27 August 2014

Talking Point — CPF Reform

Channel News Asia's Talking Point recently dealt with the proposed reforms of the Central Provident Fund scheme that were outlined by Prime Minister Lee Hsien Loong at his National Day Rally speech.

Permitted Withdrawals I
Mr Lee said:

"... I appreciate why some CPF members want to take more money out because they have been saving up over a lifetime of work, they want to use some of these savings, they want to do something they have longed wanted to do, some lifetime ambition. They may want to go on a journey, they may want go on a haj. Or maybe they have run into some family emergency and need money to deal with the emergency.

"So ... I think we should allow people the option to take out part of their CPF savings in a lump sum if they need to but subject to some limits."

05 August 2014

Understanding MediShield Reserves

During the recent Parliament debate, several Members spoke on the future capital adequacy of MediShield Life.

Since MediShield Life's reserves are derived from (i) MediShield's reserves, which will be transferred to MediShield Life; and (ii) annual surpluses, overly high reserves mean that premiums are excessive.

So how much is enough?

Incurred Loss Ratio, Not Claims Ratio
Using MediShield as an example, Mr Gerald Giam compared annual claims to annual premiums (the claims ratio), and concluded that premiums were excessive.

As Dr Janil Puthucheary pointed out, we have to consider the change in MediShield's liabilities in addition to the annual claims versus the premiums collected (the incurred loss ratio).

According to him, MediShield Fund's incurred loss ratio was 119 per cent, 111 per cent and 91 per cent in 2011, 2012 and 2013, respectively. It averaged 96 per cent in the past five years.

Furthermore, also according to him, for not-for-profit scheme such as MediShield, the ideal incurred loss ratio should approximate 100 per cent. However, this is not quite correct, as we shall see later.