He earns $850 and owns a two-room flat

Dear Straits Times,

I refer to the 9 Mar 2012 article “He earns $850 and owns a two-room flat” [1].

It was reported that Mr Charlie is an odd job labourer and that his monthly HDB instalment of $83 will be paid out of his CPF [1]. Paragraph 4.27 of Budget Speech 2007 tells us that odd job workers do not receive CPF [2]. How can Charlie, the odd job labourer who is not supposed to receive CPF get the CPF to pay for his monthly HDB instalments?

We leave aside that question and assume that Mr Charlie is a regularly employed odd job labourer who receives regular CPF contributions from his employer and that he will continue to stay employed for the next thirty years.

Mr Charlie’s monthly instalment of $83 over 30 years corresponds to a starting loan amount of between $20,500 and $20,700 [3]. For simplicity, let’s assume Mr Charlie’s starting loan amount is $20,500. We can do some simple calculations as follows:

S/No Item Amount
1 Price of HDB after discount [1] $59,220
2 Loan amount [3] (can be worked out too) $20,500
3 Deduction from CPF savings ( (1) – (2) ) $38,720
4 CPF savings [1] $40,000
5 Remaining CPF ( (4) – (3) ) $1,280

Thus, like most households, Mr Charlie’s CPF has been almost wiped out after the flat purchase. We therefore need to also examine whether Mr Charlie will have sufficient CPF for retirement at the end of 30 years. In doing so, we must take into account Mr Charlie’s wish to pass on his flat to his children [1]. Since Mr Charlie doesn’t wish to sell his flat, pledging his property towards his CPF minimum sum won’t be appropriate since he will not monetise his flat for retirement money. He would therefore have to accumulate his CPF minimum sum in cash for retirement over the next thirty years.

The table below shows that by taking into account his salary increase over the next thirty years, the Workfare and CPF he will receive with interest, Mr Charlie won’t be able to meet the CPF minimum sum of $120,000 (2003 prices) or the Medisave minimum sum of $25,000 (2003 prices) in cash thirty years down the road.

Age Monthly salary [4] Workfare (credited into CPF per year) [5] Ordinary account (monthly) [6] Medisave (monthly) [6] Special account (monthly) [6] Ordinary account balance Medisave account balance Special account balance Ordinary + special account balance Medisave Minimum sum [7] CPF minimum sum [7]
33 $850 $0 $95.93 $54.43 $46.64 $1,180 $679 $1,913 $3,772 $32,000 $131,000
34 $865 $0 $97.66 $55.41 $47.48 $2,411 $1,398 $2,582 $6,391 $32,832 $134,406
35 $881 $707 $99.41 $56.41 $48.33 $4,418 $2,158 $3,289 $9,865 $33,686 $137,901
36 $897 $707 $101.20 $57.42 $49.20 $6,498 $2,961 $4,034 $13,494 $34,561 $141,486
37 $913 $707 $103.03 $58.46 $50.09 $8,653 $3,809 $4,821 $17,282 $35,460 $145,165
38 $929 $707 $104.88 $59.51 $50.99 $10,884 $4,704 $5,650 $21,238 $36,382 $148,939
39 $946 $707 $106.77 $60.58 $51.91 $13,194 $5,648 $6,524 $25,366 $37,328 $152,811
40 $963 $707 $108.69 $61.67 $52.84 $15,585 $6,644 $7,444 $29,673 $38,298 $156,784
41 $980 $707 $110.65 $62.78 $53.79 $18,060 $7,693 $8,414 $34,167 $39,294 $160,861
42 $998 $707 $112.64 $63.91 $54.76 $20,622 $8,798 $9,434 $38,854 $40,316 $165,043
43 $1,016 $750 $114.67 $65.06 $55.75 $23,317 $9,962 $10,507 $43,785 $41,364 $169,334
44 $1,034 $750 $116.73 $66.23 $56.75 $26,104 $11,187 $11,635 $48,926 $42,440 $173,737
45 $1,053 $1,000 $118.83 $67.42 $57.77 $29,243 $12,476 $12,822 $54,541 $43,543 $178,254
46 $1,072 $1,000 $120.97 $68.64 $58.81 $32,487 $13,832 $14,069 $60,387 $44,675 $182,889
47 $1,091 $1,000 $123.15 $69.87 $59.87 $35,839 $15,257 $15,378 $66,474 $45,837 $187,644
48 $1,111 $1,000 $125.36 $71.13 $60.95 $39,302 $16,755 $16,754 $72,811 $47,028 $192,523
49 $1,131 $1,000 $127.62 $72.41 $62.05 $42,879 $18,329 $18,199 $79,407 $48,251 $197,528
50 $1,151 $1,000 $129.92 $73.71 $63.16 $46,574 $19,982 $19,715 $86,271 $49,506 $202,664
51 $1,172 $1,000 $132.26 $75.04 $64.30 $50,390 $21,718 $21,306 $93,414 $50,793 $207,933
52 $1,193 $1,000 $134.64 $76.39 $65.46 $54,331 $23,540 $22,975 $100,846 $52,113 $213,339
53 $1,214 $714 $137.06 $77.77 $66.64 $58,107 $25,452 $24,726 $108,285 $53,468 $218,886
54 $1,236 $714 $139.53 $79.17 $67.84 $62,008 $27,458 $26,562 $116,027 $54,859 $224,577
55 $1,259 $1,071 $142.04 $80.59 $69.06 $66,403 $29,562 $28,486 $124,451 $56,285 $230,416
56 $1,281 $1,071 $144.60 $82.04 $70.30 $70,939 $31,768 $30,503 $133,210 $57,748 $236,407
57 $1,304 $1,071 $147.20 $83.52 $71.57 $75,621 $34,081 $32,616 $142,318 $59,250 $242,554
58 $1,328 $1,071 $149.85 $85.02 $72.85 $80,453 $36,506 $34,830 $151,788 $60,790 $248,860
59 $1,352 $1,071 $152.54 $86.55 $74.17 $85,438 $39,046 $37,148 $161,632 $62,371 $255,330
60 $1,376 $1,428 $155.29 $88.11 $75.50 $90,948 $41,707 $39,577 $172,232 $63,992 $261,969
61 $1,401 $857 $158.09 $89.70 $76.86 $96,044 $44,495 $42,119 $182,658 $65,656 $268,780
62 $1,426 $857 $160.93 $91.31 $78.24 $101,303 $47,415 $44,780 $193,498 $67,363 $275,769
63 $1,452 $857 $163.83 $92.95 $79.65 $106,729 $50,471 $47,565 $204,766 $69,115 $282,939

At the age of 63, Mr Charlie would have accumulated $204,766 in his CPF retirement account in cash compared to the projected CPF minimum sum of $282,939 then. He would have $50,471 in his Medisave account compared to the projected $69,115 Medisave minimum sum then. So even if Mr Charlie doesn’t touch his Medisave or doesn’t draw from his CPF to pay for his children’s education over the next thirty years, he will still not be able to accumulate the minimum sum in cash around the time when he retires.

Like so many other Singaporeans, Mr Charlie can ‘afford’ a flat but cannot afford to retire. If Mr Charlie is eventually compelled to sell his flat to fund his retirement thirty years down the road, it only goes to show that while he can afford to ‘buy’ a flat, he can’t afford to keep it. Wouldn’t that show that he can’t actually afford one to begin with?

[1] Straits Times, 9 Mar 2012, “He earns $850 and owns a two-room flat”
CAN a Singaporean who earns $850 a month afford to buy a Housing Board flat? Mr Mohammad Charlie Jasni says yes. The odd-job labourer earns that amount, and he and his family will be moving into a new two-room HDB flat in Punggol by the end of the year. He had successfully balloted for the 45sq m build-to-order unit in August 2009. It cost $99,220, but because he earns less than $5,000 a month, he qualifies for a government housing grant that gives him $40,000 to offset the flat’s price. This means he has $59,220 left to pay, which he will do using his Central Provident Fund (CPF) savings. He and his wife already have about $40,000 in their CPF accounts, and this will grow as he continues to work. Based on HDB’s calculations, he needs to pay a monthly housing instalment of $83 over 30 years. ‘By paying the $83 out of my CPF, it means I have that little more for daily expenses,’ said Mr Charlie, 33.

But he does not regret buying the unit. He hopes to pass the flat – or a bigger one should they ever upgrade – to his children.

[2] Budget Speech 2007, Helping Informal Workers, http://www.mof.gov.sg/budget_2007/budget_speech/subsection14.5.html

4.25 There is another group whom we want to encourage to join the CPF system and to benefit from the WIS. These are the informal workers who do odd jobs on an ad-hoc basis. Their employers do not pay their CPF, either because they cannot afford to do so, or because the workers prefer to take their entire wages in cash.

4.26 For purposes of the WIS scheme, we will treat informal workers just like the self-employed. Informal workers will receive WIS benefits if they work and contribute to their Medisave. They must pay Medisave at the same rate as the self-employed, and they will receive the same Workfare benefits as the self-employed, in other words, two-thirds of what regular employees receive, but all paid into their Medisave accounts.

4.27 We want, however, to caution employers who avoid paying CPF for their workers. Under the CPF Act, so long as a worker works regularly for any employer, that employer is liable to pay their CPF. As we institutionalise Workfare, MOM and CPFB will step up enforcement to ensure that payment for CPF is complied with.
[3] Obtaining the starting HDB loan amount

We can make use of HDB’s “Enquiry on Monthly Instalment” at http://services2.hdb.gov.sg/webapp/BB29MTHLY/BB29SMTHLY, key in a loan amount of between $20,500 to $20,700, repayment period of 30 years and 2.6% interest rate to obtain a monthly instalment of $83 as shown below:

[4] Estimating salary increase

We can obtain from Ministry of Manpower’s Manpower Research and Statistics Department’s Jan 2012 publication “Employment Situation 2011″, statistical appendix A1, Table 1 the gross monthly income of the median wage worker and the 20th percentile worker since 2001:

Year Median income without employer CPF 20th percentile income without employer CPF
2001 $2,000 $1,200
2002 $2,000 $1,192
2003 $2,000 $1,192
2004 $2,000 $1,170
2005 n.a. n.a.
2006 $2,072 $1,100
2007 $2,167 $1,200
2008 $2,492 $1,300
2009 $2,500 $1,300
2010 $2,588 $1,400
2011 $2,708 $1,500
Annualised increase 3.1% 2.3%

Assuming Mr Charlie is the 0th percentile income worker, a simple ratio proportioning would yield an annualised 1.8% increase in his gross wage.

[5] Estimating Workfare

The amount of Workfare Mr Charlie will get over the next thirty years is complicated by the fact that there is a difference in the Workfare payout between employees and self-employed:

http://ask-us.cpf.gov.sg/explorefaq.asp?category=23045

Normally, odd job labourers are treated as self-employed as they are required to pay to their own Medisave to qualify for Workfare:

http://mycpf.cpf.gov.sg/CPF/Templates/SubPage_PrinterFriendly_Template.aspx?NRMODE=Published&NRORIGINALURL=%2FMembers%2FGen-Info%2FWIS%2FFAQs_WIS.ht&NRNODEGUID=%7B0AFCD966-2976-44BA-ABB8-FF6084F17A72%7D&NRCACHEHINT=Guest

23. I am an odd job labourer. Can I qualify for WIS?

Yes, if you have been engaged in regular work for at least 3 months in a six month period or six months in the calendar year, as well as meet the other criteria.

You can register with CPF Board to pay your Medisave liability and receive WIS into your Medisave account.

On the other hand, Mr Charlie’s regular receipt of CPF means he is like an employee instead. We shall assume Mr Charlie is an employee who will receive higher Workfare payouts than if he were self-employed.

[6] Obtaining monthly CPF contributions

Assuming Mr Charlie is a permanently employed odd job labourer, we can use the CPF contribution calculator: http://www.cpf.gov.sg/cpf_info/Online/Contri.asp, to obtain Mr Charlie’s monthly CPF top up as $178.93, $54.43 and $46.64 for the Ordinary Account, Medisave Account and Special Account respectively. But because $83 is used to service the HDB loan, Mr Charlie’s Ordinary Account top up is only $95.93 each month.

[7] Estimating CPF minimum sum

The CPF minimum sum and the Medisave minimum sum has been set at $120,000 (2003 prices) and $25,000 (2003 prices) respectively and so must be adjusted for inflation every year. We can obtain the CPI from http://www.singstat.gov.sg/stats/themes/economy/hist/cpi.html. Average inflation since 1980 is 2.6% per year which is a conservative figure compared to inflation in recent years.

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