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Debunking CPF Minimum Sum myths

Rather than a "shifting goalpost", Manpower Minister Tan Chuan-Jin said CPF Minimum Sum increases have been "planned and gradual" adjustments to catch up with rising living costs.

SINGAPORE: Seeking to address concerns over the Central Provident Fund (CPF) Minimum Sum in Parliament on Tuesday (July 8), Manpower Minister Tan Chuan-Jin said that increases to the Minimum Sum for each cohort of 55-year-olds over the past 10 years have been a "major, planned, and gradual adjustment" that aim to ensure payouts are enough for a lower-middle income household's basic needs when they retire.

"Some are unhappy when the Minimum Sum increases for every cohort that turns 55. Some see it as a shifting of the goalpost, that locks up more and more of their CPF savings. Others do not know how much savings they must set aside at 55," he said.

Mr Tan then sought to dispel what he called myths and misconceptions about the scheme. He also posted a summary on Facebook.

The idea behind the CPF Minimum Sum is to be able to stream out the savings every month, as opposed to withdrawing it all in one go, he said. It is a minimum amount for retirement expenses, and savings above that can be withdrawn.

Once the Minimum Sum has been set for a specific cohort, it does not change. For instance, for someone who turns 55 this year, the sum is S$155,000. This is up from S$148,000, the sum for someone who turned 55 in 2013, or the S$117,000 for someone who is five years older.

Minimum Sum increases, Mr Tan said, are a planned and gradual adjustment to catch up with rising living costs. Why S$155,000 for the 2014 cohort? This is the amount needed to get a monthly payout of about S$1,200 in 10 years' time, when these Singaporeans turn 65. S$1,200 is what the authorities estimate a lower-middle-income household would need for daily life a decade from now.

"If you do not meet your Minimum Sum at 55, you do not need to top up the shortfall in cash, nor do you need to sell your property to make up that shortfall. What it means is that with a smaller amount, your monthly stream-out would be correspondingly less, and that is all," said Mr Tan.

Only half the Minimum Sum needs to be set aside in cash - that means S$77,500 for someone who turns 55 this year. Savings above this can be used to finance housing purchases, or withdrawn if you pledge a property.

Mr Tan acknowledged that policy changes over the years have made the CPF system hard to understand, especially when different rules apply to different age groups. However, not changing CPF rules would be irresponsible of the government. "Singaporeans are living longer, that is a reality. The things that retired households spend on have also risen in quality," he said.

"The more we postpone the needed changes, the more disruptive the changes will be when it is forced on us in future. Many governments do not embark on these changes and reforms because they may be unpopular, but it is not the right thing to do. We believe that it is our responsibility to make these changes, when we can."

More Singaporeans have been able to reach their Minimum Sum over the years, Mr Tan said. For CPF members who turned 55 last year, about half had their Minimum Sum in cash plus property. Authorities are optimistic that the majority of younger Singaporeans will be able to do this, even as the Minimum Sum increases, because of growing wages. 

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