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CPF scheme refinements could have positive spillovers on economy: Analysts

Economists also told Channel NewsAsia the unlocking of some funds could further spur consumption.

SINGAPORE: The Government's decision to give retirees the option to withdraw part of their CPF savings in a lump sum - one of the changes announced by Prime Minister Lee Hsien Loong at the National Day Rally on Sunday night (Aug 17) - could have some positive spillovers on the economy, analysts said. 

Mr Lee had said the CPF scheme would be changed to allow members over the age of 65 to make lump-sum withdrawals from their CPF savings. However, he added that the amount cannot be excessive and could perhaps be capped at up to 20 per cent of total savings.

Economists said that unlocking the cash from CPF savings could benefit the economy. But they noted that making such withdrawals means the retirees will have less monthly payouts as they have less funds in their CPF account.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, explained: "Assuming that the number of retirees is about 50,000 and taking the ‘guess-timate’ for average CPF balances, which is around S$74,000 - so roughly, if you are talking about 20 per cent in a lump-sum cash withdrawal for those who are retired, we could be looking in the quantum of somewhere near S$700 million. Assuming that a fair portion of that S$700 million gets spent, then it could have some impact on Singapore's economy - not big, but probably some impact."

Economists said the sectors that could benefit include retail, healthcare and recreational services. The retirees may also spend a part of the money to fund their children's education or help with the downpayment for their children's home, invest in a business or go on a vacation. Economists noted some retirees may also choose not to spend the money. 


The other new initiative announced is the Silver Support Scheme, under which the Government will pay an annual bonus to low-income elderly Singaporeans from the age of 65, to help them cope with their living expenses. Economists estimate that the scheme could benefit about 80,000 needy elderly and cost the Government up to S$200 million a year, assuming the payout is S$200 per person per month, which adds up to S$2,400 a year. Details will only be announced at the next Budget.

UOB economist Francis Tan said: "Based on my guess, the bonus can be S$200 per month per needy person. There were about 404,000 people over 65 as at mid-2013. If you take the 20th percentile, that means 80,800 people could benefit from the scheme. The total Government expenditure on Silver Support could be about S$194 million a year."

Ms Ling commented: "My guess is probably around S$100 million to S$200 million per year. Overall, this is not a very big factor that is going to affect the fiscal balance for the Government in terms of budgeting; it is probably an amount that can be incorporated in terms of the normal expenditure. But of course, if it is going to be sustained over time ... then it has to be factored into the fiscal balances.” 


On the issue of giving members more flexibility to invest their CPF savings, Associate Professor Annie Koh from the Singapore Management University, said there are already options available in the current system, but what is needed is to help members understand these products and risks involved.

Assoc Prof Koh said: “We have the Singapore bond ETF - it is an exchange-traded fund and it could be highly liquid. You actually have the Straits Times ETF, you can buy and hold the index at very low cost and it is listed on the stock exchange. A lot of people do not even know what is available on our stock exchange right now. I do not think after the global financial crisis from 2008, people really have a strong appetite for risk. The new normal is actually to tell people that if you are looking for double-digit returns, it is not guaranteed and the likelihood is there is going to be a huge amount of uncertainty and volatility."

Apart from the CPF Investment Scheme, Assoc Prof Koh said another investment option that is in the market are Real Estate Investment Trusts, which can also provide a stream of income. The key is there are alternatives available but investors must do their homework.


The Government also announced on Sunday that the Lease Buyback Scheme will be extended to four-room flats. PM Lee also highlighted several ways retirees can unlock the value from their homes. These include renting out a room or the entire unit, if they are living with their children.

Responding to Channel NewsAsia, the Housing and Development Board (HDB) said that as at Jul 31 this year, about 293,000 flats are owned by residents aged 55 and above. Of these, about 10 per cent of them rent out a room or the whole flat. HDB added: "Based on our records, the median subletting rent of a bedroom in July 2014 is S$650." 

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