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CPF system not perfect, but valid: Tan Chuan-Jin

The Manpower Minister addresses calls to lower the CPF draw-down age, and to enhance CPF returns.

SINGAPORE: Manpower Minister Tan Chuan-Jin defended the Central Provident Fund (CPF) system in Parliament on Thursday (May 29). 

Said Mr Tan: "The CPF system remains a valid system. It is not the perfect system. There are trade-offs. Obviously, those who believe that you should have full flexibility in using it; the CPF does not afford that, for a good reason. Because ultimately, CPF allows us a peace of mind as you do have a constant stream regular stream of income at the point of retirement and to ensure that that continues on rather than depending on somebody else or the state. But if you allow money to be extracted early and prematurely, there will be concerns.

"Ultimately, this is not about shifting risk to people, it is about shifting risks to our children's generation. And I think the responsible thing to do may not be the most popular, the responsible thing to do is to take into consideration these fundamental changes that are facing our society, facing many societies in the world, to grapple with it head on."

He was rising in support of the President's Address, which had hinted at further tweaks to the CPF system to enhance the retirement adequacy of Singaporeans.

On Thursday, Opposition MP Png Eng Huat called on the Government to provide more choices for older Singaporeans to access their CPF savings. His proposals include providing for an earlier draw-down age so that Singaporeans who need to, can access their CPF funds earlier.

"The Workers' Party believes that the draw-down age should not be linked to the retirement age or re-employment age,” said Mr Png, who is the MP for Hougang SMC.

“Whatever amount our workers can withdraw at the age of 55 will be the last they see of their CPF savings if they do not meet the Minimum Sum until they reach the draw-down age. For workers born in 1954 or later, the draw-down age is 65. This draw-down age will be raised to 67 over time as the Government intends to link it to the re-employment age. By doing so, it will leave no room for Singaporeans to decide how they want to live their lives after age 55 or upon reaching the statutory minimum retirement age," he said.

“Delaying the CPF payouts for these older workers may cause them undue anxiety and stress. Older workers on part-time employment may need such draw-downs to supplement their income and not all older workers can work after age 55 or 62.

“As Senior Minister of State Amy Khor had said on Tuesday, sometimes the spirit is willing but the flesh is weak. For workers who do not have any other form of savings other than their CPF accounts, it spells trouble when ‘the spirit is willing but the flesh is weak’”.

The Manpower Minister however, cautioned against moving the draw-down age, given that Singaporeans are living longer.

"Many of us have acknowledged that it is not easy to plan for the long term, to make sure whatever savings we have, can sustain for the long term,” said Mr Tan.

“We think it's important, from a dignity perspective, that individuals are able to provide for themselves as best as they can, which is why it's important for us to make sure that as you work longer, as you accumulate more, as you try to enhance your returns, you're also able to then provide for yourself through your payouts.

“But the more you draw out earlier, what it means is payouts will correspondingly reduce. The more we allow spending on housing, it will correspondingly mean less accumulated in your CPF savings, and your payouts correspondingly will be smaller. And that will create a strain."

On calls to enhance CPF returns, Mr Tan said current interest rates are far higher than equivalent rates provided by similar products in the market.

“Whatever that we're providing today -- the 2.5 per cent, the 4 per cent, the plus 1 per cent extra interest on the first S$60,000 of every member's account -- these are rates that are far higher than the equivalent rates provided by similar products in the market today,” said Mr Tan.

“But be that as it may, as the Prime Minister has mentioned, as the President has highlighted in his address, this is an area we're looking at to make sure we enhance CPF Life. CPF Life is a system where you can provide payouts for the rest of your life, so you don't have to worry about having payouts running out. But how do you enhance them? I think that's important and that's something we're looking at. We've been working on that together with the Pioneer Generation Package for some time.

"I think it's a very fair concern, whether our returns are adequate. Obviously, I think all of us here would like more than 2.5 per cent, 4 per cent, and the plus 1 per cent on S$60,000. All of us would prefer that, but where would it come from? How do we fund it? Some have asked whether interest rates should be higher to withstand inflation. That's a fair consideration. Others have advocated for more returns, perhaps taking on more risk with CPF monies, but is that something we want to do?

“We all know that with higher returns, come higher risks. If we have funds and there is a downturn in the market, would it affect your returns? You can always smoothen it out, but that can affect returns ultimately."

Still, Mr Tan said the government will study how it can enhance CPF Life. 

Details on changes to the CPF system, including more options to help Singaporeans unlock their housing assets in their retirement years, will be made available in August when the Prime Minister addresses the nation during his National Day Rally. 

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