Late pioneer politician Dr Toh Chin Chye’s sharp criticism of raising the Central Provident Fund (CPF) withdrawal age over three decades ago resounds even today as the world’s largest human resources consulting firm, Mercer, recently renewed calls to raise the CPF withdrawal age given growing lifespans.
Mercer’s recommendations came after the release of this year’s Melbourne Mercer Global Pension Index (MMGPI) which ranked Singapore’s pension system the best in Asia for the 10th consecutive year and the 7th best pension system in the world.
Singapore’s pension system is primarily centred around the CPF system – an employment based savings scheme in which employers and employees contribute a mandated amount to the Fund each month. It is compulsory for all Singapore citizens and permanent residents to contribute to CPF.
Presently, CPF members have the option of withdrawing the cash balances in their Ordinary and Special Accounts after setting aside either the Full Retirement Sum or the Basic Retirement Sum with a sufficient property charge/pledge. The sum in the retirement account will provide for monthly payouts during the CPF account holder’s retirement.
This year, the Government cited rising life expectancy as it hiked the CPF payout eligibility age from 64 to 65.
In its study of 34 pension systems, MMGPI gave Singapore a B-grade (70.4/100) and labelled the Singapore pension scheme “a system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system”.
Recommending that the local pension system could be improved by raising the CPF withdrawal age given growing lifespans and by opening the fund to foreign workers in Singapore, Mercer’s director of strategic research, growth markets, Garry Hawker, said:
“Having one of the most developed pension schemes in Asia, Singapore has continued to make improvements through the CPF by providing more flexibility to its members.
“The overall index value for the Singaporean system could be further increased by reducing the barriers to establishing tax-approved group corporate retirement plans; opening CPF to non-permanent residents; and increasing the age at which CPF members can access their savings that are set aside for retirement, as life expectancies rise.”
Lifespans are indeed rising here. Last year, the World Health Organisation ranked Singapore third in the world for average life expectancy and noted that the average lifespan in Singapore in 83.1 years.
This goes in line with the Department of Statistics’ record that there were 1,200 Singaporeans aged 100 and above here last June – 24 times more than the 50 Singaporeans aged 100 and above in 1990.
Mercer’s proposal to raise the CPF withdrawal age given growing lifespans have rung alarm bells for many Singaporeans. Some have even questioned the reliability of the MMGPI rankings that placed Singapore’s pension system first in Asia and seventh best in the world.
Prominent economics commentator and ex-international banker Chris Kuan is one such voice who wrote on his Facebook page:
“I would take the Mercer survey which puts Singapore No. 1 for pension in Asia and No. 7 in the world with a very very large pinch of salt. From local research, we already know those who use CPF for housing, have an income replacement rate way below the 60% deemed as adequate. So how come local research painted such a different picture from Mercer?
“Most likely Mercer use a single model to judge all pension systems on a like for like basis with the problem of not adjusting for the withdrawal of pensions for housing purchase that makes CPF an outlier. Essentially this survey is based on inputs and demographics, not input, output and demographics.
“Otherwise, if Singapore’s pension outcome is as good as what Mercer is ranking us, why does Mr. Tharman himself said that our retirement proposition is as good as in Europe IF we unlock the value in our homes. That is another way of saying that our pension is shitty compared to Europe if we don’t supplement our retirement income by monetizing our homes. That cannot make us No.7 in the world.”
The establishment, however, seems to take a different view.
Responding to Mercer’s recommendations, DBS Bank group research chief economist Taimur Baig noted that the Government is interested to improve the CPF scheme as he said, “Raising the age of first withdrawal from CPF is not a particularly radical concept, and can certainly be considered.”
Baig’s and Mercer’s views, however, are at odds with pioneer politician Dr Toh Chin Chye’s warning about the social problems that increasing the CPF withdrawal age would cause, in a Parliamentary speech 34 years ago.
The late Dr Toh was a prominent member of the country’s first generation of political leaders after Singapore became independent in 1965, serving as Deputy Prime Minister (1965–1968), Minister for Science and Technology (1968–1975) and Minister for Health (1975–1981). He also served as the Chairman of the People’s Action Party (PAP) from 1954 to 1981. In 1981, he exited the Cabinet but continued to serve as MP.
Three years after Dr Toh left the Cabinet, then-Minister for Health, Howe Yoon Chong, asked Parliament to approve the recommendations of the Committee on the “Problems of the Aged.”
Among other recommendations, the Blue Paper prepared by the Committee proposed “that 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, 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 Chin Chye 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!
“It is as simple as this, that the CPF has lost its credibility, the management of it. This is fundamental.”
Read the parliamentary exchange in full here:
Dr Toh Chin Chye: Mr Speaker, Sir, I believe, as a senior citizen, I am qualified to say a few words on the CPF.
The Member for Kebun Baru has given an exposition from the viewpoint of the NTUC, and I do not wish to cover the ground that he has already made. There is no doubt that we should be aware that there will be a problem of the aged in the years to come, whether in the year 1990 or the year 2000. But it is important, therefore, that we should try to divorce a proposition that has been put forward by the Minister for Health, trying to explain to us what the size of this problem will be and the means to solve this problem. Unfortunately, the Report of this Committee on the Problems of the Aged has tried to solve this complex problem by touching on the Central Provident Fund as if that were the only solution, very much the way that the Minister for Health went about trying to solve the problems of the sick by using Medisave and taking off 6% from the CPF to collect monies which is spent by patients in the hospitals.
The reason for all this uneasiness on the problems of the aged is related to the CPF. The problems of the aged have been forgotten because you are touching people’s savings. I related in the debate on Medisave how the Government could cover the cost of the entire operations of the Ministry of Health from revenue earned by the Ministry of Health plus the 2% payroll tax, without touching on savings. You have created a precedent. You have touched savings for Medisave. I abstained from the vote. Others have agreed. So the Minister for Health says, “Well, I have got one nut. Now I can get two nuts. How do I solve the problems of the aged? There was no great opposition to touching the CPF. Now I shall solve the problems of the aged by dipping into the CPF.”
But here, he came across a hornets’ nest. It is because, Mr Speaker, the problem is that those who attempt to seek a solution to the problems of the aged are civil servants who draw pensions to which they do not pay anything. They get a gratuity, two-thirds, and pension, one-third. So it is quite easy then to handle other people’s problems by touching their savings. Pensions do not come from savings. Supposing, if we did convert the entire cost of running the civil service on taxes and savings, I believe you would have a different report today.
There are many countries that are facing this problem. It is not unique in Singapore. No political problem is new for Singapore. And this is a problem that has been encountered by bigger societies and bigger economies than ours. They have employed devious ways of how to allow those who are ageing to retire gracefully and in security without becoming a pauper. Why, in America, there is even a scheme in the private sector which permits a retiree to donate his entire savings to a company and he is posted to a village where he can retire until he dies. That is a very expensive village. It is not meant for those with small CPF savings.
This problem of touching the CPF should be related to the use of the CPF, the management of the CPF and the contribution of CPF. I have repeated, time and again, that the CPF, having risen now to 50% of wages, is becoming a vexatious burden, not only to the employee but also to the employer. The employer is now paying 25% of salary towards the CPF, plus 2% payroll tax, plus 4% Skills Development Fund. That makes 31% cost on payroll alone. Of course, if there is an increase in salary from NWC recommendations, all these taxes go up. The burden on the employee is that his take-home pay becomes less, and since his take-home pay becomes less it is an issue for union bargaining, (house-unions now) to bargain with the employer for more pay.
The Minister for Finance is extremely concerned with the amount of money being locked into CPF, reducing the liquidity in commercial banks. I think that is a very genuine concern which, as the Minister for Finance, he ought to be very worried out. He should not allow his Minister for Health to dip into the CPF or to increase the CPF, because this is a social problem that is popping up. It must be thought out in breadth. We must have a vision which encompasses breadth. Do not have tunnel vision. I would like to know that we have got telescopic vision. But, Mr Speaker, I have never had the problem of tunnel vision, and that is, looking at a problem along just one line without bothering, or researching in depth, the impact on other areas.
Let us look at the problem in general. Over the last five years, 1979 to 1983, an average of 8.4% only has been withdrawn from the balance due to members who contribute to the CPF. Only 8.4%, that is if they retire at 55. I would like to put this question to the Minister for Health or the Minister for Labour who is responsible for administering the CPF. What would this percentage be if the withdrawal age were raised to 60 or 65? Of this amount that was withdrawn, two-thirds were spent on buying houses, mainly HDB flats. So only one-third was spent on retirement. In 1983, $1,718 million were withdrawn but only $374 million were spent on retirement.
So the problem we should ask ourselves is this. As the deposit in the CPF grows and grows, our balances in the CPF will grow, and when we withdraw that sum of money, will we suddenly have overnight millionaires as retirees? How many of them are there? Will it generate inflation? I do not think it will be, because if two-thirds of the balance are withdrawn for purchasing houses and only one-third for retirement, therefore it is less of a concern that raising the age to 60 or 65 will mean that we will be controlling consumption by the private sector. 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.
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. There are homes for the aged. I have a kongsi for the aged. One of my members who was a worker in the PSA had withdrawn hisCPF, but it was so small that even if he were to spend $100 a month, it would have vanished in three years. It was that small. This was the reason why he is living in my kongsi for the aged.
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. If I were a person who has no relatives, if I were a widower with no children, all the assumptions made by this Committee – that you will be looked after by your children – then I do not qualify under any of these grounds. The statistics show very clearly that 43% of your senior citizens preferred to live with son and daughter-in-law and only 12% with daughter and son-in-law. But we are at the same time pursuing a family planning campaign. So if you have two daughters, you had it. Your chances are reduced to 12%. So do you understand now why the Chinese persist in having a son?
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! It is as simple as this, that the CPF has lost its credibility, the management of it. This is fundamental. You were taken by surprise by Medisave. Then they say, “6% of your Special Account will be kept for Medisave and you cannot withdraw that, even if you were to die.”
Now I ask the Minister for Health, and I asked him last time, whether his word is binding on future Ministers. Neither will the Minister for Labour’s word be binding on future Ministers for Labour. Can any Government or any Minister guarantee that in future years a law will not be passed that will say, “All Special Accounts in the CPF cannot be withdrawn until you die”? Your Special Account now is up to 10%; 6% Medisave, 4% for what? So unless you use the CPF to buy property, your money is in real danger of being kept under lock and key by others, not under your own lock and key. This is the nub of the problem – the credibility of the management, gradual encroachment into the purpose of the CPF which was instituted really to provide for retirement.
Again, there are many permutations on how people retire. Assuming that the CPF is like a vast insurance company, and then it hands out an annuity. I am old. It may well be that at 60 or 65 I am no longer employable. I may be senile, nobody may want to employ me. So the argument of the Member for Kebun Baru is weak there. It does not mean that employers, by just raising the retirement age to 60 or 65, will find that there will be increased productivity. The man may be a menace to the company! There are many of them in Woodbridge Hospital. I am not really convinced on that score.
You have, again, other types of contributors to the CPF. You have got expatriate workers, you have got Malaysian workers. Nowhere in this Paper is it spelt out what will be the fate of the balances of expatriate and Malaysian guest workers. Will Malaysian workers, who are now eligible to withdraw at 50 and 55 years old, be affected if, assuming today, we agree that the withdrawal age will be raised to 60 or 65? I think your mind must be applied to see the problem as a whole, and how this problem affects others. The aged guest workers are not going to stay here. So let them take their money when they go home. If that is permissible for expatriate workers, why should it not be permissible for your own workers? That is where I see the contradiction in the management of the CPF.
I am not against the Minister for Health spelling out future problems, but I would like to ask him, “Is it true, really, looking at these statistics, the dependency ratio is so many percent?” Does that mean that the Government is really supporting all these aged? On the one hand you say, “No, no, it is the family members who are supporting the aged parents.” So where does the CPF come into play? This is why this document – it should be a green paper, not a blue paper – would have been better if minds had been applied to the whole problem, so that we are set at ease about your thinking. Or are you trying another fast one?
Mr Speaker, as a senior citizen, I am beyond the decision of the Committee whether my withdrawal age should be 60 or 65.
Mr Howe Yoon Chong (Minster of Health): You have already withdrawn yours?
Dr Toh Chin Chye: I have withdrawn mine. But in fairness to my constituents and to others who have not yet reached this age, I ask “Do you wish me to speak, or do you wish me to be dumb?” They say, they are against this. So I have to explain to them the problems that they will be facing and, most importantly, some of them tell me this. They are not going to squander their money on world-wide trips to see Mickey Mouse in Disneyland. Some married late. By the time they retire at 55, their children are due to go to junior college or the university. Many of them are banking on this sum of money to cover the cost of their children’s higher education.
Some hon. Members: Hear! hear!
Dr Toh Chin Chye: If you say they cannot withdraw until 60 or 65, their children had it. It is as simple as that. With these words, Mr Speaker, I pass the debate to abler Members of the House. [Applause]