Improving
CPF
1.
CPF – underpins our social
security system
a.
Good system that has served
us well
b.
Funded by contributions
from both workers and employers, not out of taxes
c.
Meets three key
needs
i.
Housing
ii.
Retirement
income
iii.
Medical
care
d.
But CPF system has to be
adjusted and brought up to date
i.
When CPF started, life
expectancy was 61
ii.
Now it is 80
e.
Three
changes:
i.
Improve the returns on CPF
savings
ii.
Draw down your CPF savings
later so that they last longer
iii.
Cover risk of living longer
than expected
Improving
Returns
2.
First question – how to
increase returns on CPF savings?
a.
CPF pays interest –
currently 2.5% for Ordinary Account (OA), and 4.0% for Special, Medisave and
Retirement Accounts (SMRA)
b.
Like a savings account in
the bank, but better
c.
Totally risk-free –
balances guaranteed by Government
d.
Returns sometimes lower
than buying shares, but not like buying shares, where you can make big or lose
big (like recently)
e.
Those who want higher
returns and accept higher risks can invest their money themselves, through the
CPF Investment Scheme (CPFIS)
3.
Our main focus is to help
the lower- and middle-income groups
a.
Many have modest balances
b.
Half of active CPF accounts
are below $45,000
i.
Active means people who are
working and contributing
ii.
Includes younger workers
just starting to save
iii.
Older workers will have
higher balances
c.
Unwise to encourage these
members to invest on their own in stocks, shares etc
i.
Do not have enough
savings
ii.
Do not have
expertise
iii.
Should not expose
themselves to excessive risks
iv.
In fact, many who have
invested on their own have not done well
4.
Solution
a.
Enhance existing risk-free
framework
b.
CPFB will pay higher
interest, up to a cap
i.
1 percentage point more
(1)
On first $20,000 in your
Ordinary Account
(2)
And on up to a total of
$60,000 on your combined Accounts (i.e. OA + SMRA)
ii.
More than half the active
members will get 1% more on all their balances
iii.
You can still use the
$60,000 for housing or medical expenses
iv.
But not to take out to
invest on your own (through CPFIS)
c.
Beyond $60,000, maintain
status quo
i.
If you have this much, you
should be able to look after yourself
ii.
Can invest money yourself
through the CPFIS
5.
This 1% more will make a
big difference
a.
A young man who starts work
today at 21, earns $1,700 per month, and buys a 4R HDB flat, will earn about
$20,000 more interest at 55
b.
i.e. one-quarter more
interest than before
c.
Cost Government $700
mn a year initially, and the amount will grow in future as members save more in
their CPF
d.
A lot of money – equal to
the entire government grant to the HDB every year ($750
mn)
e.
Done our sums carefully to
make sure it is a reasonable rate to pay on CPF balances, and which the
government can afford
f.
Right thing to do, to help
low- and middle-income Singaporeans save enough for old
age
6.
Reassurance to those who
own or plan to purchase HDB flats – no change to concessionary HDB loan rate
formula
Delaying
Drawdown
7.
Second question – how to
make CPF savings last for member’s life expectancy?
a.
Currently at age 55
i.
Set aside Minimum
Sum
ii.
Settled this in the last
round of CPF changes
iii.
No change
b.
Age 62
i.
Start to draw down from
Minimum Sum and collect your monthly payments for up to 20
years
ii.
This is the Draw-Down Age
(or DDA) for the Minimum Sum
c.
Recall problem that Mdm Ng
faces
i.
Even with higher interest,
if we start drawing down CPF too early, the money will run out too
soon
ii.
If we start later, the
Minimum Sum will last longer
iii.
If you defer draw down by 1
year, you will earn more interest and the money will last 2 years longer (20
years later)
d.
62 + 20 =
82
i.
But many people will live
beyond 82 – more than half, especially women!
ii.
Hence need to raise
DDA
8.
We are legislating for
re-employment till 65, and pushing hard to get more people working into their
60s
a.
Must raise the DDA to
match
9.
Will raise DDA
progressively
a.
Re-employment till 65
starts in 2012
b.
Correspondingly start
raising the DDA in 2012
c.
Raise progressively year by
year
d.
Reach 65 by
2018
e.
Then Minimum Sum will last
till you are 65 + 20 = 85, which is better
10.
Impact on age
groups
a.
Those nearing 62 (58 and
above) – not affected
b.
Those slightly younger –
DDA goes up just a little
c.
Those not approaching 62
yet (53 and below) – DDA goes up to 65
d.
Press will carry the
details tomorrow
11.
I know this is not so
popular
a.
ST survey – everybody
wanted higher CPF returns, wanted to work longer, was worried about saving
enough for retirement, but few wanted to delay the DDA!
b.
But we have no choice –
people living longer, we must work longer, and start drawing on our savings
later
c.
Hence must start moving
now
12.
Government will give
something extra to help older workers affected by this deferment of the DDA
(those in their 50s)
a.
Pay one-off bonus interest
into their CPF RAs – a “D-Bonus” (Deferment Bonus)
b.
Also bonus for those who
voluntarily defer their DDA, even if they are 58 and above – a “V-Bonus”
(Voluntary Deferment Bonus”)
c.
Will give details
later
Annuities
13.
Third question – what if
you live longer than expected?
a.
Risk that your CPF will run out – “longevity
risk”
b.
Problem lessened when DDA
goes to 65, and Minimum Sum lasts till 85
i.
But many will still live
beyond 85
c.
Other pension schemes face
the same problem
i.
One solution is
annuities
(1)
Pay lump sum to the
insurance company
(2)
Get a monthly payment for
the rest of your life, however long you live
ii.
e.g.
Switzerland
(1)
Individual savings up to 65
(2)
Then convert to a
compulsory annuity
14.
CPF allows annuities too
a.
Can convert Minimum Sum to
an annuity
b.
But voluntary, not
compulsory
c.
Few people take it up
i.
Singaporeans do not
quite understand annuities, or the need for them
ii.
Returns are not very
attractive
d.
But we still need
annuities
15.
Will make some form of
annuity compulsory for CPF members
a.
Will apply to those now
below 50
b.
We will study, consult
industry, educate CPF members, and work out a detailed
scheme
Summary of CPF
Changes
16.
Three major changes to the
CPF:
a.
Higher CPF interest – 1%
more on first $60,000
b.
Later DDA – from 62 to
65
c.
Compulsory annuities – for
those now below 50
17.
Have outlined the key
points
a.
Omitted many details
b.
Ng Eng Hen will make full
presentation in Parliament in September
18.
Changes will bring our CPF
system up to date, but will not solve problem for all
time
a.
Have to continually update
the system, with changing needs and demographic trends
b.
In particular we will need
to go beyond 65
i.
Both for reemployment, and
for DDA
ii.
After we get to 65, will
review situation
iii.
And move to 67 once we are
ready
c.
If we make these changes in
good time, Singaporeans can have peace of mind in their golden
years