CPF provides comfortable post-retirement income: Study

Singapore system found to be on a par with international pension schemes

By Amelia Tan, The Straits Times, 20 Sep 2012

THE Central Provident Fund (CPF) system is working well and will give young Singaporeans entering the workforce a comfortable post-retirement income.

This is according to a new study commissioned by the Ministry of Manpower (MOM), which concludes that the ratio of a Singaporean's post-retirement income to his pre-retirement income is comparable to global benchmarks.

This ratio, known as the income replacement rate (IRR), is one yardstick used by economists worldwide to gauge the retirement-based adequacy of social security systems.

Deputy Prime Minister Tharman Shanmugaratnam gave a preview of the survey's findings yesterday at the Singapore Human Capital Summit at Resorts World Sentosa.

The study, carried out by National University of Singapore professors Chia Ngee Choon and Albert Tsui, found that a Singaporean male worker who starts work now and draws a median monthly income of about $2,500 will achieve an IRR of 71 per cent through his CPF savings.

The rate is 63 per cent for a female worker with a median salary of about $2,100.

These figures put Singapore's CPF system on a par with pension schemes in Organisation for Economic Cooperation and Development (OECD) countries - a grouping of 34 developed economies.

Mr Tharman said the IRR in a median OECD country is 66 per cent and 72 per cent in an average OECD country.

Singapore's IRR is also within the World Bank's recommended range of 53 to 78 per cent.

Mr Tharman also pointed out that Singapore's IRR increases further when taking into account the fact that most Singaporeans own homes that are fully paid for when they retire.

This is because they do not have to pay rent. Singaporeans also have the option of unlocking even more cash by selling their homes and downgrading to smaller ones.

Because the CPF is designed to meet the retirement needs of middle and lower-income earners, Singapore's IRR for low-wage earners is higher than those of other income groups.

Workers earning $1,700 and below in gross monthly pay enjoy post-retirement income of 81 per cent of their monthly salaries. This goes up to 93 per cent when government help in the form of the Workfare Income Supplement is factored in.

Mr Tharman said: "The results of the study are an important validation of the CPF. The refinements we have made to the CPF over the years have ensured that the vast majority of young Singaporeans will receive adequate payouts in retirement."

However, he warned that Singapore must be mindful of the needs of the current batch of older citizens. Many have low CPF balances and do not attain the IRR estimated in the study.

But he noted that most of them have also experienced a substantial appreciation in the value of their homes which they own.

This is why the Government has launched the Silver Housing Bonus scheme, which allows elderly Singaporeans to downgrade to smaller homes and use the cash they receive to supplement their retirement income. There are also other subsidies which help the elderly defray medical costs.

The issue of whether the CPF system prepares Singaporeans sufficiently for retirement has generated public debate recently.

Earlier this year, Associate Professor Hui Weng Tat of NUS published a study which showed that young Singaporean graduates may not have enough CPF savings for their retirement.

Prof Hui's study shows that tertiary-educated Singaporeans who entered the workforce in 2010 with a pay of $2,560 - the pay of many fresh graduates - and go on to buy a five-room flat worth about $560,000 from the Government, could get monthly CPF payments of only 22 per cent of their last-drawn pay when they retire at age 65.

When contacted yesterday, Prof Hui said he would read the the full report of the study commissioned by MOM before commenting.

Mr Tharman said that the results of the study will be finalised and released soon.

Related
'CPF enough for retirement if...'