Proposed CPF changes give members more control
Key change is to offer choice of three different levels of retirement savings
By Toh Yong Chuan, Manpower Correspondent, The Straits Times, 5 Feb 2015
SINGAPORE residents can look forward to a more flexible national retirement scheme that allows them to customise different levels of savings and payouts.
A lump sum withdrawal at age 65 of up to 20 per cent of their Central Provident Fund (CPF) savings is also on the cards.
This marks a departure from fixed monthly payouts, as a government-appointed panel offered proposals yesterday to improve the CPF system.
The Government has accepted the panel's report, Manpower Minister Tan Chuan-Jin said yesterday. Details will be announced at the Budget debate next month.
The recommendations, made amid calls to change the CPF system, will shift the fund from a largely fixed retirement formula for all to one that gives members more control over their retirement savings.
"The CPF is fundamentally a sound system which helps Singaporeans prepare for retirement," panel chairman Tan Chorh Chuan said when he presented the proposals yesterday.
Now, all CPF members must meet a standard Minimum Sum at age 55. The amount, which is $155,000, and will increase to $161,000 in July, is locked away until age 65, when CPF members start receiving a monthly payout.
The biggest change is to offer a choice of three different levels of the Minimum Sum. CPF members can choose to lock away a basic sum of $80,500, a higher sum of $161,000 or an enhanced sum of $241,500 at age 55. The monthly payouts at age 65 range from $650 to $1,900.
Members can also withdraw any amount above the basic sum, provided they are property owners.
But the basic retirement savings will have to be increased each year for every new batch of CPF members who turn 55 after 2016, to adjust for inflation and higher standards of living. The panel suggested a 3 per cent hike each year from 2017 to 2020, for a start.
Those who postpone their monthly payouts past age 65 should be rewarded with larger permanent monthly payouts, the panel said.
It also proposed allowing the withdrawal of up to 20 per cent of retirement savings at age 65, giving members more flexibility with their savings - a cap first suggested by Prime Minister Lee Hsien Loong at last year's National Day Rally, when he broached the idea of partial withdrawal.
In addition, the panel wants incentives to encourage members to top up the accounts of their spouses and family members who have only small amounts in their CPF accounts, so that they, too, can have a steady retirement income.
It is working on a second set of proposals on CPF payouts and returns, which will be submitted to the Government in the middle of the year.
The National Trades Union Congress welcomed the proposals, but urged the Government to also look into areas outside the scope of the panel's review, such as raising the $5,000 salary ceiling from which CPF contributions are calculated, and raising the CPF contribution rates of older workers.
PM Lee praised the "good report" from the panel, saying it went beyond his proposal last year to offer CPF members the option of withdrawing some of their retirement savings at age 65.
The panel's suggestion to allow more money to be put into CPF savings for bigger payouts makes the scheme even more flexible, he told Singapore journalists during an interview in Germany, where he is on an official visit.
"This is important because it is very difficult to find one number for the CPF retirement sum," he said.
Choose a payout option and sum to provide for it: Panel
CPF members 'should have choices and time to prepare for increases'
By Toh Yong Chuan and Amelia Tan, The Straits Times, 5 Feb 2015
CENTRAL Provident Fund members will be asked to choose how much they would like to receive in monthly payouts, to determine the sum they should set aside in one of three savings packages to be offered.
CPF members 'should have choices and time to prepare for increases'
By Toh Yong Chuan and Amelia Tan, The Straits Times, 5 Feb 2015
CENTRAL Provident Fund members will be asked to choose how much they would like to receive in monthly payouts, to determine the sum they should set aside in one of three savings packages to be offered.
The most basic tier will require members to have at least $80,500 at age 55, provided they own a property. Such a sum will give them a monthly payout of $650 to $700 from age 65 for as long as they live.
Women will get lower payouts because of longer life expectancy.
Besides the basic tier, CPF members can voluntarily top up to double or triple the basic amount in the CPF - what the panel calls Full and Enhanced Retirement Sums respectively - in order to receive higher monthly payouts of as much as $1,750 to $1,900.
Those who do not want to start receiving monthly payouts at age 65 should be allowed to defer their payouts, said the panel. They should also be rewarded with higher permanent payouts.
With this new three tier system, the Minimum Sum, which is $161,000 from July, will be phased out, a government-appointed panel reviewing the CPF system said yesterday.
Over time, the sum that has to be set aside will have to be raised in line with inflation and living standards.
Each batch of Singapore residents who turn 55 each year between 2017 and 2020 will have to set aside 3 per cent more in their basic retirement savings.
The rate of increase is slower than the average rise of about 6 per cent in the CPF Minimum Sum each year since 2003.
The panel did not spell out any increases after 2020, but said adjustments should be reviewed periodically.
"The review will probably be (conducted) every five years," said panel chairman Tan Chorh Chuan.
Besides raising the basic retirement savings, he also wants CPF members to be given more time to prepare for increases, pointing out that members are informed of such increases just a few months before their higher Minimum Sums kicked in.
Still, the panel singled out an area of worry: Only 55 per cent of those who turned 55 in 2013 have enough CPF savings to meet their Basic Retirement Sum.
While the proportion is expected to increase to seven in 10 by 2020, those who did not meet the Basic Retirement Sum should continue to get help from the Government through schemes outside the CPF, recommended the panel.
These include the Silver Support Scheme announced by Prime Minister Lee Hsien Loong at the National Day Rally last year.
It supplements the payouts from the CPF accounts of needy elderly people, which is similar to how the Government supplements the salaries of low-wage workers with Workfare payments.
More details of the Silver Support Scheme are expected to be announced at the Budget debate later this month.
Singapore Management University law professor Eugene Tan welcomed the proposal to allow CPF members to top up their accounts to enjoy higher returns.
However, he was hoping that the panel would offer ideas on helping CPF members who cannot meet the Basic Retirement Sums.
"It would be ideal if there are recommendations that cater specifically to this group that needs the most help," he said.
Lump sum withdrawals of up to 20% proposed
By Joanna Seow and Amelia Tan, The Straits Times, 5 Feb 2015
By Joanna Seow and Amelia Tan, The Straits Times, 5 Feb 2015
CENTRAL Provident Fund (CPF) members should be able to withdraw up to one-fifth of their retirement savings when they become eligible for monthly payouts, said the panel tasked to review the scheme.
For those who can afford to, the CPF advisory panel also suggested they be given the option to delay the start of such payouts up to age 70, in exchange for more money each month.
A major consideration when allowing lump sum withdrawals, said the panel's chairman, Professor Tan Chorh Chuan, was how to strike a reasonable balance between having enough cash on hand and having an adequate monthly sum.
"We recognise that many members may have shorter-term cash needs in retirement," said Prof Tan, who is president of the National University of Singapore.
The 20 per cent withdrawal provision should be backdated to the cohort that turned 55 in 2013, the panel said yesterday, as part of its suggested enhancements to the national savings plan.
Since previous cohorts who turned 55 before 2012 could already withdraw at least 20 per cent of their savings, the withdrawal will not apply to them.
As for those who turned 55 in 2012, the panel suggested they be allowed to take out a further 10 per cent, to top up the 10 per cent that they have already been allowed to withdraw.
The proposed 20 per cent cap will also include $5,000 that can currently be taken out from age 55.
So, for instance, if a CPF member has $20,000 in his savings when he is 55 and does not top up his Retirement Account after withdrawing $5,000, he will not be able to take out any more cash when he turns 65 - as the $5,000 already amounts to more than 20 per cent of his retirement savings.
"We wanted to ensure that members with very low balances do not deplete their savings further," explained Prof Tan.
SIM University economist Randolph Tan noted, however, that the percentage cap will mean that people with low balances will still not get much.
So, the recommendation did not seem to meet this group's needs for an exceptional expense - part of the reason for the lump sum withdrawal, said Associate Professor Tan, who is a Nominated MP.
As to why larger withdrawals are allowed only much later than the previous age of 55, Prof Tan Chorh Chuan said that since the decision to withdraw affects lifelong payouts, people should make the choice when the payouts are to begin, so that "the immediacy of the trade-off is very clear".
The bigger the withdrawal, the smaller the future monthly payouts.
"Members should exercise this option with care," he cautioned, adding that the panel has also called for non-withdrawal incentives and financial counselling for members.
Another recommendation is to give CPF members the option of raising their CPF Life payouts, by starting them later.
They would still be eligible for payouts from what is currently known as the drawdown age - the age at which members can start drawing monthly payouts - but can defer them until age 70. For every year the payouts are delayed, the amount goes up by 6 per cent to 7 per cent.
To make this choice clearer, the panel wants to rename the drawdown age, calling it the "payout eligibility age" instead, which is now 63, and will be 65 from 2018 onwards. The payout start age will be flexible.
Prof Tan Chorh Chuan explained that some older workers may not need to begin drawing CPF payouts - around four in 10 residents here between the ages of 65 and 70 still earn income from work.
Key recommendations
By Amelia Tan, The Straits Times, 5 Feb 2015
1 DIFFERENT RETIREMENT SUMS FOR DIFFERENT NEEDS
2 NEW OPTION TO WITHDRAW UP TO 20 PER CENT OF SAVINGS AT 65
Currently, members who do not own property and do not meet their Minimum Sum can withdraw only $5,000 on turning 55. The proposed changes will allow them to withdraw one-fifth of their savings at 65 - this amount includes the $5,000 sum - on top of monthly payments.
3 HIGHER MONTHLY PAYOUTS IF CPF MEMBERS OPT TO RECEIVE THEM LATER
They get 6 per cent to 7 per cent more in monthly payouts each year. Payment is deferred from age 65, up to the age of 70.
4 INCREASE BASIC RETIREMENT SUMS AND BASIC PAYOUTS FOR FUTURE COHORTS
Basic Retirement Sum for CPF members turning 55 from 2017 to 2020 to be increased by 3 per cent for each cohort, to account for inflation and increased living cost.
5 HELP FOR MEMBERS WHO DO NOT MEET THE MINIMUM SUM
Incentives can be given to CPF members to top up the accounts of family members. Rules can also be relaxed to allow members to top up accounts of their spouses. The Government should also look beyond the CPF system to address this issue.
6 SPECIFIC AND TIMELY INFORMATION, AS WELL AS FINANCIAL COUNSELLING, SHOULD BE PROVIDED TO CPF MEMBERS
By Amelia Tan, The Straits Times, 5 Feb 2015
1 DIFFERENT RETIREMENT SUMS FOR DIFFERENT NEEDS
- Basic Retirement Sum: $80,500, half the Minimum Sum of $161,000. Allows payout of $650 to $700 every month at 65. It applies to property owners. Currently, Central Provident Fund (CPF) members can already halve their Minimum Sum by pledging the value of their property.
- Full Retirement Sum for those who do not own a home or do not want to pledge their property: $161,000. Allows payout of $1,200 to $1,300 every month at 65.
- Enhanced Retirement Sum for those who want to top up CPF savings and get higher payouts: $241,500, three times the Basic Retirement Sum. Allows payout of $1,750 to $1,900 every month at 65.
2 NEW OPTION TO WITHDRAW UP TO 20 PER CENT OF SAVINGS AT 65
Currently, members who do not own property and do not meet their Minimum Sum can withdraw only $5,000 on turning 55. The proposed changes will allow them to withdraw one-fifth of their savings at 65 - this amount includes the $5,000 sum - on top of monthly payments.
3 HIGHER MONTHLY PAYOUTS IF CPF MEMBERS OPT TO RECEIVE THEM LATER
They get 6 per cent to 7 per cent more in monthly payouts each year. Payment is deferred from age 65, up to the age of 70.
4 INCREASE BASIC RETIREMENT SUMS AND BASIC PAYOUTS FOR FUTURE COHORTS
Basic Retirement Sum for CPF members turning 55 from 2017 to 2020 to be increased by 3 per cent for each cohort, to account for inflation and increased living cost.
5 HELP FOR MEMBERS WHO DO NOT MEET THE MINIMUM SUM
Incentives can be given to CPF members to top up the accounts of family members. Rules can also be relaxed to allow members to top up accounts of their spouses. The Government should also look beyond the CPF system to address this issue.
6 SPECIFIC AND TIMELY INFORMATION, AS WELL AS FINANCIAL COUNSELLING, SHOULD BE PROVIDED TO CPF MEMBERS
CPF proposals make a good deal better: PM
Right that people can put in more, but 'there must be a limit'
By Zakir Hussain, Deputy Political Editor In Berlin, The Straits Times, 5 Feb 2015
THE recommendations of an advisory panel to make the Central Provident Fund (CPF) scheme more flexible for Singaporeans, based on their retirement needs, are appropriate as people seek greater say and security for their savings in old age, Prime Minister Lee Hsien Loong said.
Right that people can put in more, but 'there must be a limit'
By Zakir Hussain, Deputy Political Editor In Berlin, The Straits Times, 5 Feb 2015
THE recommendations of an advisory panel to make the Central Provident Fund (CPF) scheme more flexible for Singaporeans, based on their retirement needs, are appropriate as people seek greater say and security for their savings in old age, Prime Minister Lee Hsien Loong said.
The proposals announced yesterday are good, he added, while noting that even today, quite a number of people leave their money in their CPF accounts instead of taking out what they can at their drawdown age.
"They don't get a lot of publicity, they don't jump around at Hong Lim Green, but they quietly know this is a good deal. And what the committee is recommending, makes it an even better deal," he said.
"They don't just get 2.5 per cent (interest) on the amount they put in, they are going to get 4 per cent on the amount they are putting in. And it will see to the needs of the middle and lower end of the population, which is a benefit for Singaporeans."
Mr Lee was speaking to Singapore journalists at the end of his four-day official visit to Germany, where he met top German leaders and businessmen.
He also observed the country's vocational training system, which Singapore wants to learn from as it encourages lifelong learning.
He had highlighted the move towards an integrated system of education, training and career progression, with support from industry, throughout a worker's life at last year's National Day Rally.
He also announced at the Rally the formation of the advisory panel to study ways to make the CPF scheme more flexible.
The panel's recommendations include letting people withdraw up to 20 per cent of their retirement savings at age 65, and an option for those who want to go beyond the Basic and Full Retirement Sums to pick an Enhanced Retirement Sum.
"These are just fulfilment and definition of what I had sketched out last year at the Rally," he said.
Mr Lee noted that the amount people needed in retirement would depend on their incomes and family circumstances, and the committee had to think about finding a right amount that most people would be able to meet.
But some might need a greater payout, and would have the money for that. "Up till now our attitude is well, beyond that, you're on your own," he said.
The Basic Retirement Sum, he noted, would cover only up to the 25th percentile of the working population, whereas many would want more than that in their old age.
"If you're an executive and earning generous pay, you know how to look after yourself. But if you're an average Singaporean, you have a bit more money, to say 'go and set up your own retirement scheme', I think that's not possible," he said.
"So I think it's right that... beyond the Full Retirement Sum, if people want to put more in, do that. (But) there has to be a limit, otherwise if you have a lot of money, you just dump it in the CPF, it becomes the Government's duty," he added.
"But up to three times the basic sum, let's call it Enhanced Retirement Sum, you can put it in, you get correspondingly higher payouts when you retire."
On his meetings with German business leaders, Mr Lee said a critical issue for them was consistency of policy, regulatory transparency, a clean system and protection of intellectual property.
"They can depend on what you say being fulfilled and honoured, not just in the short term, but over the long term," he said.
"They expressed their appreciation for this, which of course means they are reminding me to please continue to uphold this."
Mr Lee also said the Government was helping companies in Singapore to upgrade, including those in manufacturing.
"The German companies are strong in manufacturing, and we will work with them to help the companies succeed in Singapore."
Ultimately, for Singaporeans to have good jobs and be able to earn good incomes, the economy had to be vibrant and humming, he added.
"That's what we have been trying hard to do, and trying hard to get people to understand that this is important."
CPF proposals: 3 examples of how they will affect members
The Straits Times, 4 Feb 2015
The Straits Times, 4 Feb 2015
Here are three examples to illustrate the Central Provident Fund (CPF) Advisory Panel’s recommendations.
Example 1:
Mr Ang turns 55 in 2016 and has CPF savings of $20,000.
When he turns 55, $5,000 is set aside and can be withdrawn at any time. The rest ($15,000) would need to be set aside in the Retirement Account.
By the time Mr Ang reaches his Payout Eligibility Age (when he is 65), the sum of $15,000 in his Retirement Account would have grown to $24,000 because of the interest received from CPF.
When he is 65, he would not have the option to make a further 20 per cent withdrawal. This is because the $5,000 he could withdraw when he is 55 or after is more than 20 per cent of his Retirement Account savings when he is 65. This would ensure his monthly CPF payout is not reduced further as he has low CPF balances.
By the time Mr Ang reaches his Payout Eligibility Age (when he is 65), the sum of $15,000 in his Retirement Account would have grown to $24,000 because of the interest received from CPF.
When he is 65, he would not have the option to make a further 20 per cent withdrawal. This is because the $5,000 he could withdraw when he is 55 or after is more than 20 per cent of his Retirement Account savings when he is 65. This would ensure his monthly CPF payout is not reduced further as he has low CPF balances.
Mr Ang can opt to join CPF Life, which would provide monthly payouts of $140 for life. He would need to choose his payout start age, as well as a CPF Life plan.
If he decides not to join CPF Life, his CPF savings will be streamed out as monthly payouts until the sum is exhausted.
Example 2:
Mr Bakar turns 55 in 2016 and has CPF savings of $85,500.
When Mr Bakar is 55, $5,000 is set aside and can be withdrawn at any time, and the rest ($80,500) would need to be set aside in the Retirement Account.
By the time he reaches his Payout Eligibility Age (when he is 65), the sum of $80,500 in his Retirement Account would have grown to $123,600 because of the interest received from CPF.
When Mr Bakar turns 65, he would have to first decide whether or not to set aside for withdrawal 20 per cent of the $123,600, less the $5,000 he could already withdraw at any time after he turns 55, which amounts to $19,700. If he makes the withdrawal, however, it would lower the monthly payout that he would subsequently receive, from $680 to $580.
He would next have to choose his payout start age. He can opt to have monthly payouts start at 65 or later – at 66, 67 and up to age 70. For every year that his payout start age is deferred, monthly payouts permanently increase by 6 to 7 per cent. Before his payouts commence, he would choose his CPF Life plan.
Example 3:
Mr Chan turns 55 in 2016 and has CPF savings of $200,000.
When he turns 55, he can set aside the Full Retirement Sum of $161,000, which would provide him a monthly payout of about $1,300 a month, starting at age 65, for life. He can withdraw his CPF savings in excess of this sum – that is, $39,000.
If he has property, he can opt to set aside the Basic Retirement Sum of $80,500, subject to a charge or pledge on the value of the property. His Retirement Account savings above the Basic Retirement Sum of $80,500 can also then be withdrawn – that is, a total of $119,500 can be withdrawn at age 55. The payout he will receive from age 65 will vary according to the sum set aside.
Alternatively, he could opt to set aside an Enhanced Retirement Sum, which can vary from more than $161,000 to a maximum of $241,500 (that is, three times the Basic Retirement Sum), in order to receive a higher monthly payout. For example, if he chooses to top up to the maximum allowed, he could do this with his excess CPF savings of $39,000, and cash of $41,500.
Assuming he opts for the Full Retirement Sum of $161,000 when he turns 55, when he reaches 65, the sum he has set aside would have grown to $240,500 because of interest received from CPF.
At his Payout Eligibility Age of 65, he would have to first decide whether or not to set aside a sum for withdrawal – 20 per cent of $240,500, less $5,000, which amounts to $43,100. If he makes this withdrawal, however, it would lower the monthly payout he would subsequently receive – from $1,300 a month to $1,060 a month.
Next, he would need to choose his payout start age. He can opt for monthly payouts starting from age 65 or later, up to age 70. For every year that his payout start age is deferred, monthly payouts permanently increase by 6 to 7 per cent. Before his payouts commence, he would choose his CPF Life plan.
When Mr Bakar is 55, $5,000 is set aside and can be withdrawn at any time, and the rest ($80,500) would need to be set aside in the Retirement Account.
By the time he reaches his Payout Eligibility Age (when he is 65), the sum of $80,500 in his Retirement Account would have grown to $123,600 because of the interest received from CPF.
When Mr Bakar turns 65, he would have to first decide whether or not to set aside for withdrawal 20 per cent of the $123,600, less the $5,000 he could already withdraw at any time after he turns 55, which amounts to $19,700. If he makes the withdrawal, however, it would lower the monthly payout that he would subsequently receive, from $680 to $580.
He would next have to choose his payout start age. He can opt to have monthly payouts start at 65 or later – at 66, 67 and up to age 70. For every year that his payout start age is deferred, monthly payouts permanently increase by 6 to 7 per cent. Before his payouts commence, he would choose his CPF Life plan.
Example 3:
Mr Chan turns 55 in 2016 and has CPF savings of $200,000.
When he turns 55, he can set aside the Full Retirement Sum of $161,000, which would provide him a monthly payout of about $1,300 a month, starting at age 65, for life. He can withdraw his CPF savings in excess of this sum – that is, $39,000.
If he has property, he can opt to set aside the Basic Retirement Sum of $80,500, subject to a charge or pledge on the value of the property. His Retirement Account savings above the Basic Retirement Sum of $80,500 can also then be withdrawn – that is, a total of $119,500 can be withdrawn at age 55. The payout he will receive from age 65 will vary according to the sum set aside.
Alternatively, he could opt to set aside an Enhanced Retirement Sum, which can vary from more than $161,000 to a maximum of $241,500 (that is, three times the Basic Retirement Sum), in order to receive a higher monthly payout. For example, if he chooses to top up to the maximum allowed, he could do this with his excess CPF savings of $39,000, and cash of $41,500.
Assuming he opts for the Full Retirement Sum of $161,000 when he turns 55, when he reaches 65, the sum he has set aside would have grown to $240,500 because of interest received from CPF.
At his Payout Eligibility Age of 65, he would have to first decide whether or not to set aside a sum for withdrawal – 20 per cent of $240,500, less $5,000, which amounts to $43,100. If he makes this withdrawal, however, it would lower the monthly payout he would subsequently receive – from $1,300 a month to $1,060 a month.
Next, he would need to choose his payout start age. He can opt for monthly payouts starting from age 65 or later, up to age 70. For every year that his payout start age is deferred, monthly payouts permanently increase by 6 to 7 per cent. Before his payouts commence, he would choose his CPF Life plan.
Two CPF members turn 55 this year. One meets the CPF Minimum Sum and wants to put in more money, the other does not meet the Minimum Sum and wants to withdraw more than what she is allowed to.
Waiting longer for chance to tap CPF
By Amelia Tan, The Straits Times, 5 Feb 2015
Waiting longer for chance to tap CPF
By Amelia Tan, The Straits Times, 5 Feb 2015
FOR cook S.Y. Tan, having to wait 10 years, until she is 65, to withdraw 20 per cent of her Central Provident Fund (CPF) savings, is too long.
The single mother was dreaming of taking out $20,000 from her CPF account after she turns 55 later this month as a wedding gift for her 29- year-old bank executive son, who is getting married soon.
"It means a lot to me that I can give my son a wedding gift.
"But now, I may have to wait for 10 years to get some more money. That is a really long time," she said.
Ms Tan's savings fall $6,500 short of the Minimum Sum of $77,500. The sum was halved because she pledged her three-room flat. This means that she can withdraw only $5,000 when she turns 55.
Paying for her flat single-handedly after her divorce wiped out a large chunk of her CPF savings.
"It was tough for a single mum like me to pay for my flat and raise my son," said Ms Tan, who earns over $2,000 a month.
While the CPF review panel's recommendations were not what she was hoping for, she admits that waiting for the cash is better than not being able to withdraw any at all.
Currently, there is a $5,000 cap on withdrawals for those who do not meet the Minimum Sum.
"If the recommendations are accepted by the Government, we will still get more money.
"Even though the money will come at a later stage, we still get something," she said.
She hopes, however, that people will one day be allowed to withdraw more of their CPF savings after turning 55.
"People in their 50s will appreciate having some extra cash.
"They need money for medical bills for their parents, school fees for children or to go on a holiday. It really helps."
Willing to put more in for higher payouts
By Joanna Seow, The Straits Times, 5 Feb 2015
INVESTOR Alick Lee, who is self-employed, has spent years living on an irregular monthly income.
But Mr Lee, who turns 55 this year, wants to leave those uncertainties behind as he grows older.
"I have worked so hard all my life, when I reach 65, I don't want to take any more risks," he said. "I want to have peace of mind."
So, Mr Lee has been making voluntary contributions to his Central Provident Fund (CPF) accounts to meet the Minimum Sum, which is $155,000 for his cohort. This will give him a steady stream of monthly payouts of around $1,200 after he turns 65.
He would gladly set aside double the Minimum Sum for his CPF Life premium, he said. He estimates that amount would net him payouts of $3,000 each month. That would beat inflation and allow him to lead a "free and easy" life, said the father of two.
There is currently no option for CPF members to put money into their Retirement Account beyond the Minimum Sum for higher payouts, but it is a key recommendation of the CPF advisory panel.
For the cohort turning 55 in 2016, which the panel gave figures for, a new Enhanced Retirement Sum of $241,500 is proposed. People with this amount in their Retirement Account at age 55 could get monthly payouts of between $1,750 and $1,900 from age 65, up from between $1,200 and $1,300 if they set aside the Full Retirement Sum of $161,000, and between $650 and $700 if the Basic Retirement Sum of $80,500 is set aside.
Apart from selling some valuables and many of his shares to top up his account to the Minimum Sum, Mr Lee also topped up his wife's CPF savings so that she can join CPF Life. She turns 55 next year and has little savings as she is a housewife.
Mr Lee started work at a young age, taking on dispatch rider and sales jobs after national service, and began investing his savings at 25. He does not own a car and lives in a HDB executive flat.
"I have to sacrifice now, but the money in CPF will provide a secure income for me to live on until I die," he said.
Panel focuses on four main areas
By Amelia Tan, The Straits Times, 5 Feb 2015
By Amelia Tan, The Straits Times, 5 Feb 2015
THE 13-member advisory panel was set up by the Ministry of Manpower in September last year to look at improvements that could be made to the Central Provident Fund (CPF).
Led by National University of Singapore president Tan Chorh Chuan, the panel included members from academia and the financial sector.
The review focused on four main areas:
- How the Minimum Sum should be adjusted beyond next year so members can receive monthly retirement payouts for life. The sum is now $155,000, but will rise to $161,000 for those turning 55 in July this year.
- How to enable bigger lump sum withdrawals upon retirement. The circumstances in which people would be allowed to withdraw a lump sum were also looked at, while taking into account whether different groups would have enough to cover retirement.
- Giving options to those who want lower payouts first and then have payouts rise with time.
- Providing more flexibility for those who want higher returns through private investment plans while balancing the higher investment risks involved, and for those who want to invest in private annuities as an alternative to the CPF Life annuity plan.The advisory panel based their recommendations on feedback from the public.
Over the past few months, a series of focus group discussions was organised to gather views on enhancing the CPF system. Members of the public could also e-mail their ideas to the panel.
CPF tightrope on numbers, sentiments
Refinements more likely than overhaul to keep system relevant
By Lydia Lim, Associate Opinion Editor, The Straits Times, 5 Feb 2015
Refinements more likely than overhaul to keep system relevant
By Lydia Lim, Associate Opinion Editor, The Straits Times, 5 Feb 2015
CHANGES to rules governing Central Provident Fund (CPF) withdrawals can be political dynamite. They usually involve requiring workers to lock up more savings in the mandatory pensions scheme, and for longer, as life spans and costs of living go up.
Just over 30 years ago, when a straight-talking Cabinet minister by the name of Howe Yoon Chong set out the rationale for raising the CPF withdrawal age from 55 to 60, it provoked such anger and took such a toll on the People's Action Party (PAP) at the 1984 polls that his report was shelved.
Just over 30 years ago, when a straight-talking Cabinet minister by the name of Howe Yoon Chong set out the rationale for raising the CPF withdrawal age from 55 to 60, it provoked such anger and took such a toll on the People's Action Party (PAP) at the 1984 polls that his report was shelved.
Instead, three years later, in 1987, the Government introduced the CPF Minimum Sum scheme.
That helped to cushion the blow, but the aim was the same - to increase the sum that CPF members have to set aside in their retirement accounts before any lump sum withdrawal is allowed.
Such changes are good policy at the national level, but rankle at the personal level.
They arouse the greatest resentment perhaps among older, lower-income workers who may not have much spare cash and look forward to the day when they can take out a lump sum from their CPF, to realise long-held dreams or ambitions. That explains the crowds - a large proportion of them men in their 50s - who showed up at the Speakers' Corner last year to protest against hikes in the CPF Minimum Sum.
Now comes a controversial call for a policy change in the opposite direction. Yesterday, a government-appointed CPF Advisory Panel recommended that every CPF member be allowed to withdraw as a lump sum up to 20 per cent of his retirement balances - no matter how low.
If accepted by the Government, the change will mean that even CPF members who fall far short of the Minimum Sum will be able to take out a chunk of their savings, further shrinking the already modest monthly payouts they will receive in old age.
So, someone with $40,000 in his CPF Retirement Account at age 55 will be able to withdraw a lump sum of up to $7,700 when he turns 65. If he does so, his monthly CPF payouts in retirement will fall from $360 to $320.
Granting this flexibility seems to undermine the CPF's objective of ensuring people in the lower-income and lower-middle-income groups have an adequate stream of income for their needs, from the time they stop work until they die. For the people most likely to make lump sum withdrawals are the ones who can least afford to do so, that is, those with insufficient CPF savings to begin with.
So, what was the panel of 13 experts comprising academics, financial industry practitioners, and union and grassroots leaders thinking when they came up with this recommendation?
The cynics might say: Well, they were probably steered down this path to placate those who have been lobbying to get hold of some of their CPF savings, and sooner rather than later.
To be sure, the Government cannot afford to ignore ground sentiments on a political hot potato like the CPF.
But responding to ground sentiment is not just about caving in to populist pressure ahead of the polls. It is also about maintaining enough trust and support in the CPF system to ensure it remains a viable mandatory retirement savings scheme for the long term.
In crafting policy, national leaders must balance both the hard numbers of retirement adequacy and the soft sentiments of people nearing retirement age, who want to mark that milestone in their lives and need some cash to do so.
As Nanyang Technological University economist Walter Theseira noted in a commentary published in The Straits Times on Wednesday: "The reality is that many lower-income CPF members will face great difficulty maintaining an adequate standard of living in retirement from CPF savings alone. While flexibility may worsen their situation somewhat in the long run, refusing to grant flexibility, by itself, does not address their basic problem of inadequate lifetime savings."
Both he and the panel believe that this group of CPF members are best helped in other ways, with Dr Theseira mentioning other countries' practice of providing a minimum basic pension.
The panel also reported that, according to their study of how much current retirees spend, using figures from the Household Expenditure Survey, they project that a lower-middle-income worker who stops work in 10 years' time will need $650 to $700 a month.
Based on that, they have proposed a new Basic Retirement Sum of $80,500 which CPF members must set aside in their Retirement Accounts when they turn 55.
The share of active CPF members who can meet this Basic Retirement Sum will go up over time, from 55 per cent of the cohort who turned 55 in 2013 to 70 per cent of those who turn 55 in 2020. That means the problem of people not having enough in their CPF accounts for their retirement should shrink over time.
The older cohorts who tend to have lower CPF balances are also likely to have a significant asset in their homes, and schemes exist to help them monetise that asset.
For those reasons, a big overhaul is unlikely. Instead, the reforms will be refinements to enhance the CPF's relevance and continued acceptability, given the panel's conclusion that the "CPF system is fundamentally sound".