Topic 8 – Risk Management & Insurance BAFI 1016 Personal Wealth Management Introduction A financial plan must take into account the possibility of risks such as disability and premature death may occur and aim to: Eliminate them, or Minimise their effectA systematic approach should be taken to identify and manage these risks Risk Speculative riskArises where there is a chance of a loss or a gainExamples: Gambling; Once the bet is placed, there can only be a win or a loss Setting up a business; The business will succeed or fail Risk continued Pure riskArises where there is only a possibility of loss or no lossCategories of pure risk Personal Property and (see next slide) Risk continued Liability Common law – e.g. negligence Statute law – e.g. faulty product Contract – e.g. construction Risk Management Risk management process can be divided into 3 broad steps: 1. Identification and evaluation of potential risks Identify possible losses and their costs Risk Management continued 2. Management of identified risks Seek to avoid and minimise risks 3. Program review Regularly reassess to ensure ongoing protection Personal Risk Management 1. Identification Premature death Prolonged illness or injury Medical costs Business risks Personal Risk Management continued 2. Evaluation of personal risks a. Lump sum costs in the event of premature death include: Burial and associated expenses Estate administration costs Final medical and associated care Debt clearing Adjustment expenses Personal Risk Management continued b. Provision for dependents The multiple approach - Relatively simple to calculate - Ignores individual resources and commitments - Assumes constant resources and inflation Personal Risk Management continued The needs approach - Requires relatively detailed dynamic budgeted information necessitating reassessment from time to time c. Disablement costs can include: Medical expenses Other costs associated with the disability Provision of an income to support any dependants Personal Risk Management continued 3. Control measures Lifestyle factors such as fitness, diet, smoking and alcohol. 4. Financing measures Retention: losses met from individual’s own resources or via insurance excess Transfer: financial responsibility passed to another party – typically via insurance House and Contents Risk Management 1. Identification e.g. fire, storm, water damage, burglary, impact by vehicles and earthquake 2. Evaluation Value only considered for building and contents as land will always remain 3. Control measures Smoke detectors, burglar alarms, deadlocks etc House and Contents Risk Management continued 4. Financing measures Adequate insurance Replacement value Indemnity value Consider value of contents Consider impacts of a ‘co-insurance or average clause’ which seeks to pass on some of the financial impacts of underinsurance to insured House and Contents Risk Management continuedExa ...

1. Topic 8 – Risk Management & Insurance
BAFI 1016 Personal Wealth Management
Introduction A financial plan must take into account the
possibility of risks such as disability and premature death may
occur and aim to:
Eliminate them, or
Minimise their effectA systematic approach should be taken to
identify and manage these risks
Risk
Speculative riskArises where there is a chance of a loss or a
gainExamples:
Gambling; Once the bet is placed, there can only be a win or a
loss
Setting up a business; The business will succeed or fail
Risk continued
Pure riskArises where there is only a
possibility of loss or no lossCategories of pure risk
Personal

2. Property and (see next slide)
Risk continued
Liability
Common law – e.g. negligence
Statute law – e.g. faulty product
Contract – e.g. construction
Risk Management
Risk management process can be divided into 3 broad steps:
1. Identification and evaluation of potential risks
Identify possible losses and their costs
Risk Management continued
2. Management of identified risks
Seek to avoid and minimise risks
3. Program review
Regularly reassess to ensure ongoing protection
Personal Risk Management
1. Identification
Premature death
Prolonged illness or injury
Medical costs
Business risks

3. Personal Risk Management continued
2. Evaluation of personal risks
a. Lump sum costs in the event of premature death include:
Burial and associated expenses
Estate administration costs
Final medical and associated care
Debt clearing
Adjustment expenses
Personal Risk Management continued
b. Provision for dependents
The multiple approach
- Relatively simple to calculate
- Ignores individual resources and
commitments
- Assumes constant resources and
inflation
Personal Risk Management continued
The needs approach
- Requires relatively detailed dynamic budgeted information
necessitating reassessment from time to time
c. Disablement costs can include:
Medical expenses
Other costs associated with the disability
Provision of an income to support
any dependants

4. Personal Risk Management continued
3. Control measures
Lifestyle factors such as fitness, diet, smoking and alcohol.
4. Financing measures
Retention: losses met from
individual’s own resources or via insurance excess
Transfer: financial responsibility
passed to another party – typically via insurance
House and Contents Risk Management
1. Identification
e.g. fire, storm, water damage, burglary, impact by vehicles and
earthquake
2. Evaluation
Value only considered for building and contents as land will
always remain
3. Control measures
Smoke detectors, burglar alarms, deadlocks etc
House and Contents Risk Management continued
4. Financing measures
Adequate insurance
Replacement value
Indemnity value
Consider value of contents
Consider impacts of a ‘co-insurance or average clause’ which
seeks to pass on some of the financial impacts of

5. underinsurance to insured
House and Contents Risk Management continuedExample of
underinsurance:
the full value of a house is $300 000 but it is insured for only
$160 000. The house sustains partial damage amounting to
$150 000. The calculation is as follows:
insurance company would only cover $100 000 of the $150 000
loss, leaving the owners of the house with an amount of $50 000
to cover from their own resources.Keep in mind that some
insurers do not use this clause...
Motor Vehicle Risk Management
Identification and evaluation
Damage to the vehicle itself
Limited to amount of the repairs
Loss or damage to third parties or their property
May be extremely large in cases of serious bodily injury
Motor Vehicle Risk Management continued
Control and financing measures
Control via car alarms, safety devices and improved driving
skills
Financing via insurance policies
Liability Risk Management
Identification and evaluation

6. Liability at personal level is increasing.
Rise in number of negligence actions
Control and financing measures
Take steps to minimise chance of loss in relation to potential
identified situations
Liability Risk Management continued
e.g. Financial planning office: use a check list of procedures to
help ensure nothing has been overlooked in gathering
information in order to advise client
AFSL holders must have adequate PI insurance cover
The Insurance MarketplaceInsurers
Life, General and HealthIntermediaries
Financial Services Reform ActClients
Insurance Contracts Act 1984
General Insurance Codes of Practice
The Insurance Marketplace continuedRegulators
APRA via prudential regulation
ASIC via consumer-oriented matters
Principle of Utmost
Good FaithPrinciple underlies contractual relationship between
insurer and the insuredHighest degree of honesty imposed on
both partiesDuty of disclosure of all ‘material facts’

7. Principle of Utmost
Good Faith continued
Absence of disclosure of a material fact by applicant may result
in contract becoming voidable at the option of the insurer, or
Reduction in insurer liability upon a subsequent claim
Principle of Utmost
Good Faith continuedMisrepresentation of information provided
to insured may be categorised as being either
Innocent, or
Fraudulent
Different contractual outcomes arise from the categorisation
made
Insurance PoliciesInsurance is a central part of risk financing
measuresPolicies include:
Life insurance policies
Disability policies (TPD)
Trauma policies
Health insurance policies
General insurance policies

8. Life PoliciesMost common life policy is term life with whole-
of-life policies much less frequently used todayTerm Policy
features
Sum insured payable on death
Terminal illness benefit reducing subsequent sum insured
Indexed sum insured
Life Policies continued
Special sum insured increase
Guaranteed renewable
Multiple lives
Policy duration
- Stepped premiums
- Level premiums
Convertibility
Optional benefits
Life Policies continuedTerm Policy exclusions
Suicide
Other
War, terrorist attacks
Pre-existing conditionsTaxation of Term insurance policies
If regular premium payments can be claimed as a tax deduction,
policy proceeds are taxable
Life Policies continuedOther life company products
Whole-of-life policies
Endowment policies

9. Life insurance cover in a
superannuation fund
Life Policies continuedPolicy ownership
A life policy can be in the name of:
The life insured
A person or company on the life insured
The life insured with a named beneficiary
Disability PoliciesTotal and permanent disablement insurance
(TPD)
- critical aspect relates to definition
of total and permanent disablement
- more restrictive definition typically
provides for lower premiums but less
chance of making a successful policy
claim
Disability Policies continuedTrauma insurance
- lump sum benefit
- can be purchased separately or as an
extension of another life policy Combined life, trauma and
TPD policies
- Linked policies

10. - Combined policies
Disability Policies continuedIncome protection insurance
- benefit
- waiting period
- guaranteed renewal
- total disablement lump sum benefit
- partial disablement lump sum benefit
- Additional benefits Business overheads insurance
Health Insurance PoliciesHealth insurance via Medicare
provided to all Australian residents as a government
serviceMedicare
Available to all Australian residents.
Medical benefits
Hospital benefits
Pays up to 85% of the scheduled fee
Health Insurance
Policies continued
Public pay for Medicare by a levy assessed on taxable income
Levy surcharge if resident does not have private health hospital
cover and taxable income beyond a family threshold level
Health Insurance

11. Policies continuedPrivate health insurance
Available to those who purchase it from a licensed health
insurer at an additional cost to the Medicare levy
Government supports private health cover by way of a subsidy
Provides greater flexibility in where and by whom a person is
treated
Arranging Insurance Through a Superannuation FundSome
personal risk policies such as term life insurance can be
arranged via the individual’s superannuation fundPremiums will
be substantially less within a superannuation fund as opposed to
a retail environmentNecessary to have a binding death
nomination to overcome the issue of trustee discretion…
Arranging Insurance Through a Superannuation FundPotential
problems arranging TPD within superannuation…
If the TPD is ‘own occupation’ it is unlikely to be a deductible
expense to the super fund and the fund will need to charge a
higher premium to the superannuant
If the individual suffers from a disability which qualifies from
the insurer to the fund but it does not satisfy a condition of
release of the fund, proceeds can be locked in the fund until
preservation age…
Arranging Insurance Through a Superannuation FundIncome
protection
Such policies must cover a period of temporary disability of at
least two years. Then the contributions will be a deductible
expense to the fund
The individual must also satisfy the SIS ‘temporary conditions

12. of release’ for benefits under the policy to pass to the individual
Premium savings by taking income insurance through
superannuation
Group UnderwritingInsurance policies can either be
underwritten individually or as a group of employeesGroup
policies are available for Term Life, TPD and Income
ProtectionGroup cover does not take into account higher risk
individuals so it a good way for such individuals to obtain cover
at a reasonable price – funds need to implement strategies to
overcome the risk of adverse selection
General Insurance
House and contents
Policies may cover all risks and damage or specify the list to be
covered or loss or damage to valuables only
Flood damage often not covered although some cover ‘flash
flood’
Policies will generally have exclusions
Public liability insurance usually included in policy
General Insurance continued
Contents insurance normally provided on a replacement value
basis
(‘new for old’)
May also cover credit card fraud, food spoilage, fusion of
electric motors (to an age limit)

13. General Insurance continued
Motor Vehicles:Compulsory Third Party Insurance (CTP)
Insurance covers legal liability personal injury arising from a
motor vehicle accident and is required by law
Nature of cover varies from state to state – e.g. Vic has a no
fault scheme whereas NSW had a fault based scheme (i.e. the
injured person is covered so long the accident is not their fault)
General Insurance continued
Motor vehicle insuranceComprehensive motor insurance
- Covers all vehicle costs of insured
and any other party to accident
- Market value vs. agreed value
- Common exclusions such as drink driving apply
General Insurance continued
Fire, theft and third party property damage
Third party property cover only
Uninsured motorists extension
General Insurance continued
Sickness and accident insurance
Restricted form of an income protection policy provided by life
insurers
Consumer credit insurance
Provides protection for those who have entered into any type of
consumer finance contract requiring regular payments

14. General Insurance continued
Travel insurance
Includes luggage and personal effects, medical expenses and
personal liability
Implementation and
ReviewIdentification and evaluation of potential risks
possible losses and their costsManagement of identified risks
avoidance and minimisationProgram review
to ensure ongoing protection
SummaryThe risk management process is a systematic approach
to the identification and management of risks faced by
individualsKey stages in the process are:
Identification
Evaluation
Control
Financing
Summary continuedInsurance is the principal means of
providing for serious lossesInsurance contracts are based on the
principle of ‘utmost good faith’ between the relevant parties
Summary continuedInsurance policies should be regularly
reviewed to cater for changing circumstances, particularly those

15. creating the potential for underinsurance or financial hardship
602
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A
GhapterThirteen lnventoryManagement
a. Given the monthly usages in the following table, classiff the
items in A, B, and C categories
according to dollar usage:
Item Usa$e Unit Cost
4021 90 $1,400
9402 300 12
4066 30 700
6500 150 20
9280 10 r,020
4050 80 140
6850 2,000 10
3010 400 20
4400 5,000 5
b. Determine the percentage of items in each category and the
annual dol1ar value for each

16. category.
2. The following table contains figures on the monthly volume
and unit costs for a random sample of
16 items from a list of 2,000 inventory items at a health care
facility:
Item Unit Cost Usage ltem Unit Gost Usage
K34 $10 200 F99 20 60
K35 25 600 045 10 550
K36 36 150 D4B 12 90
M10 16 25 D52 15 110
M20 20 80 D57 40 120
245 80 200 N08 30 40
F14 20 300 P05 16 500
F95 30 800 P09 10 30
a. Develop an A-B-C classification for these items.
b. How could the manager use this information?
c. After reviewing your classification scheme, suppose that the
manager decides to place item P05
into the A category. What are some possible explanations for
this decision?
bu alts large bakery buys flour in 25-pound bags. The bakery
uses an average of 1,215 bags a year. Pre-
paring an order and receiving a shipment of flour involves a
cost of $ 1 0 per order. Annual carrying
costs a-re $75 per bag.
a. Determine the economic order quantity.
b. What is the average number of bags on hand?
c. How many orders per year will there be?
d. Compute the total cost of ordering and carrying flour.
e. If holding costs were to increase by $9 per year, how much

17. would that affect the minimum total
+MO ,rfflIlll- uses an averase of 40 boxes of copier paper a day.
The firm operates 260 days a
Ifl Y.u.. Storage and handling costs for the paper are $30 a year
per box, and it costs approximately $60
to order and receive a shipment ofpaper.
a. What order size would minimize the sum of amual ordering
and carrying costsf flb{ .
b. Compute the total annual cost using your order size from part
a.
c. Except for rounding, are annual ordering and carrying costs
always equal at the EOQ?
d. The office manager is currently using an order size of200
boxes. The partners ofthe firm expect
the office to be managed "in a cost-efficient manner." Would
you recommend that the office
manager use the optimal order size instead of 200 boxes? Justiff
your answer.
5. Garden Variety Flower Shop uses 750 clay pots a month. The
pots are purchased at $2 each. Annual
carrying costs per pot are estimated to be 30 percent ofcost, and
ordering costs are $20 per order.
The manager has been using an order size of 1,500 flower pots.
a. What additional annual cost is the shop incurring by staying
with this order size?
b. Other than cost savings, what benefit would using the optimal
order quantity yield?
6. A produce distributor uses 800 packing crates a month, which
it purchases at a cost of $ l0 each.
The manager has assigned an annual carrying cost of35 percent
ofthe purchase price per crate.

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99t
414 Chapter Nine Management of Quality
7. Prepare a cause-and-effect diagram to analyze why a machine
has produced a large run ofdefective
parts'
8. Prepare a scatter diagram for each ofthese data sets and then
expless in words the apparent
rela-
tionship between the two variables. Put the first variable on the

24. horizontal axis
and the second vari-
able on the vertical axis.
9. Prepare a flowchart that describes going to the library to
study for an exam' Your flowchart
should
include these items: finding a place at ih. lib.uty to study;
checking to see ifyou have
your book'
paper, highlighter, and.o iorth; traveling to the library; and the
possibility ofmoving
to another
- location ifthe place you chose to
study starts to get crowded'
frl)aorr.n. students trying to register lbr a course sometimes
find that the course has been closed
or
L7trr. ,.?rion they want has been closed. Prepare a cause-and-
effect diagram for this
problem'
11. The county sheriffk department responded to an unusually
large number of
vehicular accidents
along a quarter-mile stretch ofhighway in recent months.
Prepare a cause-and-effect
diagram for

25. this problem.
12. Suppose you are going to have a prescription filled at a
1oca1 pharmacy' Referring
to the dimensions of
service quality lbr each dimension, give an example of how you
would
judge the quality of the service'
GASE
The operations manager of a firm that produces frozen dinners
had received numerous complaints from supermarkets about
the firm's Chick-n-Gravy dinners. The manager then asked
her assistant. Ann, to investigate the matter and to report her
recommend ations.
Ann's first task was to determine what problems were gener-
ating the complaints. The maiority of complaints centered on
five
defects: underfilled packages. a missing label, spills/mi
unacceptable taste, and improperly sealed packages'
Next, she took samples of dinners from the two production
lines and examined each sample. making note of any defects
that

26. she found. A summary of those resuhs is shown in the table'
The data resulted from inspecting approximately 800 frozen
dinners. What should Ann recommend to the manager?
DEFECT OBSERVED
Time Line Underlilled
Missing
Label
Spill/
Mixed
Unacceptable
Iaste
lmproperly
Sealed
Date
5112
511Z
s/l3
5/13
5113
5114

27. 5114
5114
5/1 5
5/1 5
5/1 5
5/16
5/1 6
5/1 6
s/1 6
0900
1330
I 000
1345
1 530
0830
1100
1400
1030

28. 1 145
1 500
0845
1 030
1 400
1 545
1
2
2
1
2
I
2
1
1
2
1
2

29. 'I
1
2
Age 24 30 22 25
aa 21 36 58 37 47 54 28 42 55
Ahsenteeism rate 6 5 7 6 4 5 4 J
7 2 5
RETIREMENT PLANNING
What is Retirement Planning
It is preparing financially for when you are too old to work
when you are too young to quit
Involves making decisions about how well you want to live
when you still have the means to craft how well you will live
Requires you to defer some degree of current enjoyment in
favor of future survival

30. Who should be concerned about your Retirement?
The Government is concerned
You family is concerned
You should be too!
Population Statistics
By 2030, almost 20% or 1-in-5 of Singaporeans will be aged 65
and above
Singapore Department of Statistics, 2005
Population Statistics
Source of Chart: Role of the Government in Healthcare
Provision and Financing in Singapore, presented by Mr Edward
Reiche

31. Population Statistics
Source of Chart: Role of the Government in Healthcare
Provision and Financing in Singapore, presented by Mr Edward
Reiche
Population Statistics
Source of Chart: Role of the Government in Healthcare
Provision and Financing in Singapore, presented by Mr Edward
Reiche
3 Phases of Retirement
Decreasing Health and Independence
Retiree may still be working albeit at a slower pace. Also lives
an active lifestyle and have various hobbies. Extra income from
work seen as a supplement
Retiree stops work entirely. Less physically demanding hobbies
will be preferred. Retiree may be more careful with expenses,
but is still capable for caring for themselves
Retiree is no longer able to take care of themselves, and may
require special nursing care and other support services.

32. Active
Passive
Support
4 Pillars of Singapore Social Security
Based on paper by M Ramesh entitled “Singapore’s Multi-Pillar
System of Social Security”PillarDescriptionProgram1Targets
working poor who can’t or don’t saveWorkfare2Compulsory
SavingsCentral Provident Fund (CPF)3Voluntary
SavingsSupplementary Retirement Scheme4Informal
Mechanisms, like Home Ownership and Healthcare, as a vital
source of income protectionHigh Level of Home Ownership and
Healthcare

33. Successful Ageing for Singapore
To ensure that all levels of society are well prepared for the
challenges as well as opportunities of an ageing Singapore:
Source: Inter-Ministerial Committee on the Ageing Population,
1999
Family
Community
National
Family Level – strong, extended and caring families
Community Level – strong network of community services, as
well as with opportunities for engagement and the integration of
the communities
National level – high level of national preparedness with a
competitive and vibrant economy, as well as social cohesion and
rootedness
Workfare
Aims to provide support for low-wage workers so that they have
the best chance to progress
Workfare Income Supplement (WIS) scheme was introduced in
2007 to encourage older low-wage workers:
to work regularly
To build up their CPF savings
More details on Workfare from
http://www.mom.gov.sg/employment-practices/employment-
rights-conditions/workfare/Pages/workfare-income-

34. supplement.aspx
Workfare Training Support Scheme (WTS)
Complements WIS by encouraging employers to send their older
lower-wage workers for training, as well as encourage workers
to go for and to complete their training
Workfare Special Bonus
This bonus is announced from time-to-time to ensure that low-
wage workers benefit from economic growth
Central Provident Fund (CPF)
CPF savings are meant to provide for housing and medical
needs and for basic living needs after retirement*
Consists of 4 main funds
CPF Ordinary Account
Savings can be used to buy a home, CPF Insurance, Investment
and Education
CPF Special Account
For old age and investment in retirement-related financial
products
Medisave Account
Savings can be used for hospitalisation expenses and approved
medical insurance
Retirement Account (created at age 55)
Administered by CPF Board
Mandatory contributions by:
Employers
Employees
Self-Employed
*Source: SRS Booklet (Ministry of Finance) 18 Feb 2011
Source: http://mycpf.cpf.gov.sg

35. Central Provident Fund (CPF)
Main milestones include
1955, the British colonial authority in Singapore established the
CPF as a compulsory savings scheme to allow workers to save
for their retirement
1984, Medisave was introduced as a savings for Hospitalisation
expenses for contributors and their family members
1987, Singaporeans were required to set aside a minimum sum
in their CPF when they reached age 55. This amount would
provide them with a monthly income when they retiree.
Source: http://mycpf.cpf.gov.sg
CPFOA Contribution
Employee
Age (Years)Contribution Rate
(for monthly wages ≥ $1,500)Credited intoContribution by
Employer
(% of
wage)Contribution by Employee
(% of
wage)Total Contribution
(% of wage)Ordinary Account
(% of wage)Special Account
(% of wage)Medisave Account

36. (% of wage)35 & below1620362367Above 35-
451620362178Above 45-501620361989Above 50-
5514(12)18.5(18)32.5(30)13.5(13)9.5(8)9.5(9)Above 55-
6010.5(9)13(12)23.5(21.5)12(11.5)2(1)9.5(9)Above 60-
657(6.5)7.514.5(14)3.51.5(1)9.5Above 656.5511.5119.5
Contribution and allocation rates from 1 September 2012
*Source: http://mycpf.cpf.gov.sg. Contribution Rate based on an
Ordinary Wage of $5,000
Rates bracketed and in red show Contribution and Allocation
Rates for the period 1 September 2011 to 31 August 2012)
CPFOA Investment
Source: http://mycpf.cpf.gov.sgCPFIS-OAFixed
DepositsSingapore Government BondsSingapore Government
Treasury BillsStatutory Board BondsBonds Guaranteed by the
Singapore GovernmentAnnuitiesEndowment Insurance
PoliciesInvestment-Linked Insurance ProductsUnit
TrustsETFsUp to 35% of investible savings can be invested
in:SharesProperty Funds (or REITs)Corporate BondsUp to 10%
of investible savings can be invested in:Gold, through the
following:Gold ETFsOther Gold Products (offered through
UOB)
The OA is invested under the CPF Investment Scheme –
Ordinary Account (CPFIS-OA)
“Investible Savings” is the sum of your OA balance and the
amount of CPF withdrawn for investment and education

37. CPF Special Account (CPFSA)
Source: http://mycpf.cpf.gov.sg
Special Account (SA) is a saving account specifically for old
age use, and can be invested in retirement-related financial
products
Can be used to pay for monthly housing installments under very
strict conditions, and only for properties bought before 1
October 2003
OA savings can be transferred into the SA, but not the other
way around
CPFSA Investment
Source: http://mycpf.cpf.gov.sg
CPFIS-SAFixed DepositsSingapore Government
BondsSingapore Government Treasury BillsStatutory Board
Bonds (Secondary Market Only)Bonds Guaranteed by the
Singapore GovernmentAnnuitiesEndowment Insurance
PoliciesSelected Investment-Linked Insurance
Products*Selected Unit Trusts*Selected ETFs*
*For more information:
ILP - http://mycpf.cpf.gov.sg/NR/rdonlyres/79349EA5-798A-
4CA8-A1DE-ACE44FE7720E/0/RCSILP1.PDF
Unit Trust - http://mycpf.cpf.gov.sg/NR/rdonlyres/83FD2278-
D807-445B-B063-F301B30CDE09/0/RCSUT.pdf
ETF - http://mycpf.cpf.gov.sg/NR/rdonlyres/171497E5-99C7-
4517-9F59-0C96890D57F4/0/etf.pdf

38. The SA is invested under the CPF Investment Scheme – Special
Account (CPFIS-SA)
CPF Medisave Account (CPFMA)
Source: http://mycpf.cpf.gov.sg
A national savings scheme to meet the healthcare expenses of
members and their dependants, including grandparents who
must be Singaporeans or Singapore PRs.
Use of CPF MA
Source: http://mycpf.cpf.gov.sg
Hospitalisation Expenses
Certain costly Outpatient treatments and treatment for a number
of chronic diseases
Premiums of approved medical insurance schemes and certain
enhancements under the Integrated Shield Plans for members
and their dependants
Medishield is run by CPF Board
Medisave approved Integrated Shield is offered by private
insurers

39. Premiums for approved long-term care insurance
Eldershield and Eldershield supplements are offered by private
insurers
Available once members and their dependents reach 40 years of
age
Use of Medisave Funds
Since 2010, Medisave is allowed for use for medical treatment
in certain hospitals Malaysia*
*Terms and Conditions apply. See
http://www.moh.gov.sg/content/moh_web/home/pressRoom/pres
sRoomItemRelease
Medishield
A catastrophic medical insurance programme to meet cost of
medical treatment for serious illnesses or prolonged
hospitalisations
Most programmes available today come with “as-charged”
features with high yearly (up to $650,000) and lifetime limits
Has deductible and co-insurance features, which can be done
away with by purchasing an enhancement
Eldershield
A national long-term care insurance programme initially
launched in 2002, and enhanced in 2007
With Eldershield Supplement, monthly benefits can be
as high as $3,500 for life
Available to persons above 40 years of age
Hospitalisation Expenses

40. Straits Times, Thursday 5 July 2012, Mind Your Body
Medisave Minimum Sum (MMS)
The Medisave Minimum Sum (MMS) is the amount that a
member turning 55 needs to set aside for future hospitalisation
expenses
Regular MMS adjustments are necessary to help Singaporeans
plan for their long-term healthcare needs
From 1 July 2012, MMS will be increased from $36,000 to
$38,500.
Medisave Contribution Ceiling (MCC)
The MCC is the maximum a member may have in his Medisave
Account
The MSS value is set at $5,000 above the MMS value
From 1 July 2012, MCC is increased from $41,000 to $43,500
Excess of the prevailing MCC will be transferred to
Special Account if the member is below 55 years old
Retirement Account if the member is above 55 years old and has

41. a Minimum Sum shortfall
Medisave Required Amount (MRA)
The Medisave Required Amount is the amount that you are
required to have in your Medisave Account before you can
withdraw the savings in your Ordinary or Special Accounts.
If you do not have at least the prevailing Medisave Required
Amount, you are required to make a top-up to your Medisave
Account with part of the balances from your Ordinary or Special
Accounts
Since 1 Jan 2012. the MRA has been set at $32,000. This value
will be adjusted for inflation every January until it reaches
$25,000 (in 2003 dollars) on 1 Jan 2013
Medisave Summary
MCC
MMS
MRA

42. $43,500
$38,500
$32,000
CPF Interest Rates
Savings in the Ordinary Account earn an interest rate of 2.5%
The interest is computed every quarter, and is based on the
weightage of
80% of the average 12-month fixed deposit rate, and
20% of the average savings rate published by major local banks
Savings in the Special and Medisave Accounts earn an interest
of the higher of:
4%, or
12-month average yield of the Singapore Government Securities
(10YSGS) plus 1%
Interested is adjusted quarterly
An additional 1% is paid on the first $60,000 of a member’s
combined balances:
Limited to $20,000 from the OA
Additional 1% interest received on the OA will be deposited
into the member’s SA or RA to enhance the retirement savings

43. *Source: http://mycpf.cpf.gov.sg
CPF Interest Rates
RA savings earn an interest of of either:
4% (the floor rate), or
12-month average yield of the Singapore Government Securities
(10YSGS) plus 1%
Interested is adjusted annually
Announced 30 September 2011, the minimum of 4% pa will be
earned for all Special, Medisave and Retirement Account
monies until 31 December 2012. After that, interest rates on
ALL CPF Account monies will be subject to a minimum rate of
2.5% pa
*Source: http://mycpf.cpf.gov.sg
CPF Minimum Sum (MS) Scheme
Intended to finance the increase life expectancy of retirees.
Provides members with a monthly income to support a modest
standard of living during retirement
Q: Will CPF Savings
be enough
for Retirement?

44. CPF Minimum Sum (MS) Scheme
First began in 1 July 1995 with the initial amount of $40,000
to reach an amount of $80,000 by 2003
$40,000 annual increments
Since 2004, MS has been increased from $80,000 to $120,000,
in incremental steps of $4,000 (all values in 2003 dollars)
The 2003 MS value (with increment) is then adjusted for
inflation each year.
The $4,000 increment in 2012 (adjusted for inflation) would
have amounted to a $12,000 increase of the MS.
To mitigate the large increase in MS due to inflation, CPF
Board has decided to spread out increase in MS to reach
$120,000 (in 2003 value) by 2015 instead of 2013
From 1 July 2012 to 30 June 2013, CPF members will need to
set aside $139,000 (up from $131,000)
*Source: http://mycpf.cpf.gov.sg
CPF Minimum Sum (MS) SchemeYear2003
valueActual1 July 2003$80,000$80,0001 July
2004$84,000$84,5001 July 2005$88,000$90,0001 July
2006$92,000$94,6001 July 2007$96,000$99,6001 July
2008$100,000$106,0001 July 2009$104,000$117,0001 July
2010$108,000$123,0001 July 2011$112,000$131,0001 July
2012$113,000$139,0001 July 2013To be
AnnouncedTo be
Announced1 July 20141 July 2015$120,000

45. *Source: http://mycpf.cpf.gov.sg
The initial MSS 2003 value for 2012 was $116,000. Adjusted
for 2011 inflation, this would have resulted in a MS of $143,000
This is a large jump of $12,000 or 9% from the previous MS of
$131,000
Instead of the target of reaching $120,000 MS in 2003 value by
2013, CPF Board has decided to reach the target $120,000 over
4 years.
The 2012 MS stands at $139,000.
CPF Minimum Sum (MS) Scheme
*Source: CPF Board – New CPF Changes in 2012. More details
on the new LIFE plans will be made available in 3Q 2012
To help increase CPF LIFE payouts, members who turn 55 from
2013 onwards and who have not met their MS will have their
post-55 contributions to the OA and SA automatically
transferred to their RA when they reach the draw-down age
(DDA) or 65 years old*
This will translate into higher monthly payouts for members
Amount a member can withdraw in cash under the existing
withdrawal conditions remains the same.
CPF MS WithdrawalCash balances CPF Accounts*Amount
which you can withdraw $5,000 or lessAll your cash
balancesMore than $5,000 but less than or equal to
$50,000$5,000. The remainder will be set aside in your
Retirement Account (RA).More than $50,000 but less than or
equal to $154,44510% of the cash balances. The remainder will

46. be set aside in your RA.More than $154,44510% of $154,445
and any further cash balances after setting aside the CPF
Minimum Sum** and the prevailing Medisave Required Amount
($32,000 for 2012)
*Refers to cash balances in OA and SA, and any balance above
MMS (currently $38,500) in Medisave Account (MA) at age 55
**The CPF Minimum Sum applicable for members turning 55
between 1 July 2012 and 30 June 2013 is $139,000.
From 1 January 2013, members who reach 55 can withdraw their
cash balances only after setting aside the CPF Minimum Sum
and Medisave Minimum Sum. However, members can still
withdraw the first $5,000 from the CPF account at 55.
Draw Down Age (DDA)
The DDA may eventually be increased to age 67Age as at
31 Dec 2011Applicable DDA62 and above6260-616358-596457
and below65
*Source: http://mycpf.cpf.gov.sg
CPF Minimum Sum Plus Scheme
If you are aged 55 and above from 1 January 2001:
Can buy life annuities (currently only from NTUC) beyond your
Minimum Sum with your withdrawal CPF Savings
Monthly income from these annuities is tax exempt
*Source: http://mycpf.cpf.gov.sg
Monthly income from life annuities purchased with cash is not

47. tax exempt
Retirement Account
In the 10 years when the funds remain in the RA until the
DDA, it earns interest* which
Cannot be withdrawn
Forms part of the RA savings for monthly payments when you
reach DDA
*Currently 4% pa until 31 December 2012
Source: http://mycpf.cpf.gov.sg
From 1 January 2013, CPF members aged 55 with at least
$40,000 in their RA or with at least $60,000 at 65 will be placed
on CPF LIFE. Members who are not placed on CPF LIFE can
choose to join CPF LIFE before reaching 80, or remain on the
MS Scheme.
The account is created at age 55. The Minimum Sum is then
transferred into this account for disbursement of monthly
income under CPF LIFE once the contributor reaches 65 years
of age
CPF “Income” for Life?
CPF will not be able to adequately finance your retirement:
monthly payouts are not indexed against inflation, therefore
subsequent payouts will depreciate in value and hence,
purchasing power
CPF MS is able to provide monthly income to the member for
18-20 years. This may not be a long enough period of time for

48. retirement income
Singaporeans are expected to live much longer
Better lifestyle
Better medical support and advancement
*Source: http://mycpf.cpf.gov.sg
CPF LIFE
Singapore has one of the highest life expectancies in the world
For Singaporeans aged 65 today
50% expected to live beyond 85
33% expected to live beyond 90
Singaporeans are expected to live longer, and a growing number
expected to outlive their CPF savings if they were on the MSS
CPF Life introduced to provide members with income for life
*Source: http://mycpf.cpf.gov.sg
CPF LIFE - Eligibility
An Individual may apply to join LIFE between the age of 55 and
80, but must satisfy two conditions:
Must be a Singapore Citizen or a Singapore Permanent Resident
Must have Retirement Account Savings
*Source: http://mycpf.cpf.gov.sg
From 1 January 2013, CPF members aged 55 with at least

49. $40,000 in their RA or with at least $60,000 at 65 will be placed
on CPF LIFE. Members who are not placed on CPF LIFE can
choose to join CPF LIFE before reaching 80, or remain on the
MS Scheme.
CPF LIFE Today
4 plans are available:LIFE PlanPayoutBequest LevelBequest
(Refundable Plans)LIFE Plus PlanHighLowLIFE Balanced
PlanMediumMediumLIFE Basic PlanLowHighNon-Bequest
(Non-Refundable Plans)LIFE Income PlanHighestNone
*Source: http://mycpf.cpf.gov.sg
Improved and Simpler CPF LIFE
From 1 Jan 2013, members can choose between 2 CPF LIFE
plans*
Standard Plan (default plan)
Is a combination of the Balanced and Plus Plans
Higher payouts while preserving flexibility in the use of
Retirement Account savings prior to age 65
Members can also leave a bequest for their beneficiaries
Basic Plan
For members who prefer to leave a higher bequest and lower
monthly payouts
Allows members to use their RA savings for housing after 65
years old
Members who are currently on the 4 current LIFE plans can

50. remain in those plans, or switch to the new Standard Plan before
31 Dec 2013
*Source: CPF Board – New CPF Changes in 2012. More details
on the new plans will be made available in 3Q 2012
CPF in Summary
MA goes towards funding
medical expenses
Amounts in excess of MS can be withdrawn in cash as long as
MRA is met
Finances lifelong disbursement for retirement
MSS
(age 55)
LIFE
(age 65)

51. CPF
OA
SA
MA
RA
(created at age 55)
Supplementary Retirement Scheme
Was introduced in 2001
Complements the CPF savings as part of the government’s
multi-pronged strategy to address the financial needs of its
aging population. This is due to the recommendations of the
Inter-Ministerial Committee’s Report on the Aging Population
Contribution is voluntary, and can be in any amounts (subject to
an annual cap)
Contributions can be used to purchase various investment

52. instruments
Contributions to SRS are eligible for tax relief, and investment
returns accumulated tax-free
When withdrawn at retirement1, only 50% withdrawal from SRS
is taxable
1Retirement refers to the Statutory Retirement Age, which is
the retirement age at the point in time the contributor makes his
first SRS contribution
*Source: Ministry of Finance
Supplementary Retirement Scheme
All Singaporeans, Singapore PRs (SPR) and foreigners can open
an SRS account
Must be at least 18 years old
Not undischarged bankrupts, and
Not mentally disordered and capable of managing themselves
and their affairs
To participate in SRS, you must first open an account (only
one) with any of the 3 SRS operators:
DBS Ltd
OCBC Ltd
UOB Ltd
You may, however, transfer your account from one operator to
another
*Source: Ministry of Finance

53. SRS Contribution
If you earn any form of income, including directors’ fees in the
current year, you are allowed to contribute to SRS
Employers are also allowed to contribute to your SRS account
on your behalf. Their contribution is treated as part of your
remuneration, and thereby taxable in your hands.
*Source: Ministry of Finance
Contribution Cap
You can contribute in a year any amount up to your contribution
cap
The Contribution Cap is determined by the product of the
Absolute Income Base and the SRS contribution rate
*Source: Ministry of FinanceAbsolute Income Base =
$85,000Contribution RateSingaporean & SPR
15%Foreigner
35%Contribution Cap
(Absolute Income Base) x (Contribution Rate)= 85,000 x 15%
= 12,750= 85,000 x 35%
= 29,750
SRS Contribution and Taxation
The contribution cap is calculated based on income earned the
year previous to the year of contribution
A contributor is entitled to tax relief on his contributions in the

54. year following the year of contribution provided he is assessed
as a tax resident in that year where the contribution is to be
allowed.
EXEMPT
Supplementary Retirement Scheme
Assumptions: Starting Income $2,000pm, ROI 6%, General
Inflation 3%, Income growth 5%
Contributions grow tax-free, and only 50% of the withdrawals is
taxed at the then-prevailing income tax rate
Growth of SRS Investments
Closing
Investment
Balance
25262728293031323334353637383940414243444546474849505
1525354555657585960616263646551001076116689.7523239.2
9750000000130439.76437499999938343.15819375000147004.0
3182343750156480.83347060937466836.09814333984178136.7
2205306682790454.250538232169103865.18458780939118451.
30688281621134300.02858393328151504.7581540432170165.2
9358407718190388.23947406767212073.1570891123234971.45
145755628259170.84088290308284744.12797035644311769.37
842333055340329.02610155201370510.1888069518402404.930
37304503436110.541701462471729.83752384479509371.47002
593242549150.26027736312591187.54847891908635611.56409
556093682557.81700429623732169.51085002988784597.97987

55. 028735840003.15052128921898554.02931350633960429.21834
4783761025817.46010359411094918.21320428121167942.2608
104971245112.3536027537Inflation Adjusted
Value of
Investment
25262728293031323334353637383940414243444546474849505
15253545556575859606162636465510010447.57281553398157
31.69007446507621267.24927635172627045.336388792904330
75.14507896038439365.13665278639445924.086248550062527
61.03305986496759885.29119195368567306.457402042397503
4.41924409136183079.36343017072191451.7844253514631001
62.49328188159109222.62671920996118643.656456560912830
7.74776113454138020.96352993973147801.5091126164215765
5.91980411741167591.40362208005177615.1665550736918773
4.45537761075197956.56091985217208288.8235303375121873
8.63843522914229313.46112487876240020.8127647240225086
8.28563490251261863.54860256735273014.3526309236228432
8.53632901353295814.03154629341307478.8690160662531933
1.18405185116331379.22230079887343631.3455582855435609
6.03764785337368781.91037069191381697.70952889934
Age
SRS withdrawals
Under certain circumstances, SRS savings can be withdrawn
with penalty. However, 50% of savings withdrawn will be
subject to income tax if you
withdraw your savings after achieving the statutory retirement
age prevailing at the time you made your first SRS contribution
withdraw your savings upon death
withdraw your savings on medical grounds – physical or mental
incapacitation

56. full lump-sum withdrawals by Singapore Permanent Residents
(PRs) who have cancelled their PR status and
have been a non-Singaporean or a continuous period of 10 years
preceding the date of withdrawal
have maintained their SRS account for a period not less than 10
years from the date of first contribution to the SRS account.
full lump-sum withdrawal by foreigner who has maintained his
SRS account for a period not less than 10 years from the date of
first contribution to his SRS account.
Under all other withdrawal scenarios, you will be taxed 100% of
the withdrawn amount. This applies also for withdrawal upon
bankruptcy and withdrawal before the statutory retirement age
prevailing at the time of the first contribution.
SRS Withdrawal
A withdrawal from the SRS can be made at any time subject to
the penalty imposed (where applicable) on the amount
withdrawnWithdrawal EventPenaltyPortion
TaxedDeathNil50%Medical
GroundsNil50%BankruptcyNil100%Foreigner (10 year
rule)Nil50%Before retirement5%100%Upon first and
subsequent withdrawal when retirement age is
reachedNil50%Where no withdrawal is made even when you
reach the then current retirement age.Nil50%
*Source: Ministry of Finance

57. SRS withdrawals
At Statutory Retirement Age, SRS balances can be withdrawn in
10 yearly installments.
50% of each annual withdrawal will be taxed at the prevailing
income tax rate
Supplementary Retirement Scheme
Assumptions: Starting Income $2,000pm, ROI 6%, General
Inflation 3%, Income growth 5%
Based on the hypothetical closing values presented earlier:
An equal annual withdrawal of $124,511 can be made for 10
years
Of the $124,511 drawn down, only 50% (or $62,250) will be
subject to income tax
Based on tax rates today, that would mean that about 90% of his
annual withdrawal will remain intact
This equates to about $34,400 per annum in today’s value
This being $124,511 less 10% (20% tax on 50% of the
withdrawal), then discounted for inflation
Growth of SRS Investments
Closing

58. Investment
Balance
25262728293031323334353637383940414243444546474849505
1525354555657585960616263646551001076116689.7523239.2
9750000000130439.76437499999938343.15819375000147004.0
3182343750156480.83347060937466836.09814333984178136.7
2205306682790454.250538232169103865.18458780939118451.
30688281621134300.02858393328151504.7581540432170165.2
9358407718190388.23947406767212073.1570891123234971.45
145755628259170.84088290308284744.12797035644311769.37
842333055340329.02610155201370510.1888069518402404.930
37304503436110.541701462471729.83752384479509371.47002
593242549150.26027736312591187.54847891908635611.56409
556093682557.81700429623732169.51085002988784597.97987
028735840003.15052128921898554.02931350633960429.21834
4783761025817.46010359411094918.21320428121167942.2608
104971245112.3536027537Inflation Adjusted
Value of
Investment
25262728293031323334353637383940414243444546474849505
15253545556575859606162636465510010447.57281553398157
31.69007446507621267.24927635172627045.336388792904330
75.14507896038439365.13665278639445924.086248550062527
61.03305986496759885.29119195368567306.457402042397503
4.41924409136183079.36343017072191451.7844253514631001
62.49328188159109222.62671920996118643.656456560912830
7.74776113454138020.96352993973147801.5091126164215765
5.91980411741167591.40362208005177615.1665550736918773
4.45537761075197956.56091985217208288.8235303375121873
8.63843522914229313.46112487876240020.8127647240225086
8.28563490251261863.54860256735273014.3526309236228432
8.53632901353295814.03154629341307478.8690160662531933
1.18405185116331379.22230079887343631.3455582855435609
6.03764785337368781.91037069191381697.70952889934

59. Age
Planning for Your Retirement
Goal Setting
Gathering Facts
Developing
Solution
s
Implementing