Thursday 5 February 2015

CPF Advisory Panel's Recommendations, Part One, February 2015

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.

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.

Desire to give flexibility behind idea for tiered savings scheme
Members can refer to three tiers of CPF savings amounts according to their means
By Xue Jianyue, TODAY, 5 Feb 2015

Instead of fixing a standard Minimum Sum across a cohort, have three tiers of Central Provident Fund (CPF) retirement savings amounts people can refer to based on their means, a panel tasked to review Singapore’s national savings scheme has proposed.

Catering to calls for greater flexibility in assessing CPF monies, the new Retirement Sum scheme the 13-member panel has mooted is driven by the quantum of monthly payouts a member wants in his golden years.

For the lowest tier, which pays between S$650 and S$700 a month, members need to have S$80,500 as the newly-created Basic Retirement Sum to pay for CPF LIFE premiums.

But this option is open only to those who own property. Members can withdraw their excess savings, provided they pledge their property. If the home is sold, the proceeds are returned to their CPF accounts.

The next tier, called the Full Retirement Sum, pays out S$1,200 to S$1,300 monthly and is targeted at those who do not own property. The savings required in the CPF account for this will be twice that of the Basic Retirement Sum, or S$161,000, because these members will need to pay rent and will not be earning any income from renting out their property.

The top tier, which pays out between S$1,750 and S$1,900 per month, is for those who wish to invest any extra cash they have beyond the Minimum Sum through the CPF.

Members who choose this Enhanced Retirement Sum option can keep up to three times the Basic Retirement Sum in their accounts, or S$241,500. The cap is to prevent wealthier CPF members from investing too much into the system, thereby increasing the costs on the Government from paying out the 4 per cent interest.

Speaking at a press conference yesterday, National University of Singapore president Tan Chorh Chuan, who chairs the advisory panel, said the proposed changes will allow for a range of options from which members can make informed choices, rather than a one-size-fits-all approach.

When deriving this scheme to replace the Minimum Sum, they thought about how people normally plan their savings, said panel member Benedict Koh. “Most people plan by saying, ‘How much do I need per month for expenditure?’,” said Professor Koh, who is also associate dean at the Singapore Management University. “And given ... the expected expenditure per month, then we work backwards and say, ‘What should be the required amount that you need to save?’.”

The payouts under the Basic Retirement Sum are in line with the lower-middle retiree household spending per person, with inflation factored in.

Noting the public confusion over the CPF system and existing Minimum Sum scheme, Prof Tan said the panel tried to help members understand the workings more intuitively by placing payouts as the starting point for retirement planning.

Other than the suggestion of the three options, the panel also proposed giving members the choice of when they want to start collecting payouts. Those who want their payouts to start later than the current Draw Down Age of 65 should be given room to do so, until they turn 70.

“About 40 per cent of Singapore residents between the ages of 65 and 70 continue to receive an income from work. Some may not need payouts to start at their Payout Eligibility Age,” said the panel, using the new term it created to replace the Draw Down Age. The panel also proposed increasing monthly payouts by 6 to 7 per cent for each year that members push back the collection of their payouts.

With increasing life expectancy, the Payout Eligibility Age may also have to be raised in future, it said, noting that the start ages for pensions in other countries have been rising.

Lump sum withdrawals of up to 20% proposed
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.

Exercise withdrawal option with care, says panel
By Valerie Koh, TODAY, 5 Feb 2015

While the Central Provident Fund (CPF) advisory panel recommended that CPF members be allowed to make a lump-sum withdrawal of up to 20 per cent upon reaching the age of 65, it yesterday cautioned that people should exercise the withdrawal option with care.

The panel also called for incentives to be provided to encourage CPF members, especially those with low balances, to leave their savings untouched. “Members who exercise this flexibility ... should bear in mind that their monthly payouts will decrease and may fall below what they would need in retirement,” said the panel, which proposed that the option be extended to CPF members who turned 55 in 2013 and after.

It noted that more liberal withdrawal rules already apply to older cohorts, who are able to take out 20 per cent or more of their retirement savings from age 55.

For those who turned 55 in 2012, the panel recommended that they be allowed to draw an additional 10 per cent of their Retirement Account savings at 65, as they were able to withdraw only 10 per cent of their balances from age 55.

The proposed lump-sum withdrawal should include the S$5,000 that can be taken out unconditionally under the current system from the age of 55, the panel said. While it received feedback that people prefer to draw a lump sum at a younger age, the panel felt the option should be offered only when they reach the drawdown age, which will be renamed as “payout eligibility age”.

By doing so, the link between withdrawing a lump sum and receiving lower monthly payouts would be “most clear”, said panel chairman Tan Chorh Chuan.

“Whereas if I make a decision at 55 to take out money, then (receive monthly payouts) in 10 years’ time, it’s very hard for many people to appreciate (the trade-off),” said Prof Tan, who is also National University of Singapore (NUS) president.

For example, a member with CPF savings of S$80,500 — the new Basic Retirement Sum — would receive a monthly payout of S$650 when he reaches 65. However, if he withdraws a fifth of his savings, the monthly payout would decrease to S$580.

The panel proposed that CPF members with S$15,000 or less in their Retirement Account (RA) should not be allowed to make further withdrawals beyond the S$5,000 — which the panel noted was more than 20 per cent of savings — they can take out under the current system.

Prof Tan said the panel had also considered giving people different options in terms of what percentage they can withdraw as a lump sum from their RA, but it ultimately felt 20 per cent is a “reasonable” balance between providing flexibility and ensuring retirement adequacy.

He said: “If you allow higher-percentage withdrawals, the impact on individuals with lower balances would be more pronounced. And this could compromise their long-term payout adequacy rates.”

NUS business professor Joseph Cherian, who also sits on the panel, said based on data, 55 per cent of members who turned 55 in 2013 had enough savings to meet the Basic Retirement Sum.

“We took comfort in the fact that people are meeting the Basic Retirement Sum because (they are) saving prudently,” he said. “So what’s the ideal number? There’s no rocket science to it, but that’s a comfortable number for those with low balances now.”

Without elaborating, the panel proposed that the Government prevent unnecessary withdrawal by incentivising members to leave their savings in their RA untouched.

Nevertheless, those who are eligible, but choose not to withdraw a lump sum when they reach 65, should retain the option to do so later, said the panel, adding that there should be more public education and financial counselling for CPF members.

Fix size of Basic Retirement Sum hikes early, says panel
By Xue Jianyue, TODAY, 5 Feb 2015

Addressing a long-time bugbear against the Minimum Sum scheme, the advisory panel reviewing the Central Provident Fund (CPF) system has suggested locking in the quantum of increase to the Basic Retirement Sum early.

From 2017 to 2020, the hike each year should be 3 per cent, it suggested, to account for inflation and changes in household expenses. The quantum of increase should be reviewed every five to 10 years, said Professor Tan Chorh Chuan, who chairs the advisory panel.

By fixing the quantum of increase early, CPF members will have a greater sense of certainty about how much they have to set aside, the panel said.

Hikes under the present Minimum Sum scheme, in contrast, were announced annually because they are pegged to the previous year’s inflation rates, leading CPF members to complain about what they feel is the “shifting goalposts” nature of increases.

In deciding the 3 per cent rate, the panel referred to average inflation rates over 20 years — 1.9 per cent for all-items inflation and 1.7 per cent for core inflation, which excludes private road transportation and accommodation). It also took into account the 5 per cent annual spending increase for lower-middle retiree households over the last decade.

The recommended 3 per cent increase is significantly lower than the average hike of 6 per cent annually to the Minimum Sum since 2003, said the panel.

“The panel felt that using a long-term inflation rate was more appropriate, given the long duration over which the monthly payouts would be made. It would allow for the adjustments to the Basic Retirement Sum to be made known ahead of time and also avoid significant year-to-year variations to the Basic Retirement Sum, which would be difficult to plan for,” it added.

The increase in the Minimum Sum this year, to S$161,000, is the final adjustment to meet the target of S$120,000 in 2003 dollars.

In his National Day Rally speech last year, Prime Minister Lee Hsien Loong said he did not see a need for any more major increases to the Minimum Sum beyond this increase, although it will be adjusted from time to time to take into account rising incomes, increased spending and longer lifespans.

The panel said it expects seven in 10 of those turning 55 in 2020 to be able to meet the Basic Retirement Sum — currently set at S$80,500 for next year.

Key recommendations
By Amelia Tan, The Straits Times, 5 Feb 2015

- 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.


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.


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.


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.


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.


Glossary: CPF Advisory Panel recommendations
By Kevin Kwang, Channel NewsAsia, 4 Feb 2015

A 13-member advisory panel on Wednesday (Feb 4) made several recommendations on how to enhance the CPF system. The proposals were aimed at giving Singaporeans more flexibility in how much they choose to leave in or withdraw from their retirement accounts, while staying true to the CPF scheme's primary intent of providing retirement adequacy for the majority of Singaporeans.

Here's a guide explaining some of the terms introduced at the press conference:

Basic Retirement Sum: The S$80,500 set aside will give members who turn 65 in 2026 monthly payouts of S$650 to S$700 for the rest of their lives, assuming they own their homes and need not pay rent.

Full Retirement Sum: This is the retirement sum of S$161,000 needed by CPF members who do not own their homes or do not wish to pledge it.

Enhanced Retirement Sum: Members with higher CPF savings can commit extra funds to CPF LIFE - to a cap of three times the Basic Retirement Sum. For example, those turning 55 in 2016 will have the option of topping it up to the maximum of S$241,500, or three times that of S$80,500.

Basic Payout: Refers to the monthly S$650 to S$700 payout members will receive if they set aside the Basic Retirement Sum in CPF savings. The panel reviewed data from the Household Expenditure Survey by the Department of Statistics and took reference from the lower-middle retiree household expenditure per person. Such a retiree spends about S$500 to S$550 per month today, or about S$650 to S$700 in 10 years, assuming an inflation rate of 2 per cent.

Payout Eligibility Age: Introduced to replace the term “Draw Down Age”, the Payout Eligibility Age will be 65 from 2018 onwards. This means members can opt to start receiving their monthly payouts from CPF LIFE.

Payout Start Age: This is the age at which members decide to kickstart their monthly payouts. The latest one can defer their payouts to is 70 years old.

Retirement Account: At age 55, the Basic Retirement Sum set aside will go to the Retirement Account. This account is where the monthly payouts will come from.

CPF charge: A charge is created when a CPF member withdraws savings from his/her Ordinary Account to finance the purchase of his/her property and pay housing loan instalments.

Property Pledge: A pledge is created if you withdraw sums in excess of the Basic Retirement Sum under the property pledge withdrawal rules. When your property is sold, the amount of the charge or pledge will be returned to your CPF account from the proceeds of the sale. It can then be re-used for subsequent housing purchases or drawn down if you have entered into retirement.

At 55, if you own a property and wish to withdraw your CPF savings above the Basic Retirement Sum, you can do so, on the condition that you have a CPF charge on your property. This means that if you sell your house, the amount of the charge will be returned to your CPF to supplement your Basic Payout.

This would be the case for the majority of CPF members who use CPF savings to buy their house. If you do not have a sufficient charge, you could pledge your property instead as it would have the same effect.

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.

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

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.

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.

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

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.

How much does one need to retire? The answer varies greatly
By Neo Chai Chin, TODAY, 5 Feb 2015

Focus group sessions also gave attendees newfound understanding of system

Central Provident Fund (CPF) advisory panel member Joseph Cherian, 52, is a CPF account holder who has had first-hand experience with pension schemes in the United States, where he lived for 30 years.

Professor Cherian attended three focus group discussions in recent months and was kept abreast of all the others. What struck the former Wall Street banker was the huge disparity in how much money people felt they needed in retirement. Some said they were happy to survive on S$400 per month, while others felt they needed S$3,000 a month to get by.

Another thing that made an impression on him was how some gained a newfound understanding of the CPF system after attending the focus groups. In fact, they wished they had attended them earlier, as they now felt much more comfortable about leaving their funds in the CPF.

“I said to myself, it’s all (about) education, making sure we have simple education programmes — do people understand it, why it’s there,” said Prof Cherian, Practice Professor of Finance and director of the Centre for Asset Management Research and Investments at the National University of Singapore’s Business School.

The focus groups sessions also taught him that, in general, Singaporeans were working hard, but many were worried about the cost of living.

“They also want some kind of security about their future. In my view, if you put two and two together, demand and supply together, you need a stable, sustainable, adequate system,” he said. The CPF system, he added, is not a “get-rich” scheme. “It’s more about how much do I need, let’s make sure we can set aside the right sum, and be able to pretty much afford a Government guarantee that will give you this payout.”

The panel’s meetings were held mostly at the Ministry of Manpower, and lasted more than three hours on average. They were “very serious, in the sense that we were discussing a very important element of people’s retirement that involved a lot of reading materials”, said Prof Cherian.

Revisions would be made and read through at subsequent meetings. “There’s a lot of iteration, definitely not over teh tarik, no,” he quipped.

Prof Cherian said he was very pleased with the process so far, with what he has written about social security systems and his work in the panel converging into what he feels is a better system. Many countries are converging to a system similar to the CPF: Basic savings accumulate in a safe way and are then converted into an annuity system, he noted.

With medical and housing elements, it is inevitable that the CPF system would be a complex one, although the panel has tried to make its recommendations as simple as possible. “I think it’s going to be hard to make it less complex,” he said.

“For the ones who need the basic system, it’s very simple. But of course, (for) those with intermediate needs, and emergencies and withdrawals, there will be more requirements and I’m sure there (will be) counsellors to tell them how to go about navigating the system.”

Panel focuses on four main areas
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

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.

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".

More flexibility in system, but more simplification, explanation needed: Experts

By Valerie Koh, TODAY, 5 Feb 2015

The recommendations by the Central Provident Fund (CPF) Advisory Panel may provide more flexibility to CPF members seeking more control of the use of their savings, but whether it helps Singaporeans better understand a scheme often criticised for being too complicated is debatable, said experts whom TODAY spoke to.

Much effort would have to be made to help Singaporeans understand the implications of making a lump-sum withdrawal at 65 and which of the three Retirement Sum levels — proposals unveiled by the panel — best meets their needs, the experts felt.

Institute of Policy Studies research fellow Christopher Gee said the three recommended Retirement Sums — starting with a Basic Retirement Sum of S$80,500 — means three more terms for people to absorb in place of the current Minimum Sum.

“It’s still quite a complicated system for many to think about. Here, we provide a bit more flexibility, but create more complexity in the system.”

Nanyang Technological University economist Walter Theseira described the three recommended tiers as a “reframing” of the issues, which would assure CPF members that it is not the end of the world if they do not meet the Minimum Sum — currently S$161,000 for those turning 55 in July.

“Although they presented it in terms of three tiers, it’s not the case that a member has to choose among three tiers ... it’s not about getting members to choose A, B or C, but to give people some illustrative idea of the payouts they’ll get in future.”

Commenting on the proposal to allow up to 20 per cent of CPF savings to be withdrawn at age 65, Dr Theseira said the problem is “people have a poor understanding of how compound interest might affect the 20 per cent, if they were to keep it in their accounts”.

More information — namely data on life expectancy, retirement and expenses of basic households — should be provided to allow people to make informed choices.

“Providing all this information in a customised way is also important. So an individual making a decision could get a pamphlet on his own case. It could even be a software that computes for each person (his financial status). This could be sent automatically,” Dr Theseira said.

Associate Professor Tan Khee Giap of the Lee Kuan Yew School of Public Policy agreed that more public education is needed. “People don’t understand what a financial adviser is trying to say. We should get grassroots leaders to simplify it —have mass training for these leaders and teach them to explain CPF in simple language, perhaps using dialects.”

As for the panel’s recommendation that the Basic Retirement Sum increase by 3 per cent for each successivecohort from 2017 to 2020, experts felt this could be too rigid.

Said Dr Tan: “If you set it (at 3 per cent), can you make sure your inflation is less than 3 per cent? If you index it to inflation, then maybe there will be more flexibility. (The panel has) chosen a harder option and now that they’ve done so, the proof of the pudding is in the eating.”

Noting that the panel had recommended that the figure be reviewed “periodically”, Dr Tan said it should be conducted every five years or longer. “If you review it too frequently, people’s retirement plans would be disrupted,” he said.

Dr Theseira noted that most countries peg their adjustments to a formula rather than a fixed percentage. “These formulas are usually pegged to wage growth, core inflation and so on,” he said, noting that such formulas are transparent.

“One of the problems we have in Singapore is that there is a formula in the background, but the exact context has never been made public,” he added.

As for the panel’s second set of recommendations due later this year, Dr Tan said of particular interest would be the proposals offering people the option of escalating payouts, which he believes people could be incentivised to commit to.

“It’s good for the country on the whole because people will be more independent. At the end of the day, it solves the retirement-adequacy problem,” he said.

Firms worry about possible higher CPF rate for older staff

By Mok Fei Fei, The Straits Times, 6 Feb 2015

SOME companies are worried that proposed Central Provident Fund (CPF) changes will mean higher costs, and may be a deterrent to hiring older workers.

They say the proposed changes to CPF contributions would further dent their profits amid high business costs, with rentals not abating and wages already high.

"Everything adds up. The Government has to consider, during this difficult time when many retail businesses are not doing so well, whether it can perhaps wait before making any move that imposes higher costs," said Mr R. Dhinakaran, the managing director of Jay Gee Melwani Group.

Recommendations released on Wednesday by a government-appointed panel on ways to strengthen the CPF system largely focused on issues related to the Minimum Sum and lump sum withdrawals. Those do not affect the bottom line of businesses.

But the panel also gave strong support to two measures that may eventually lead to higher employer's CPF contribution rates, although these were not directly within the panel's remit.

One is to raise the contribution rates for older workers, and the other is to consider increasing the CPF contribution salary ceiling.

The Government in 2012 committed to making the contribution rates for those aged 50 to 55 the same as those of younger workers, which would mean an increase for this group from 35 per cent to 37 per cent.

The CPF contribution ceiling, or the maximum monthly salary on which contributions are payable, is $5,000. It was last raised from $4,500 to $5,000 in 2011.

The aim of the CPF is to cater to the needs of workers earning up to the 80th income percentile, which the labour movement NTUC noted was $6,000 in 2012.

Manufacturer Apex Technologies managing director Alan Hoong said firms may be discouraged from hiring older workers.

"The cost of hiring an older worker is already much higher because of medical fees, absences due to medical certificates, so I can foresee fewer firms being willing to employ older workers," he said.

Mr Chan Chong Beng, chief executive of interior furnishing firm Goodrich Global, said firms will be concerned about a CPF contribution hike. "The raising of the ceiling would have an impact on companies, especially those with higher payrolls, but any CPF increase is better than a levy because the CPF is for workers."

Economists said the Government will likely give firms more time and help to adjust, for example, by spreading out the rise in contribution rates over a few years, or giving subsidies. They add that a change is necessary.

"Previously, the cut in CPF rates for older workers was to incentivise firms to hire them, but the market has tightened considerably and, judging by the high participation rate, it's probably a good time to realign the rates," said Bank of America Merrill Lynch economist Chua Hak Bin.

DBS economist Irvin Seah said: "Companies will be encouraged to think harder about innovation and using technology in their processes because with an ageing population, there will be fewer workers ahead."

Don't withdraw if you don't need cash: Analysts

They point out that CPF pays good interest while investments have risks
By Toh Yong Chuan Manpower Correspondent And Joanna Seow, The Straits Times, 6 Feb 2015

CENTRAL Provident Fund (CPF) members who do not need to withdraw their savings should leave them in the scheme to earn higher interest and bigger retirement payouts, analysts advised yesterday.

A partial lump sum withdrawal would reduce the permanent monthly payouts, and those who make their own investments could end up with losses, they warned.

"CPF members who do not have an immediate need for the money would be better off leaving it in their CPF to earn good interest rates," said Mr Zainudin Nordin, who chairs the Government Parliamentary Committee for Manpower. "They can always withdraw the money if there is a need in the future."

The CPF interest rate of at least 4 per cent for retirement savings is higher than what banks offer for savings deposits.

"Investments have a certain level of risk," said assistant economics professor Walter Theseira of Nanyang Technological University, who fears that people who withdraw their cash could make poor investments. "Most of them leave their money in ordinary bank accounts which get them almost zero interest rates."

On Wednesday, the Government accepted the report of an advisory panel which recommended that CPF members be allowed to make a lump sum withdrawal of up to 20 per cent of their retirement savings at the age of 65.

The change, together with moves to replace the CPF Minimum Sum with three levels of retirement savings, shifts the CPF system from a fixed retirement formula to one that gives CPF members more flexibility to control their retirement savings.

Some MPs pointed out that the changes by the Government were necessary because of higher public expectations.

"Individuals do want to take ownership and responsibility of (their own) financial security," said MP Liang Eng Hwa.

MP Lee Bee Wah said some retirees' desire to dip into their CPF savings is fuelled by real needs. "They will use the money to pay bills, take their family members on holidays, or (because) their children are getting married," said Ms Lee. "The amount may not be big, but it is still money that can be put to good use."

Some Muslim CPF members want to withdraw their money to make a pilgrimage to Mecca, according to Mr Muhammad Faizal Othman, a grassroots leader who sits on the CPF advisory panel.

Associate professor Hui Weng Tat of the Lee Kuan Yew School of Public Policy pointed out that the Government had to make a policy trade-off by allowing even those who have not saved the basic retirement amount of $80,500 to withdraw their CPF money.

He added: "The recommendations have not addressed the issue of retirement adequacy."

But other observers said the move to allow lump sum withdrawals at age 65 will still not satisfy those who clamour to take out their CPF savings at age 55, which is when their savings are locked away for retirement needs.

Professor Theseira said this is a "sore point" and "there might be some disappointment".

Institute of Policy Studies research fellow Christopher Gee said: "It'll be hard to please everyone. It may pacify some but probably not all the cynics."

Employees said financial counselling will help them decide whether to make withdrawals, a suggestion also made by the CPF review panel.

"I may withdraw money to go on a big holiday to relax after years of work," said 56-year-old personal assistant Elaine Chia.

Help people better understand CPF changes, say MPs and academics

By Amelia Tan, Toh Yong Chuan and Joanna Seow, The Straits Times, 6 Feb 2015

TO HELP members better understand proposed changes to the Central Provident Fund (CPF) system, the authorities could send out information leaflets showing different levels of payouts at retirement and hold financial counselling sessions with grassroots leaders.

Such public education efforts would clear up doubts, even as a government-appointed advisory panel has made strides in simplifying the national retirement scheme, said experts.

"It is useful that the panel is explaining concepts in terms of monthly payouts instead of minimum sums. People want to know exactly how much they will get a month at retirement," said Mr Baey Yam Keng, an MP for Tampines GRC.

The advisory panel announced on Wednesday proposals that would give CPF members the flexibility of choosing different levels of savings and payouts.

However, some key ideas of the CPF system are still fuzzy, said academics.

Nanyang Technological University economist Walter Theseira said CPF members may not understand fully how much they stand to lose if they withdraw a lump sum of their savings at 55.

"CPF accounts offer higher interest rates than the banks. With compound interest, CPF gives you significantly more. But not everyone understands how compound interest works," said Dr Theseira.

Singapore residents can withdraw savings above the Minimum Sum at 55 or after, though no more than $5,000 if they do not reach the Minimum Sum.

The CPF panel has also recommended that people turning 65 be allowed to withdraw up to 20 per cent of their CPF savings.

Dr Theseira said the CPF Board should send letters to members in their 50s, using the member's actual savings, which show different scenarios of how much they earn with CPF accounts compared to fixed deposits and ordinary bank savings accounts.

Institute of Policy Studies researcher Christopher Gee suggested the CPF Board get members who want to make lump sum withdrawals though they do not meet the Minimum Sum to attend financial counselling sessions.

"An independent financial consultant can tell you this is your income and expenditure, and what the implications are if you make the withdrawal," he added.

Similarly, Mr Zainudin Nordin, chairman of the Government Parliamentary Committee for Manpower, said the CPF Board should conduct free personal finance clinics at community clubs.

But to ensure that more people are reached, larger-scale public education initiatives are important too. Mr Baey said advertisements should be placed in the mass media, and road shows held in dialects and mother tongues.

Mr Liang Eng Hwa, MP for Holland-Bukit Timah GRC, suggested roping in grassroots leaders to distribute information packets.

"With a simple table, we can show residents at a quick glance how the scheme affects them," he said.

Nee Soon GRC MP Lee Bee Wah agreed, but said some training may be needed so information can be communicated effectively.

"Graphics are a good way to explain things. Our grassroots leaders should also be trained to summarise the changes in a digestible way," she said.

CPF reform: Nudge people to make optimal choices

By Sumit Agarwal, Published The Straits Times, 9 Feb 2015

IT IS a simple fact of life that we're all getting older. Not just older as individuals, but also as a nation.

With more of us living longer, pressure is building to make sure that we can look after ourselves in what is (rather tweely) referred to as our golden years.

The challenge is deciding where the boundaries of responsibility lie. How much is down to the individual, and where - and how - should the Government step in?

Here in Singapore, the government advisory panel reviewing the Central Provident Fund (CPF) system has touched on some inevitably sensitive issues. A particularly thorny one is regulation of lump sum withdrawals and the Minimum Sum scheme.

How then should the Government approach this?

As an economist, I'm inclined to oppose restrictions, or at least be in favour of minimising their application. Restrictions create market distortions and inevitably invite pushback as individuals seek ways to get around them. But giving people options also requires the Government to devise mechanisms to "nudge" people into choices that are optimal for them and for society.

In other words, rather than increasing regulations saying to savers more and more about what you cannot do, say instead what you can do, explain what makes it the better option, and thus nudge and guide them towards doing so.

However, the Government does, to a degree, need to take a paternalistic stance - particularly towards older adults who, my own research has shown, have a greater tendency to make more suboptimal financial decisions. Looking at the issue of lump sum withdrawals, for example, there is certainly a risk that more seniors will take out large sums from their funds, leaving little left to provide a liveable monthly income.

The question then is not whether the Government should intervene, but rather which mechanisms of intervention it should use. I would argue that efforts should be focused on improving the general financial literacy of individual savers, and reminding them of the negative costs associated with withdrawing lump sums.

This, in turn, should be supported by risk-free incentives for them to keep their money invested, with outcomes explained in simple terms, thus empowering individuals to make the best choices for their own futures.

It is important also to introduce more heterogeneity into the system. One-size-fits-all options rarely end up fitting anyone particularly well and almost inevitably deliver suboptimal outcomes for the majority.

We are all different and the recommendations from the CPF panel acknowledge that the question "How much do I need to retire?" does not have a uniform answer.

The panel has recommended that there be three brackets of Minimum Sum, and an option to withdraw up to 20 per cent of savings at age 65.

But tempting as they may be, lump sums are of course more than just cash bonanzas to be spent on a new car or a cruise. Used wisely and reinvested, they have the capacity to deliver further returns above and beyond the monthly payments from the CPF. Building awareness, understanding and incentives towards these options should be given priority.

The challenge here is that governments are notoriously bad at communicating and explaining to those they govern what policies mean and how they will affect them.

Furthermore, those whose job it is to manage financial products too often converse in an impenetrable jargon that they feel justifies their salaries but does little to help guide savers towards making optimal decisions.

And on top of that, there is also the "important-but-boring" factor to overcome. After all, financial planning for a regular income in retirement has much less glamour to it than the tempting prospect of getting your hands on a large sum of cash. Presented with a choice, it is not hard to see which has more appeal.

All this does not mean that better communication on the part of the Government is impossible. With a wealth of digital and interactive tools available, creativity and imagination can be deployed to convey the benefits of financial planning and individual responsibility.

What is needed is a simple and clear set of options, with incentives to encourage more savings. This, coupled with a broader national effort to ensure that everyone - not just those nearing retirement age - has a degree of financial literacy to make the best decisions for their future. Such an effort would have widespread benefits.

By raising the level of financial education, we increase understanding of planning and investment options - how best to make use of that lump sum, for example - and improve understanding of risk. Being better informed is, after all, the foundation for making better decisions.

Financial literacy does not mean everyone acquiring an MBA-level understanding of the inner workings of the derivatives market. But it does mean ensuring that we live in a society where individuals are better able to distinguish between the temptations of personal short-term gratification and optimising their returns for all of our long-term interests.

The writer is Low Tuck Kwong Professor of Finance and Research Director of the Centre for Asset Management Research and Investments at NUS Business School.

CPF flexibility, especially for lump sum withdrawal, draws thumbs up, poll shows

Desire to withdraw lump-sum amount a knee-jerk reaction, says financial planning expert
By Elgin Chong, Matthias Tay and Robin Choo, TODAY, 7 Feb 2015

Overwhelmingly, Singaporeans surveyed by TODAY in a random street poll reacted positively to the flexibility — under the recommendations put up by the Central Provident Fund (CPF) advisory panel — to make a lump sum withdrawal of up to 20 per cent of CPF savings upon reaching 65.

Among the 100 respondents, who were between 40 and 55 years old, 77 said they would take the option when they reach the eligible age, while the rest said no. The responses were split when they were asked whether they would put more into their retirement accounts if they could — with 44 saying yes, 54 saying no and two unsure.

The face-to-face poll was conducted in various areas across the island, including the Central Business District and housing estates in Toa Payoh, Clementi and Bishan.

Hotel concierge assistant Hamza Zainol, 55, said he would take up the lump-sum withdrawal option. But he expected to have to continue working beyond age 65 and add on to his Retirement Account.

Ms Joanne Yeo, a mother of four, said she plans to withdraw the lump sum as she would need the extra cash to support her children. The operations executive will also keep adding money into her account as the savings are a back-up for her retirement, she said.

Ms Saeiyah Mauri, a personal assistant, and Ms Kasmawarni Yayit, a secretary, both plan to withdraw the lump sum to perform the Haj pilgrimage. They also plan to maintain their CPF retirement savings at the recommended Basic Retirement Sum of S$80,500. “I can depend on my children to support me in my retirement if I don’t have much (balance) upon withdrawing,” said Ms Mauri, 55.

Ms Yayit, 47, meanwhile, said she prefers to park her money elsewhere and have more say in how it is used.

An ‘emotional’ response

Mr Eddy Cheong, head of financial planning at consultancy firm Providend, described the desire to withdraw the lump-sum amount as a knee-jerk reaction, following a strong call for greater flexibility in using CPF funds. But he noted that a significant number of respondents indicated that they would be willing to top up their CPF savings, reflecting a recognition of the system’s attractive returns.

“To many, CPF constitutes a significant portion of their entire retirement savings and to be able to withdraw a portion for enjoyment (whether prudent or not) is natural,” he said. He added that people should be encouraged to save more for retirement and calculate the cost of retirement, taking into account living expenses, healthcare and longer life expectancy.

Mr Girisk Vikas Naik, personal tax director at PricewaterhouseCoopers International Assignment Services (Singapore), said people were looking at the CPF advisory panel’s recommendations emotionally.

“It makes sense to save money in CPF, because no other instance will allow you a steady income of (minimum) S$700 a month. CPF guarantees you money for life,” he said, adding that the ground sentiment showed that many still do not fully grasp the reality of what retirement would cost.

Nanyang Technological University economist Walter Theseira noted that many have called for flexibility. “But some are not aware that unless they are expert investors, they would be less likely to gain a lot from the investments out there unless they are prepared to take a large risk — something they can afford to do at age 30 to 40, but not at 65 to 70,” he said.

He pointed to a study conducted by National University of Singapore researchers published last year, which found that many withdrew their monies at age 55, only to deposit them in ordinary bank accounts offering lower interest rates than their CPF accounts. The study also found that having more banking experience and financial counselling is associated with a significantly smaller likelihood of withdrawal.

Dr Theseira said what is worrying is the impact on CPF members who withdraw money they do not immediately need, as this might result in weaker retirement adequacy. He added that it was unlikely withdrawals en masse from CPF would affect the scheme’s ability to generate returns. “The CPF system has been projecting inputs and withdrawals for decades and I’m certain that it is well within its ability to absorb and adjust,” he said.

Member of Parliament (Chua Chu Kang GRC) Zaqy Mohamad said the poll results are consistent with what he has heard from his residents. “People want flexibility, but the question is whether they can be prudent (in saving for their retirement) because, if not, there are long-term implications,” he said.

How CPF changes affect Retirement Account savings
By Joanna Seow, The Straits Times, 7 Feb 2015

In the first of a three-part series, Joanna Seow looks at questions about how the changes affect the savings in your Retirement Account.

What is the Basic Retirement Sum and how is it calculated?

To provide a monthly payout of about $650 to $700, the Basic Retirement Sum of $80,500 should be set aside in your Retirement Account if you are turning 55 next year.

This is based on expected expenditure needs in 10 years' time for retirees with spending in the lower-middle range. It assumes you own a home and do not pay rent.

How much will the Basic Retirement Sum go up by?

Three per cent each year from 2017 to 2020. As a gauge, Minimum Sum increases between July 2013 and July 2015 range from 3.9 per cent to 10.4 per cent.

Why does the Basic Retirement Sum rise?

To keep pace with inflation and allow for rising standards of living. The lower-middle range of retiree household expenditure grew about 5 per cent yearly, compounded over the 10 years to 2013.

The rise also takes into account historical inflation rates - the 20-year average core inflation is about 1.7 per cent.

How do I know which cohort I belong to for the Basic Retirement Sum?

The sum will apply to people turning 55 in a calendar year. This is a change from the current system which groups people born from July 1 of each year till June 30 the following year into one cohort.

What happens to the money in my Retirement Account?

The savings are invested in special Singapore Government Securities that pay fixed interest rates over a long period of time. They are used as a premium to buy an annuity, under the CPF Life scheme.

What is an annuity?

A financial product that grows your funds and then gives you regular payouts.

How much money can I set aside for CPF Life?

Anywhere between $40,000 and $241,500 at 55, depending on how much you want to receive in monthly payouts. If you set aside the minimum of $40,000, you will receive an estimated monthly payout of $360.

The CPF Advisory Panel has three recommended levels for those turning 55 next year:

- Basic Retirement Sum of $80,500 for monthly payouts of $650 to $700;
- Full Retirement Sum of $161,000 for monthly payouts of $1,200 to $1,300;
- Enhanced Retirement Sum of $241,500 for monthly payouts of $1,750 to $1,900.

Monthly payouts under CPF Life

By Joanna Seow, The Sunday Times, 8 Feb 2015

In the second of a three-part series, Joanna Seow answers questions on how the changes affect the payouts you can receive in your later years.

How are my monthly payouts under CPF Life calculated?

Payouts are based on how much you have in your Retirement Account.

The payouts are reviewed every year to account for changes in life expectancy, interest rates and transactions that change your Retirement Account balance.

What is the difference between my "payout eligibility age" and my "payout start age"?
- Payout eligibility age: When you are entitled to start drawing payouts (previously known as drawdown age). This is 63 now, and will be 65 from 2018.
- Payout start age: When you want your payouts to start. You can choose to push them back, up to 70. For every year you defer the payouts, they will go up 6 per cent to 7 per cent because of the interest compounded, among other reasons.

I think I will need more monthly income in retirement. How can I get higher payouts?

You can top up your Retirement Account to use for your CPF Life premium, or continue working, as further contributions will continue to grow your Retirement Account. The cap on the savings you can use for CPF Life premiums is the Enhanced Retirement Sum of $241,500 (as of 2016).

You can also choose to defer your payouts.

What types of CPF Life plans are there?
- Life Standard Plan (default): Higher monthly payouts, leaving less to beneficiaries after your death.
- Life Basic Plan: Lower monthly payouts, leaving more to beneficiaries after your death.
The CPF advisory panel is discussing an option for a third plan which provides monthly payouts that increase over time. It will make recommendations later this year.

What happens if I am not on CPF Life?

You will stay on the Minimum Sum scheme, which gives you monthly payouts for about 20 years.

You can choose to join CPF Life any time between 55 and before you turn 80.

Are the interest rates on my CPF accounts changing with the tweaks?

No. You will still earn at least 2.5 per cent per annum on your Ordinary Account savings, and around 4 per cent on your Special, Medisave and Retirement Accounts.

The first $60,000 of combined balances, with up to $20,000 from the Ordinary Account, earns an extra 1 per cent interest.

How CPF changes affect withdrawals

By Joanna Seow, The Straits Times, 9 Feb 2015

In the last of a three-part series, Joanna Seow answers questions on how the changes affect withdrawals from your CPF accounts and other decisions you will need to make.

How much of my savings can I withdraw at 55?

Up to $5,000 at any time after 55 unconditionally.

If you meet the Basic Retirement Sum of $80,500 in 2016, you can withdraw whatever you have beyond that, assuming you pledge your property or used enough CPF savings to buy it. You do not have to meet the Medisave Minimum Sum ($43,500 since July 1, 2014).

If you do not own a property or do not want to pledge it, you can withdraw whatever you have beyond the Full Retirement Sum of $161,000 in 2016. You must have met the Medisave Minimum Sum.

What is a property pledge/charge?

A property pledge is a commitment saying that if you sell your property, you will refund the pledged amount, as well as any CPF money used to buy the property and interest it would have accrued, into your CPF account. A property charge is automatically applied when you use Ordinary Account savings to buy a property. The amount you used, and interest it would have accrued, must be returned to your CPF account if the property is sold. You still own your property after the pledge or charge.

How much of my savings can I withdraw at the payout eligibility age (65 from 2018 onwards)?

Up to 20 per cent of your Retirement Account balance, including the $5,000 you could have withdrawn from 55. If 20 per cent comes up to less than $5,000, you can draw a maximum of $5,000.

How will a lump sum withdrawal affect my monthly payouts?

Your payouts will be smaller, as the amount annuitised under CPF Life is less.

For example, if you had the Basic Retirement Sum at 55 in 2016, it will have grown to $123,600 at 65, giving you payouts of around $680 per month. If you had made the maximum withdrawal, your payouts would go down to around $580 per month.

How can I help my immediate family receive higher payouts?

You can help them grow their Special or Retirement account savings by transferring your savings in excess of your Basic Retirement Sum to their accounts. You can also top up their accounts with cash and receive up to $7,000 in tax relief per calendar year. This applies if the beneficiary does not earn more than $4,000 in the year before the top-up, or is handicapped.

What choices will I need to make at 55?

How much you want to receive as payouts in the future, and how much money to set aside in your Retirement Account.

Whether to withdraw $5,000.

If you have savings beyond the Basic Retirement Sum or Full Retirement Sum, whether to withdraw them.

Whether to use any savings beyond the Basic Retirement Sum to top up accounts of loved ones.

What choices will I need to make at 65 or the payout eligibility age?

Whether to make a lump sum withdrawal of up to 20 per cent.

When you want your monthly payouts to start.

Which CPF Life plan to join (before payouts start).

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