed $4,000 in the preceding year.

•Yourself (or your employer makes a cash top-up for you). Note that you can enjoy tax relief for cash top-ups to your own or your recipient's RA only up to the current Full Retirement Sum (FRS) which is $166,000 for those who turned 55 from Jan 1. Cash top-ups beyond the current FRS will not be eligible for tax relief. Your employer will receive an equal amount of tax deduction.


You can top up your RA or your parents' RA to enjoy higher monthly payouts. This can be done via regular monthly and/or yearly top-ups to your own or loved ones' CPF accounts through Giro, which can be monthly and/or yearly arrangements.

This makes it convenient for members to do top-ups on a regular basis to benefit from the Retirement Sum Topping-Up Scheme, without the hassle of having to complete forms or make cheque payments. You can earn more interest by topping up earlier in the year. So don't wait till the end of the year to do a top-up.


Introduced in January last year, the ERS is an additional retirement sum option aimed at boosting our nest egg so we can enjoy more retirement income in our golden years.

Recipients aged 55 and above can receive cash top-ups or CPF transfers to their RA up to the current ERS, which is three times the Basic Retirement Sum (BRS) of $83,000. The prevailing ERS is $249,000.

Of the 49,000 that received cash top-ups last year, 9,000 members exercised the ERS option. Those with ERS at age 55 will receive about $1,900 per month for life when they reach the Payout Eligibility Age (PEA) of 65.

Mr Teh Ah Hock performed top-ups to his wife Julia's CPF Retirement Account in 2015 and last year from his CPF savings. He has also topped up his own Retirement Account. The couple want to achieve a financially secure future by ensuring higher monthl


Members on the national annuity scheme CPF Life can use the top-up monies to buy an extra CPF Life annuity by writing to the CPF Board. Most people would rather leave the money in their RA and earn the interest. During the yearly review of your monthly payout in July, the top-up monies will be disbursed to you as an additional monthly payout. For members on the Retirement Sum Scheme (formerly Minimum Sum Scheme):

•If you receive top-ups below the FRS applicable to the cohort: The top-ups will go towards increasing the payouts, which will be adjusted automatically and capped at the full payout for the cohort.

•If you receive top-ups beyond the FRS in cash applicable to the cohort: The top-ups will go towards extending the payout duration. However, the recipient may apply to the CPF Board for an increased payout level, computed to last for 20 years from the recipient's PEA or five more years from application date, whichever ends later.


Will they be refunded? Cash top-ups made on/after Nov 1, 2008 will be treated as cash gifts to the recipient. Any remaining cash top-ups will be paid to the recipient's nominees based on his CPF nomination or will be transferred to the Public Trustee for distribution according to the intestacy laws if there is no nomination.

For CPF top-ups made on/after Nov 1, 2008, any remaining top-up monies will be returned to the giver's CPF account, capped at the principal top-up amount, that is, minus earned interest.

For cash and CPF top-ups made before Nov 1, 2008, the remaining top-up monies will be returned to the giver's Ordinary Account (OA), capped at the principal top-up amount. If the giver dies before the recipient, then upon the death of the recipient, the topped-up monies returned to the giver's CPF accounts will be paid to the giver's appointed nominees.


It is important to review our parents' healthcare insurance policies and ensure they are adequately covered. You may wish to consider a personal accident policy for your parents, which covers outpatient charges in case of a fall as well.

Hold conversations with your parents on estate planning which includes matters like wills, and the Lasting Power of Attorney as well as the Advanced Medical Directive.

If they want to distribute their CPF savings according to their wishes, help them to arrange an appointment with CPF Board to make a CPF nomination.

Encourage your parents to stay healthy by staying active and keeping a healthy diet.

A head start in retirement planning

Wednesday, March 8, 2017

Property market perking up, but rents are down. To buy or not to buy?

Wong Siew Ying
PUBLISHED 8 March 2017
The Straits Times

There's renewed interest in the private residential property market. But the foreigner population is declining and growth is slowing. Investors, be cautious.
Owning an investment property and collecting good rental income is one version of the Singapore Dream wafting through show-flats everywhere.

Real estate investment - once considered a no-brainer as prices kept going north - has become more complicated in recent years, with changing market dynamics brought about partly by new government policies and measures to cool the market.

More than three years since the last set of cooling measures was introduced, talk is rife that home buying sentiment has improved and that the private residential market is nearing its trough.

Demand for new homes perked up last year, with sales rising by 7 per cent to 7,972 units from the 7,440 units in 2015.

The sales momentum appears to have kept up. Two recent new condominium projects - The Clement Canopy in Clementi and Grandeur Park Residences in Tanah Merah - booked healthy sales on their first weekend of launch.

The prospect of an improving property market outlook, cheap loans and relatively more affordable small apartments have lured many investors back to real estate.

However, even as buyers' interest picks up, investors ought to be wary of the persistently poor rental market.

Property remains an attractive long-term investment, but thorough consideration must be made - beyond just interest rate movements and location of the project - before investing in one.

"The whole market is different now; there are lots more boxes to tick before you buy a property," noted Mr Desmond Sim, head of CBRE Research for Singapore and South-east Asia.


The property market is closely tied to the economy. For many years, home owners and landlords have benefited from capital appreciation and healthy rental income.

However, the growth outlook has darkened considerably since, amid greater global uncertainties.

"Much of the gain was due to the successful transformation of the Singapore economy and the building of the integrated resorts. GDP growth used to average about 6 per cent annually, but the pace has slowed down to only 2 to 3 per cent in recent years," said Cushman & Wakefield research director Christine Li.

The slower growth in the Singapore economy, weakness in the oil and gas sector, and continued tightening of the foreign worker policy have crimped business expansion and the hiring of foreigners.

Figures from the Manpower Ministry showed that foreign employment - the number of foreigners in jobs - fell by an estimated 2,500 last year. The number excludes domestic workers, and represents the first decline since 2009. From 2010 to 2015, the foreign workforce - excluding maids- grew, with the largest increase of 79,800 in 2011, and the lowest rise of 22,600 in 2015. There were about 1.15 million foreign workers, excluding maids, in Singapore as at the end of last year.

The number of permanent residents here dipped slightly from 527,700 in June 2015 to 524,600 in the middle of last year.

A declining foreigner population here, coupled with an influx of newly built units, will dampen rentals.

"Investors need to take a longer-term view in buying property. They have to look beyond the glitz of the show-flat and assess the property based on its fundamentals,"said Dentons Rodyk & Davidson senior partner Lee Liat Yeang.


CBRE Research noted that islandwide rents fell 13 per cent as at the end of last year from a peak in the third quarter of 2013, while the vacancy rate crept up from 6.1 per cent to 8.4 per cent over the same period.

Mr Sim added: "I expect vacancies to potentially rise to 10 per cent in the next few quarters. Rents will remain under pressure, amid fewer expatriates and the cut in their housing budgets."

Property agents say it now takes twice as long and multiple viewings to secure a tenant - and that was for landlords realistic about rents.

PropNex Realty senior associate director Anthea Yeo said: "Some landlords still have high expectations. They think cutting rents by $100 or $200 is enough. Some even want to mark up rents because tenants would bargain, they say."

She has slashed the rent for her one-bedroom apartment in Novena from $3,700 to $2,000 over the years, adding: "In the past, I leased to a Japanese expat, now it's a Singaporean student. I have to review the rent again when the lease is up for renewal."

International Property Advisor key executive officer Ku Swee Yong says prospective investors also have to assess the profile of the potential pool of tenants and companies located in nearby commercial hubs. Are the companies downsizing? Is there a surfeit of Housing Board flats available nearby for rent, which vie for tenants on tighter budgets?


On the plus side, the longstanding low interest rate environment has sweetened the deal for home buyers. Judging that the Government isn't about to lift property curbs any time soon, many are trickling back to the market to buy.

Ms Li added: " There is so much liquidity in the market, and buyers continue to favour real estate compared to stocks, bonds and commodities due to the hedge against inflation."

The moderation in prices has also nudged buyers to pick up units, including housewife Adeline Soong, who bought a two-bedroom Grandeur Park Residences unit for about $840,000 for investment.

"A slowing economy and weak rentals are worrying, but I think it's best to purchase now before prices rise," said Ms Soong, 40, who believes prices have bottomed.

Overall home prices fell by the slowest rate last year, amid a three-year losing streak - down 3.1 per cent compared with declines of 3.7 per cent in 2015 and 4 per cent in 2014. Home values have declined by about 11 per cent since the third quarter of 2013, following a raft of cooling measures - including the total debt servicing ratio (TDSR) - which had tamed property demand.

On this note, investors hoping to sell their properties for a hefty capital gain should know that the TDSR - which limits a borrower's total monthly debt obligations to 60 per cent of the individual's monthly gross income - will peg back their asking prices.


Observers say the lag in the leasing market and the pickup in property purchases put the market in somewhat of a "two-speed mode".

Dentons Rodyk & Davidson's Mr Lee notes: "This divergence between the pace of buying and leasing is set to widen this year, as the rental market remains weak in the face of newly completed properties coming into the market."

Many investors, like civil servant Ms Lakshmi T., are hoping that the rental market will recover by the time their new apartments are built - usually in three to four years.

"Weak rentals are a concern but I expect the market to turn in the coming years," said Ms Lakshmi, 56, who bought a one-bedder - also at Grandeur Part Residences - over the weekend for about $618,000.

She was attracted to the project's amenities and proximity to the MRT station and Changi Business Park, and is not relying on rent to service the monthly mortgage.


Analysts advise that those looking to invest in property now take a longer-term investment horizon, as there is limited potential for short-term gains, unlike in the past when prices could appreciate by 60 per cent in a few years.

"Investors have to consider the cash-flow potential of the property and whether it could cover mortgage and running costs, and need to be prepared for negative cash flow for the periods that they cannot find a tenant," noted Ms Tang Wei Leng, managing director at Colliers International, Singapore.

Most importantly, experts say, think about job security and stability of income, which directly affect one's ability to hold on to an investment property during rough times. In any form of investments, there are no sure bets, even for the most astute investor - so the advice is to think hard before ploughing that hard-earned cash into real estate.