SINGAPORE: From 2020, the payout duration of the Retirement Sum Scheme (RSS) will be changed to last until 90 years old, instead of the existing age of 95, following a review by the Ministry of Manpower (MOM) and the Central Provident Fund (CPF) Board.
The change, made in response to feedback that the current payout duration was too long, means that a proportion of RSS members will be getting higher payouts each month.
This was announced by Manpower Minister Josephine Teo in Parliament on Monday (Nov 4), as part of her speech for the second reading of the CPF Amendment Bill.
“Designing payouts to last up to age 95 will cover the longevity risk of up to four in five members. In other words, only one in five members is expected to outlive his RSS payout,” said Mrs Teo.
“While this approach is fundamentally sound, it does mean that for the members who had remaining balances in their Retirement Accounts when they passed on, their RSS payouts could have been slightly higher.”
Following the review, the RSS payout duration will be shortened to last up to 90 years old, she told the House. These changes will take effect next year.
All RSS members who turn 65 from Jul 1, 2020 will automatically be on the new payout rules.
For older RSS members who are getting payouts under the current rules, the rules will apply from Jan 1, 2020, if the resulting payout amount is higher than their current payout.
Around 60,000 of those who are already receiving money through the RSS are set to receive higher payouts, which is more than one-third of the existing 160,000 RSS members.
The CPF Board will send out a one-time letter to RSS members receiving their payouts as of Jan 1, 2020 to inform them whether and how they will be affected by the changes.
Mrs Teo stressed that no one will see a reduction in their current payouts under the new rules.
“All RSS members who are currently receiving payouts will get either higher payouts or the same payouts,” she said in Parliament.
WHAT IS THE RSS
The RSS, which offers CPF members monthly income once they reach the payout eligibility age of 65, is the main retirement payout scheme for those aged 65 and above today.
Taking into account the 4 per cent base interest rate on the savings that one has in the Retirement Account, the RSS payouts are designed to last up to 20 years from the payout eligibility age.
The Government introduced the Extra Interest and the Additional Extra Interest in 2008 and 2016, respectively.
The former refers to the extra one percentage point of interest a year that is now paid on the first S$60,000 of a member’s combined CPF balances.
For CPF members aged 55 and above, they receive an additional one percentage point of interest a year on the first S$30,000 of their combined balances, according to the CPF Board’s website.
These two schemes were aimed at stretching the payouts beyond the usual 20 years and up to 95 years old, so as to protect CPF members from outliving their RSS payouts, said Mrs Teo.
WHAT THE CHANGES MEAN
But this will be adjusted following the review to adjust the payout duration to 90 years old at most.
“Extra interest earned from age 55 until the member starts his payouts will now be used to increase his payout amount,” Mrs Teo explained.
“Extra interest earned after the member starts his payouts will continue to extend his payout duration.”
This means an increase in payouts for members whose RSS payouts were originally projected to end past age 90.
This is because the extra interest that was earlier used to extend their RSS payouts beyond age 90 will now be used to increase their monthly payouts instead.
But the range of payout increases will depend on the circumstances of individual members, such as age, the balance in one’s Retirement Account and existing payout amount.
It will also take into account any top-ups to and withdrawals from the Retirement Account.
READ: Full restoration of CPF contributions for those aged 55 to 60; higher rates for workers above 60
In her speech, Mrs Teo cited the example of a Mr Tan, who is currently aged 65 and is starting his RSS payouts.
Based on his Retirement Account savings and current RSS payout rules, Mr Tan is set to receive a monthly payout of about S$470 for 30 years, up to 95 years old.
Under the new rules, Mr Tan’s monthly payouts will increase to S$520, although they will end when he turns 90 years old.
The Manpower Minister said the new RSS payout rules will continue to provide “longevity risk protection for up to two in three members".
For members who prefer a longer payout duration, they have until age 80 to join the CPF Lifelong Income For the Elderly (CPF LIFE) Scheme, which was introduced in 2009.
CPF LIFE is optional for members under RSS, who can apply to join anytime between their payout eligibility age and before they turn 80 years old.
“This will guarantee that they receive payouts for as long as they live," Mrs Teo said.
NO CHANGE TO PAYOUT ELIGIBILITY AGE OR WITHDRAWAL RULES
Even with the latest tweaks to the rules governing the RSS payouts, Mrs Teo stressed that there is no change to payout eligibility ages or withdrawal rules for RSS members.
“If you are 65 today, you can start to get your payouts," she said. “This remains the same”