More CPF flexibility under study: Tan Chuan-Jin

Option of varying savings, payouts raised ahead of review panel's report
By Toh Yong Chuan, Manpower Correspondent, The Straits Times, 15 Dec 2014

THERE could be more options for Central Provident Fund (CPF) members in deciding how much they want to save, rather than a one-size-fits-all approach to retirement funding.

And driving the change is the focus on how much each individual needs, said Manpower Minister Tan Chuan-Jin.

"When you are looking at different levels of payouts, there are different amounts that they need to save and they need to keep in their CPF," said Mr Tan, giving for the first time a hint of where the CPF review is heading.

Speaking to the media in a wide-ranging interview on manpower issues last week, Mr Tan said that the advisory panel set up by the Government in September to review the CPF should have its first set of recommendations ready by next month.

Ahead of the panel's report, Mr Tan said that its thinking behind the CPF has shifted from the current approach, where the Government stipulates one Minimum Sum for all members, which is now $155,000 but will go up to $161,000 in July.

"So I think we are looking at perhaps various options and then tying those options to the differing amounts that you need to accumulate," he said.

"We realised that that's the thing because actually people do have different needs and people are looking at different requirements."

The panel is also looking at how to prevent CPF payouts from being eroded by inflation, said Mr Tan. But he also warned that having too many options could over-complicate the CPF, already a complaint among many people.

Still, the panel is fully aware of the tensions over the CPF, with many people wanting more flexibility in using their savings.

"There are individuals who feel that this is my money and therefore why should I not be allowed to take it out," Mr Tan noted.

"But I think the idea really is to help provide every individual with at least a basic savings plan of sorts, to allow them to be able to sustain for the long term."

In the 90-minute interview, he also covered issues such as rehiring workers beyond the age of 65 and raising productivity.

The Government will use the law to compel companies to rehire workers until 67 in "two to three years", he said, urging employers to use the official incentives, to be announced early next year, to make the transition.

On productivity, the minister warned that companies have to start adapting to slower manpower growth, which is expected to start as early as 2020. They "have to restructure, change the way they do things" so as to rely on less manpower, he said.

"The time to change is now."

He is upbeat about the prospects for next year. The economic outlook remains positive, he said, adding: "When the economy is healthy, it means that companies can do well."

While welcoming the idea of tailoring CPF savings according to payouts, economists warned of the risks involved.

"I worry that tilting towards greater flexibility in allowing differing Minimum Sums and corresponding payouts might mean that more people are caught with inadequate financial resources in old age," said Singapore Management University labour economist Hoon Hian Teck.

Idea of different Minimum Sums for different groups being studied: Tan Chuan-Jin
By Imelda Saad, Channel NewsAsia, 14 Dec 2014

Any change to the CPF system will take into account the income needs of Singaporeans in their retirement years. One area being looked at is whether it's possible to have different Minimum Sums for different groups, depending on their needs.

Manpower Minister Tan Chuan-Jin made these comments when asked about his thoughts on the review of the CPF system which is currently under way. But he also warned that providing more options would make the system more complicated.

Since November, the panel tasked with reviewing the CPF system has held several focus group discussions. One thing stood out - people value the CPF system. But there are differing views on how to make it better.

The Manpower Minister said the fundamental role of the CPF has not changed and that is to provide for one's financial adequacy during one's retirement years for healthcare and housing. The key is to establish how much flexibility to work into the system and whether more options can be provided.

A range of options is being considered. For example, a different Minimum Sum for different groups of people. The Minimum Sum is the amount one sets aside upon reaching age 55 to ensure some regular income upon retirement at 65. It now stands at $155,000. It will be adjusted to $161,000 in July 2015.

Currently, if a person is unable to set aside this full amount in cash, his property - bought with his CPF savings - will be automatically pledged, for up to half of his Minimum Sum.

Moving forward, how much Minimum Sum one sets aside may depend on the payout that person wants. Minister Tan said: "We should be focused more on the payouts. At the end of the day, it is: what is the level of payout that we want?

"If we are happy with X amount being streamed out on a monthly basis, then obviously if we feel that that's the amount that we need to provide for, whether our basic needs or enhanced needs. That amount will then obviously need to be tied to a certain amount that you need to accumulate because that's how it works. So we may be looking at a variety of options, depending on what you are looking at."

"Even today, under the present system, if you are able to accept a smaller payout, you do a property pledge and so on, you re-use the amount that you keep, then obviously the amount being streamed out is less. So I think we are looking at various options available and then tied to these options would be differing amounts that you would need to accumulate," added the minister.

Mr Tan said: "We are also looking at the possibility of extending the amount, because there are also a number of people who want to top up their CPF but could not because there are limits. Actually many also do realise that keeping monies in the CPF makes a fair degree of sense for them as well, both in terms of the savings and the interest that's being provided.

"So, (we are looking at) whether for some who are looking for enhanced payouts, would there be a possibility of putting in more monies into the CPF beyond what it is today? That may be an option that can be considered as well. But we look at it in totality."

Such a system will essentially mean different payout levels for different people. But ironically, the groups that need the higher payouts in their later years are the vulnerable ones. Mr Tan said they are also the ones who need a higher lump sum payout, when they hit 55. The problem is: the more you take out in your early years, the less you get later.

Mr Tan said: "For those who are alright, who have other savings and so on, perhaps it's not such a huge concern. But for those who are perhaps less provided for in different ways, it has a very real impact because it does mean that your payment, your payout, on a monthly basis is reduced. So that's not trivial.

"It's particularly the vulnerable groups that get affected most. I can understand those who have other forms of savings and so on who feel that perhaps we could be more liberal but it's perhaps the vulnerable groups that need it more and oftentimes, it's the vulnerable groups that feel that pressure to want to take out the cash for more immediate needs."

Another possibility being looked at is a stream of payouts that get higher as the years go by to combat the effects of inflation. The CPF Advisory Panel is expected to submit its preliminary recommendations to the government by February next year.

Minimum Sum pegged to one’s salary may ‘inject flexibility into CPF system’
By Valerie Koh, TODAY, 16 Dec 2014

Factoring in one’s income level, gender and marital status in setting the Minimum Sum for different individuals could be one way to inject flexibility into the Central Provident Fund (CPF) system for different members. In addition, contribution rates and ceilings should also be tweaked to ensure retirement adequacy, said experts, in response to the Government’s consideration to move away from the one-size-fits-all format.

If members are free to choose how much they want to save based on what they think they need in their later years, it may result in the state having to give out more in public assistance for vulnerable groups or make the CPF system even more complex, they added.

“Giving them too much choice isn’t necessarily good because we can’t ever predict the future for ourselves,” said Institute of Policy Studies research fellow Christopher Gee, who specialises in policy implications on retirement adequacy, housing and healthcare.

In an interview last week, Manpower Minister Tan Chuan-Jin hinted that the advisory panel set up by the Government to review the CPF is mulling the introduction of varying levels of Minimum Sum and payouts because “actually, people do have different needs and people are looking at different requirements”.

The panel is expected to submit its preliminary recommendations to the Government in February.

Yesterday, experts interviewed welcomed the idea of moving away from a common Minimum Sum for all CPF members.

The Minimum Sum is the amount each member has to meet at age 55 to be able to make withdrawals. It is set at S$155,000 now, but will be increased to S$161,000 next July.

Pointing out that the Minimum Sum could be set at a “more realistic” level for lower-income groups, Nanyang Technological University economist Walter Theseira said: “It is extremely difficult for them to have any chance of meeting the Minimum Sum. But we have to accept that if we want to give them more flexibility to withdraw their money earlier, we probably have to help them more in retirement.”

Assistant Professor Theseira suggested that one’s gender and marital status could come into play, noting that other countries have retirement adequacy systems that are conceived on a family basis, unlike Singapore’s CPF system, which is more individualistic.

“Under the United States’ Social Security system, the state gives additional benefits to married households. You can claim half of your spouse’s benefits (from the state) or all of your own, depending on which is higher,” he said. “It is extra income just for being married. Our system is not like that.”

Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy noted that a higher Minimum Sum for the middle-class group would provide a more comfortable retirement. But the “relatively low” contribution ceiling of S$5,000 now would have to go up in tandem, he noted.

On the minister’s point that the advisory panel is also studying having payouts that increase progressively to mitigate the effects of inflation, Assoc Prof Hui said the change would require the returns on special government bonds (which CPF monies are invested in) to be inflation-indexed or inflation-protected.

Such a practice is already common in overseas bond markets, Assoc Prof Hui pointed out.

Asst Prof Theseira also noted that rising payouts means purchasing power is preserved over time and not that one can consume more goods as one ages. “(It means) I can buy the same basket of food today as I can 10 years from now,” he said.

Meanwhile, Mr Gee suggested that contribution rates and ceilings should also be tweaked to boost retirement adequacy.

As employer contribution rates decrease with age, “there’s less incentive for employees to continue working and this goes against the idea of encouraging people to work longer”, he said.

Allowing withdrawals only when an individual retires — instead of from age 55 as is the case now — could be an option. “The reality is that people are living longer. The average Singaporean could retire at 55 years old and live for another 30 years,” Mr Gee said.

Post by Singapore Ministry of Manpower.