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CPF remains 'key pillar' of Singapore's social security system: Tan Chuan-Jin

Manpower Minister speaks in Parliament to clarify "misconceptions and myths" surrounding the CPF Minimum Sum scheme.

SINGAPORE: Manpower Minister Tan Chuan-Jin, speaking in Parliament on Tuesday (July 8), sought to "dispel misconceptions and myths" surrounding the Central Provident Fund (CPF) Minimum Sum scheme.

Responding to a series of questions raised by Members of Parliament, Mr Tan said: "For us in Singapore, assurance in old age revolves around a few key considerations: Healthcare, housing and retirement needs. The CPF is our key pillar in the social security system. It is a mandatory savings account that helps us put aside money today to cover our needs in old age.

"While some argue that as individuals we should be left to sort our own lives out, in reality it often doesn't work out that way. Almost all developed countries have some form of pension or retirement system because most people generally don't save regularly nor do they effectively plan for their own retirement."

THE NEED FOR THE MINIMUM SUM SCHEME

The calculation of the Minimum Sum has to change over time because life expectancy as well as living costs are increasing, compared to when the CPF system was first introduced almost 60 years ago.

"I am aware that some members may find the CPF system difficult to understand because policy changes over the years means that different rules may apply for different cohorts. But it would not be responsible of this Government to leave unchanged the CPF rules for those who are younger, when the situation around us has changed dramatically," he said.

"Allowing a full withdrawal from CPF at age 55 will put us at real risk of outliving our savings in old age. To blindly keep to the earlier model of full withdrawal at age 55 would be wrong and irresponsible," he said.

"The idea is to stream out our CPF savings every month to meet living expenses instead of having them all withdrawn in a lump sum. Neither do we need to set aside all our CPF savings to be streamed out in this way. Only a basic amount necessary for retirement expenses is required, and you can withdraw your CPF savings above that in a lump sum. This basic or minimum amount is known as the Minimum Sum."

HOW IS THE QUANTUM SET?

Mr Tan said the Minimum Sum has been increased over the past decade as part of a planned, gradual adjustment that started in 2004. The crux: How much will a middle-income household need in retirement?

The current S$155,000 is calculated as the amount needed to get a payout of S$1,200 a month in 10 years' time, when the current cohort reaches the age of 65, the Manpower Minister said.

He clarified that those who do not have enough in their CPF account to meet the Minimum Sum do not have to top up the shortfall in cash, or sell their property to make up the shortfall.

USING PROPERTY TO OFFSET THE SUM

Also, a married couple that owns a property can use that property to offset half the Minimum Sum, such that each individual need only set aside S$77,500 in their CPF account. Their combined payout will be S$1,200 a month, "just adequate for basic living expenses", Mr Tan said.

He also clarified that only half of the Minimum Sum needs to be set aside in cash. Beyond that amount, the CPF savings can be used to finance housing purchases or be withdrawn through a property pledge. The remaining S$77,500 will translate to a CPF LIFE payout of about S$600 a month in retirement, a figure which Mr Tan said "is not excessive".

Responding to a query by MP Gan Thiam Poh, Mr Tan said that half of active CPF members met the Minimum Sum in 2013, including 15 per cent who used their properties to support up to half the Minimum Sum. About one-fifth of the entire cohort who turned 55 in 2013 had balances above the Minimum Sum that were not withdrawn, possibly to enjoy the "risk-free returns on their CPF savings", Mr Tan suggested.

MEETING THE MINIMUM SUM

In response to MP queries on whether Singaporeans had enough in their CPF accounts to retire on, Mr Tan said the Government was "even more optimistic" about the ability of younger workers to meet the minimum sum, due to growing wages, increasing labour force participation rates and enhancements made to the CPF system, such as interest rate tweaks, Workfare top-ups and higher contribution rates for older workers.

"Over half of all members earn 3.5 per cent on all their Ordinary Account savings. This is superior to what is earned on bank deposits and comparable financial instruments," Mr Tan said.

The majority of older citizens who are concerned about insufficient CPF balances own their homes, with fully paid up housing loans, he said. Only 1 in 10 of those aged between 55 and 65 are still using the CPF to pay monthly instaments on their homes, he said. With property values appreciating, the value of the home asset can potentially be used to supplement such seniors' retirement income, through schemes such as the Lease Buyback Scheme and Silver Housing Bonus.

Those above 55 who are not working may require assistance, either in the form of family support or social safety nets, Mr Tan said. Of Singaporeans who turned 55 last year, 23 per cent did not have an income, he said in response to a query from MP Lina Chiam.