30 May 2012

Being Retirement Ready

30 May 2012

Another change from 1 July – adjusting the Minimum Sum

Some of my elderly residents come to see me about their retirement needs. There is a wide range of circumstances. Some enquire about their CPF withdrawals while some are worried about not having enough savings to tide things over. What is quite clear, is that while everyone needs to plan for his or her own retirement needs, the state needs to ensure that via the CPF, we can provide a basic level of adequacy for most, especially for our lower income Singaporeans.

This is where the CPF Minimum Sum (or MS) comes in. Every year, when we announce that the MS is being adjusted upwards, there is usually an outcry. I guess it would be the same again this year! Let me try to again explain how the MS works and why the increase takes place.

The MS exists to help Singaporeans set aside enough to meet a basic level of needs in retirement. When CPF members retire, they will receive a monthly payout from this sum of money they have set aside, to support their expenditure then. To achieve this objective, the MS needs to be adjusted to account for inflation and also members’ growing expectations of their quality of life during retirement.

In 2003, the Economic Review Committee (ERC) had recommended that the MS needs to grow in real terms to reach $120,000 (in 2003 dollars) by 2013, so that it is enough to provide for basic retirement needs.    While this target remains unchanged, the nominal amount will have to be adjusted upwards by inflation to ensure that it maintains its real value - so it should be worth as much in today’s dollars as what $120,000 was worth back in 2003.

We have now shifted this target back by two years to 2015 and will spread out the remaining MS increases needed to reach this target, over the coming 4 years.  We made the decision to do so to avoid too large an increase in MS in any one year.

Some of you ask why we continue to raise the MS, despite the fact that only about half of members at age 55 are able to meet it. This is a very valid and common question. For those who can meet the MS, the amount is meant to provide him with monthly payouts that will provide for a member’s basic needs in retirement. If we do not increase the MS in line with inflation, we may not ensure Singaporeans are financially provided for in their retirement years. Of course, I am aware that for a number of Singaporeans, they also do have other sources of savings and support, but we aim for the CPF system to provide a baseline adequacy.

We aim to boost members’ CPF savings to help them meet the MS in several ways.  For instance, we pay an extra 1% interest on members’ CPF balances of up to $60,000.  We help low-income members build up their retirement nest through the Workfare Income Supplement (WIS) scheme. We help older Singaporeans stay employed through re-employment initiatives and the Special Employment Credit. We are also working on raising wages for low income workers. Staying employed is, in fact, the best way for members to build up their retirement savings.

For those who still fall short of their MS, they may still have their own savings or family to depend on. Depending on their circumstances, we will step in to assist where we can. Some of my residents fall under this category and we have arranged for various forms of assistance to augment their payouts.

When I examined our data, it is actually encouraging to note that despite the rising MS, the percentage of active CPF members meeting their MS at age 55 has improved over the years. In 2011, nearly 1 in 2 CPF members (45%) met their MS, compared to about 2 in 5 members in 2007 (36%). The RA balance at age 55 has consistently been rising as well.  This will continue to improve with each successive cohort, as educational profiles improve and lifetime incomes rise.

Among those starting work now, about 70 to 80 per cent should be able to attain the current level set for the Minimum Sum in cash (adjusted for inflation), by the time they retire, even after they have withdrawn money for a home.

We will continue to review MS regularly to ensure it is not excessive while providing an adequate stream of income during retirement for CPF members.

Minister of State Tan Chuan-Jin

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