Manpower Minister Josephine Teo hinted yesterday (Nov 15) that the Central Provident Fund (CPF) basic retirement sum could continue to be raised regularly so payouts can remain relevant to members.
The CPF scheme is a compulsory savings plan for working Singaporeans and permanent residents primarily to fund their own retirement, healthcare, and housing needs. An employment-based savings scheme, CPF requires employers and employees to contribute a mandated amount to the Fund each month.
The CPF, which is administered by the Central Provident Fund Board—a statutory board operating under the Ministry of Manpower which is responsible for investing contributions, has been described as “a forced savings scheme” for Singaporeans.
It has remained a hot button topic among citizens, especially after the Government deferred the original withdrawal age to 65 years old. Today, CPF members are unable to take out all of their CPF savings in a lump sum once they reach the retirement age.
At the age of 55, CPF members must set aside what the Government calls a “basic retirement sum” in their retirement account to receive monthly payouts and can withdraw up to S$5,000 from their Special and Ordinary Accounts, or their CPF savings after they have set aside their Full Retirement Sum.
Those who are born in 1958 or after can also withdraw up to 20% of their Retirement Account savings from age 65 but this would reduce the amount of monthly payout they receive. Interestingly, the monthly payouts only start at age 65 – a decade after members are required to set aside the basic retirement sum.
Today, the basic retirement sum is raised each year in accordance with the CPF Advisory Panel’s recommendation in 2015 that the sum be increased by 3 per cent each year for members who turn 55 between 2016 and 2020, to account for long-term inflation and increases in the standard of living.
CPF members who turned 55 in 2016 had to set aside a basic retirement sum of $80,500, while those who turned 55 in 2017 had to set aside a sum of $83,000. The basic retirement sum for a CPF member who turns 55 this year is $88,000 and this amount will rise to $90,500 next year.
A CPF member who turns 55 next year and sets aside the basic retirement sum of $90,500 will receive $740 to $800 in lifelong monthly payouts from age 65 in 2030.
Speaking at a gala dinner at the National University of Singapore yesterday (Nov 15), Mrs Teo said the basic retirement sum should be regularly adjusted to keep pace with inflation and improvements in standards of living. While it is unclear whether the standard of living has improved for all Singaporeans, the costs of living have certainly risen over the years.
On why the basic retirement sum should be raised regularly, Mrs Teo said: “One factor affecting retirement adequacy is inflation. When savings and monthly payouts are fixed, their real value erodes over time.”
Explaining that the minimum sum that was first introduced in 1987 was set at $30,000 and offered about $300 in monthly payouts for 20 years, she said: “The same payout may have felt all right when the payouts first started, but fast forward to today, that same payout feels inadequate.”
She added that the Government wants to make sure the basic retirement sum is properly set since CPF members only get to receive the payouts ten years after they set aside the sum:
“How can we be better assured that the basic retirement sum will produce adequate payouts 10 years down the road, and throughout retirement? How can we ensure that the basic retirement sum is set so that payouts continue to cover basic expenses in the future?
“With rising aspirations, retirement adequacy is not just a matter of meeting basic expenses.”
Note that it was the Government that increased the withdrawal age from 55 years old to 65 years old. In 1984, then-Minister for Health, Howe Yoon Chong, asked Parliament to approve the recommendations of the Committee on the “Problems of the Aged” that proposed “the age at which CPF contributors be allowed to withdraw their savings should be deferred first to 60 and later to 65.”
Against the backdrop of a public uproar over the proposal, pioneer politician Toh Chin Chye expressed concern about the potential breach of the fundamental principles behind the CPF scheme and the social problems that increasing the CPF withdrawal age would cause.
The ever-bold Dr Toh lambasted the recommendation to raise the CPF withdrawal age in Parliament as he asserted: “What is irksome is this: that the Government is using people’s savings and telling them how to spend their savings. That is the nub of the problem.”
Astutely highlighting that policymakers are civil servants who draw a pension that does not come from their savings and criticising the Government for unnecessarily touching on CPF savings to solve other problems and for the “vexatious burden” CPF is on employers and employees, Dr Toh said in part:
“I think everybody recognizes there is a problem for the aged. The Minister for Health says so. Only they do not believe in his methods of solving this problem.
“We need to clearly define the boundaries within which the CPF will be used for retirement. We must spell that out. You just cannot say, “Let us raise the withdrawal age to 60 or 65.” It must be 60. It must be 65. Now, at which age? This Paper does not contain any calculation at all to say what will happen if it is withdrawn at 60, or what will happen if it is withdrawn at 65.
“Mr Speaker, I think fundamental principles are being breached. The fundamental principle is this. The CPF is really a fixed deposit or a loan to Government, which can be redeemed at a fixed date when the contributor is 55 years old. If I were to put this sum of money in a commercial bank and, on the due date I go to the bank to withdraw the money, the manager says, “i am sorry, Dr Toh, you will have to come next year”, there will be a run on the bank!”
Despite Dr Toh’s protests, the payout eligibility age was eventually raised to 65 years old, leaving a ten-year gap between the time CPF members have to set aside their retirement sum and when they can receive monthly payouts.
Noting that the proportion of active CPF members who met their basic retirement sum at age 55 has risen from 38 per cent to 62 per cent in the last decade even as the sum has been gradually raised over the years, Mrs Teo added that the CPF also has to evolve to keep up with the rising life expectancy rate:
“With people living to 100 or beyond, patterns of working life and retirement will change…More people change careers or reskill later in life. They may not always be employees, but can choose to be self-employed for a while. They take breaks mid-career, but can continue working into their 70s.”
To this end, Mrs Teo reminded her audience that the Government will be gradually raising the CPF contribution rates for older workers. She said: “Progressive CPF interest rates of up to 6 per cent per year benefit all members, especially those with lower balances. We provide tax reliefs to people who top up their own retirement savings or that of their loved ones.”
Highlighting that older citizens can rent out their homes, rooms in their homes, downsize their flats or tap on schemes like the Lease Buyback Scheme and Silver Housing Bonus that can allow them to potentially supplement their retirement incomes, the ruling party politician said the CPF system “must remain a ‘live system’, always evolving and ever-responsive to emerging needs.”