CPF Life will help low and lower-middle income meet typical spending needs
By Cai Haoxiang, The Straits Times, 6 Mar 2012
DEPUTY Prime Minister Tharman Shanmugaratnam yesterday reassured MPs concerned about whether people have enough retirement savings, citing figures to show the Central Provident Fund (CPF) system meets the basic retirement needs of low to lower-middle income Singaporeans.
He also clarified the role of the mandatory savings scheme, saying it is not designed to meet the needs of higher-income earners, who often have private savings outside the CPF.
The Minimum Sum that a CPF member must set aside at age 55 is now $131,000. That sum gives a monthly income of $1,100 for life from age 65 under the CPF Life annuity scheme.
It is enough to meet the typical spending needs of a two-member, lower-middle income retiree household - that is, one between the 20th and 40th percentile by income.
Mr Tharman also announced that the CPF Life scheme would be simplified, ahead of the annuity scheme becoming compulsory for CPF members who turn 55 from next year. The number of CPF Life plans will be cut from four to two based on feedback from 73,000 who signed up voluntarily.
On the need for CPF Life, Mr Tharman explained that one-third of those who are aged 65 today would live beyond age 90. It was thus necessary to replace the old Minimum Sum scheme, which gave payouts for 20 years from age 65, with CPF Life, which gives payouts for life.
CPF members will not be shortchanged either if they do not live long enough. 'You will get all your capital back, either through your monthly payouts or in a bequest left to your loved ones.'
Mr Tharman, who is also Manpower Minister, addressed questions from four Members of Parliament on the adequacy of CPF savings for older and younger cohorts of Singaporeans.
Older Singaporeans have low cash balances in CPF but significant wealth in their homes, he said.
Wages were lower in the past, and far fewer women worked. Around 80 per cent of CPF contributions went into housing, compared to less than two-thirds today. Previous rules also allowed for far more to be withdrawn in cash at age 55.
That is why government policies have focused on helping older Singaporeans 'unlock the savings in their homes and supplement their retirement income'. These include the Silver Housing Bonus and enhanced Lease Buyback Scheme.
But two-thirds of those aged 65 and above receive family support and do not need to tap these schemes. As for younger CPF members in the lower half by income, most will have enough cash in their CPF accounts for a retirement income comparable to the average in Organisation for Economic Cooperation and Development countries.
On concerns that younger workers would not meet the rising Minimum Sum, Mr Tharman said the percentage of active CPF members who do rose from 36 per cent in 2007 to 45 per cent last year.
About 70 to 80 per cent of those starting work today should attain the current Minimum Sum level in cash by the time they retire, even after withdrawals for a home. Younger low-wage workers would also get 'major boosts' to their retirement savings through Workfare Income Supplement payouts and various housing grants. 'So our CPF system with current contribution rates is broadly appropriate for most of the younger generation of Singaporeans,' he said.
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