Oral Answer by Mr Tan Chuan-Jin, Minister for Manpower, to Parliamentary Questions on CPF Issues
Notice Paper No. 163 Of 2014 Question No. 26 For Oral Answer
MP: Mr Gan Thiam Poh
To ask the Minister for Manpower (a) what is the current percentage of CPF members who use their properties to support half of the CPF Minimum Sum; and (b) how many CPF members do not withdraw their CPF monies after setting aside the CPF Minimum Sum.
Notice Paper No. 176 Of 2014 Question No. 44 For Oral Answer
MP: Mr Seng Han Thong
To ask the Minister for Manpower whether more flexibility can be exercised for CPF members with less than the Minimum Sum Cash Component to use their CPF for housing needs.
Notice Paper No. 178 Of 2014 Question No. 51 For Oral Answer
MP: Ms Irene Ng Phek Hoong
To ask the Minister for Manpower whether it can be made automatic for lower-income CPF members with less than the Minimum Sum Cash Component at the age of 55 to continue using their CPF to service their existing housing loans without interruption after they turn 55.
Notice Paper No 181 Of 2014 Question No. 54 For Oral Answer
MP: Mr Ang Wei Neng
To ask the Minister for Manpower (a) whether the Ministry can remind CPF members at age 54 years old about the impending transfer of members' monies from their Ordinary Account to the Retirement Account when they turn 55 years old; and (b) whether there are plans to increase the CPF drawdown age when the re-employment age is extended beyond 65 years old.
Notice Paper No 188 Of 2014 Question No. 73 For Oral Answer
MP: Ms Tin Pei Ling
To ask the Minister for Manpower based on current data, how many Singaporeans are expected to have insufficient money in their CPF accounts when they reach retirement and to what extent will this be affected if the CPF Minimum Sum does not increase over the next decade.
Notice Paper No 188 Of 2014 Quesion No. 74 For Oral Answer
MP: Ms Tin Pei Ling
To ask the Minister for Manpower if his Ministry will evaluate the feasibility of guaranteeing a higher rate of return on CPF monies and of allowing more flexible use of CPF funds to finance housing and education.
Notice Paper No 190 Of 2014 Quesion No. 87 For Oral Answer
MP: Mr Christopher de Souza
To ask the Minister for Manpower given that CPF is an important retirement saving tool for Singaporeans, what is the Government doing to help Singaporeans improve their retirement adequacy through the CPF.
Notice Paper No, 166 Of 2014 Quesion No. 28 For Oral Answer
MP: Mrs Lina Chiam
To ask the Minister for Manpower how many Singaporeans who turn 55 this year are (i) active CPF members and (ii) inactive CPF members.
Notice Paper No. 192 Of 2014 Quesion No. 92 For Oral Answer
MP: Mr Png Eng Huat
To ask the Minister for Manpower as of 2014, what is the average amount used for public housing as a percentage of the CPF Ordinary Accounts of CPF members at age 55 years and above.
Notice Paper No. 192 Of 2014 Quesion No. 93 For Oral Answer
MP: Mr Png Eng Huat
To ask the Minister for Manpower since the inception of CPF Life what is the number and percentage of CPF members at age 55 years who opt for the CPF Life Standard Plan and are able to set aside (i) their cohort's Minimum Sum Cash Component (MSCC) in full; and (ii) their cohort's Minimum Sum in full.
- Madam Speaker, may I take PQs 1 to 10 together, please?
The Role of CPF
- Madam Speaker, much has been discussed about the CPF in recent months, and I thank members for the opportunity to clarify. Every country is concerned about how their people manage when they retire. While some argue that as individuals we should be left to sort our own lives out, in reality it often doesn't work out that way. Almost all developed countries have some form of pension or retirement system because most people generally don't save regularly nor do they effectively plan for their own retirement. Most systems operate as such: you pay regularly, sort of like a tax, and you receive a stream of income when you retire that will cease when you pass away. Payouts are often regular, such as every month, to ensure that there is a regular flow of income to help sustain living needs. There is a good reason why it isn't provided as a lump sum.
- For us in Singapore, assurance in old age revolves around a few key considerations: healthcare, housing and retirement needs. The CPF is our key pillar in the social security system. It is a mandatory savings account that helps us put aside money today to cover our needs in old age. As the CPF is a defined contribution system, the full amount in your CPF account would go to your family if you pass on prematurely. Both individuals and their employers contribute their share to the scheme. And it is also a vehicle through which we help cater to healthcare and housing needs.
- When the CPF was first introduced almost 60 years ago, members could withdraw their money at age 55 in a lump sum. That was because at that time, someone could expect to live only another six to seven years after that. The situation is very different today where one could expect to live a further 30 years or more. Allowing a full withdrawal from CPF at age 55 today will put us at real risk of outliving our savings in old age. To blindly keep to the earlier model of full withdrawal at age 55, which made sense then, would be wrong and irresponsible.
- This is why we introduced the Minimum Sum scheme. The policy is not a new one and has been in place for about 30 years. The idea is to stream out our CPF savings every month to meet living expenses instead of having them all withdrawn in a lump sum. Neither do we require our Singaporeans to set aside all our CPF savings to be streamed out in this way. Only a basic amount necessary for retirement expenses is required, and you can withdraw your CPF savings above that in a lump sum. This basic or minimum requirement is known as the Minimum Sum.
Clarifying Several Issues Relating to the Minimum Sum
- Let me clarify this concept of the Minimum Sum. Some are unhappy when the Minimum Sum increases for every cohort that turns 55. Some see it as a “shifting goalpost” that locks up more and more of their CPF savings. Others do not understand how much savings they must set aside at 55.
- Now, let me explain the Minimum Sum in some detail to dispel misconceptions and myths that have surfaced in the recent public discussion.
- First, the Minimum Sum is cohort specific. Once it is set for a particular cohort, it does not change. For example, someone who turns 55 between July 2014 and June 2015 will need to set aside $155,000. This is slightly higher than what a person who turned 55 last year needed to set aside, which was $148,000 and that remains unchanged for someone who turned 55 last year. To further illustrate, for someone who turned 55 five years ago, the Minimum Sum was $117,000 and that has remained unchanged for him.
- Second, the increases to the Minimum Sum for each successive cohort over the last decade are part of a major, planned, gradual adjustment starting in 2004, to catch up with what a lower-middle income household would need in retirement. This was announced a number of years back.
- How did we arrive at $155,000? That is the amount you need to get a monthly payout of about $1,200 in 10 years’ time when you reach age 65, when you begin your draw-down of your CPF savings. We estimate that is how much a lower-middle income household would spend on daily living when they enter retirement 10 years from now. $1,200 per month in 10 years’ time is not an excessive amount – it is equivalent to only about what $1,000 would buy today.
- Some might argue that both they and their spouses work, and so if both are required to set aside the full Minimum Sum individually, then they will have the combined payout of $2,400 which is more than what they need. Well, the answer is that if they have a property, and many do have properties, they can pledge that property to set aside only half the full Minimum Sum in cash, so that each one only needs to set aside $77,500 for retirement – half of $155,000. Then the combined payout of their Minimum Sums will be a total of $1,200 per month – or just adequate for basic living expenses. And what happens if they don’t have a property to pledge? In the scenario where they don’t have a property, they will need to pay for rent, and so a combined payout of $2,400 is not too generous at all.
- Third, 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 the shortfall. Let me repeat this, you do not need to top up the shortfall in cash, nor do you need to sell your property to make up the shortfall. What it means is that with your smaller amount, your monthly payout will be correspondingly lesser, and that is all.
- Fourth, only half of the Minimum Sum needs to be set aside in cash. The savings above that amount can be used to finance housing purchases, or be withdrawn through a property pledge. This means a member turning 55 this year only needs to set aside $77,500 in cash and the rest can be withdrawn through a property pledge. $77,500 will translate to a CPF LIFE payout of about $600 per month in retirement, which is not excessive.
- On that last point, to answer Mr Gan Thiam Poh’s question, 50% of active CPF members met the Minimum Sum in 2013, including 15% who used their properties to support up to half of the CPF Minimum Sum. Members who had used their properties to support their Minimum Sum included (i) members who had less savings in their CPF and had their housing withdrawals pledged to meet the Minimum Sum, as well as (ii) members who had met the Minimum Sum but pledged their property to withdraw their CPF savings above half the Minimum Sum. In general, we look at the percentage of active CPF members who meet their Minimum Sum in cash plus property, because home ownership (and monetisation if necessary) contribute towards how adequately we are prepared for retirement.
- While some members are unhappy that their CPF savings are being locked-up under the Minimum Sum rules, other members have voluntarily left their CPF savings in their accounts even though they have CPF funds in excess of the Minimum Sum and can withdraw these amounts. One reason why they do so is to continue to earn the risk-free returns on their CPF savings. Mr Gan Thiam Poh would be glad to note that as at Dec 2013, about 20% of the entire cohort who turned 55 in 2013 had balances above the Minimum Sum that were not withdrawn.
- I am aware that some members may find the CPF system difficult to understand because policy changes over the years means that different rules may apply for different cohorts. This practice of grandfathering old rules for older members is precisely to minimise adjustments to those members who have already passed age 55. This was necessary so as not to disrupt the plans of older members mid-way through their retirement.
- But it would not be responsible of this government to leave unchanged the CPF rules for those who are younger, when the situation around us has changed dramatically. Singaporeans are living longer – that is a reality. The things that retired households spend on have also risen in quality – this is also a testimony to the rising standard of living for many Singaporeans – that is also a fact. 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 these may be unpopular. But we believe that it is our responsibility to make these changes when we can, so that when the changes are upon us, we are well prepared for it.
- What I can assure everyone is that whenever there is a policy change, the CPF Board makes an effort to try to reach out to every affected member. At the same time, we encourage members who are unsure of the rules to also step forward to request for assistance to navigate these rules. One request I would make, following many dialogues with members of the public, is that they read the materials that are put forward. In many dialogues and conversations, many people get agitated and emotional and argue on points which are already clarified in the materials that we have put out, but they have not read. CPF is an important part of our lives, and it behoves us to read those materials to understand what it is and what it is not.
Attaining the Minimum Sum
- Many are concerned about whether they will meet their Minimum Sum.
- Ms Tin Pei Ling and Mr Png Eng Huat asked about the balances that CPF members have for retirement. As I mentioned earlier, about 50% of active members who turned 55 in 2013 achieved their Minimum Sum in cash plus property. For those who do not meet their Minimum Sum, a majority have a property that they used their CPF savings to pay for. The reason why some of them don’t meet the Minimum Sum is because we kept the amount that can be used for property at half the Minimum Sum. Meaning that, while they may not have more than half the Minimum Sum in terms of cash, their property may be worth far more than half the Minimum Sum, which is why if they have less than half the Minimum Sum in cash, they are actually considered as not meeting the Minimum Sum in technical terms. Some would also have spouses with higher CPF balances who can provide for them.
- Over the years, more members in each cohort reaching the age of 55 have been able to meet their cohort Minimum Sum. This is despite the Minimum Sum having increased over the years for each cohort. For younger workers we are even more optimistic about their ability to attain the Minimum Sum. In a 2012 study, two local academics, Associate Professors Chia Ngee Choon and Albert Tsui, estimated that about 70% to 80% of new entrants to the workforce would be able to meet the Minimum Sum for their cohort fully in cash. There are several reasons why this is so: wages have been growing, and labour force participation rates have been increasing.
- Significantly, it is also because we have been making enhancements to the CPF system to help members grow their savings to meet the Minimum Sum. Mr Christopher De Souza asked what those are. First, since 2008, the CPF pays an additional 1% interest on the first $60,000 of combined balances. As a result, about two-thirds of members earn 5% interest on all their balances in their Special, Medisave and Retirement Accounts. Over half of all members earn 3.5% on all their Ordinary Account savings. This is far superior to what is earned on bank deposits and far higher than many comparable financial instruments. Second, Singaporeans earning lower incomes also enjoy boosts to their CPF savings through Workfare. Third, we have also been raising CPF contribution rates for older workers to help them save more, and have been working with our tripartite partners to improve employment opportunities for older workers.
- The key group we are concerned about who may have insufficient CPF balances are our seniors, many of whom are currently in retirement. Many have low CPF balances because of lower wages in the past and because more liberal withdrawal rules which were calibrated for shorter life spans depleted their CPF savings. However, we also know that the majority of current seniors own their homes and have fully paid up their housing loans. Mr Png Eng Huat asked about the average proportion of OA savings used for public housing by older members. Among members who turned 55 years old over the past five years and had used CPF monies to purchase HDB flats, an average of 55% of their OA savings had been withdrawn to finance their flats at age 55.
- These housing assets have appreciated significantly and, if needed, can be tapped on to supplement their retirement income. Various schemes have been introduced, and we will strengthen this. For example, we have the Lease Buyback Scheme and the Silver Housing Bonus. Those who take advantage of these schemes typically get enough in proceeds from the sale to top up their CPF accounts up to the Minimum Sum, with cash to spare. Our current seniors also receive additional support from the Government through measures such as the Pioneer Generation Package.
- As the CPF is founded on the principle of self-reliance and work, those who do not work and contribute regularly to the CPF are naturally less likely to attain the Minimum Sum. To give you a sense of the numbers, which Mrs Lina Chiam has asked for, we know that 23% of Singaporeans who turned 55 in 2013 were inactive CPF members, while the remaining 77% were active1 members or self-employed. For the group of inactive members, many of whom have not worked regularly, family support will have to come in and other social safety nets are in place to provide assistance for example through the various ComCare schemes. And we have been strengthening the social safety nets over these past few years.
Flexibility within Minimum Sum Rules
- Ms Tin Pei Ling asked whether a more flexible use of CPF savings for housing can be allowed. Mr Seng Han Thong specifically asked whether more flexibility could be exercised for members with less than half the Minimum Sum. Ms Irene Ng asked whether it can be made automatic for these members to continue using their CPF for their housing loans without interruption.
- I understand that there are concerns about CPF members’ ability to continue servicing their housing loans with CPF savings after 55. Let me first state that in the 10 cohorts aged 55 and above, only 1 in 10 are still using their CPF for monthly instalments, and only 1 in 20 may have to meet their monthly instalments with some cash. For CPF members who do face difficulties with their housing loan repayments, we have exercised flexibility where a case merits it and allowed them to use part of their Retirement Account savings for housing even if they do not have half the Minimum Sum. I have shared before with Members of the House that we receive an average of about 500 appeals annually from members 55 years and older who request to use more Retirement Account savings for housing, and we approve about two-thirds of the appeals. The number of such appeals is not large, considering that there are more than 60,000 CPF members turning 55 every year. For cases that are not approved, we also work closely with HDB to explore alternative financing or housing options for the CPF member.
- I would like to re-assure Mr Seng that we are ready to exercise flexibility in the use of CPF for housing after 55 because we recognise that helping a member maintain a roof over their heads is an important part of our overall retirement adequacy goals. But to address Ms Irene Ng’s point, I don’t think we want to make it automatic for members, because some of these members would be able to service their housing loans using cash, instead of drawing upon their Retirement Account savings and hence compromising the monthly payout in retirement. We also do not want to encourage rash and imprudent housing purchases by members who think that they can automatically draw down fully on their Retirement Account funds to service their loans. You could end up with over-consumption on housing as a result of that, and members can get over-stretched.
- Mr Ang Wei Neng raised a separate point on whether we can remind CPF members at age 54 about the impending transfer of members' monies from their Ordinary Account to the Retirement Account when they turn 55. Currently, CPFB informs members 2 months before they turn 55. Since January this year, HDB has been sending letters to households with outstanding HDB loans and with at least one HDB lessee age 50 to 54, to remind them to plan ahead for their housing payment before 55. Nonetheless, I think more can be done in this area and Mr Ang’s suggestion is a good one. We will look into how CPF members can be reminded to make sufficient arrangements for their housing payment in advance.
- Mr Ang also asked whether the CPF Draw Down Age will be increased when the re-employment age is increased. This is an issue that we are studying carefully. The draw down age today is 63 and will be raised to 65 by 2018. Whether it needs to be raised further will depend on life expectancy and the need to maintain retirement payouts at a reasonable level. We have not reached any conclusions yet.
- One way that we protect Singaporeans from the risk of outliving their payouts due to increasing life expectancies is through our CPF LIFE annuity scheme. Mr Png Eng Huat asked about members who opt for the CPF LIFE Standard Plan. Among the members who joined CPF LIFE upon turning 55 in 2013, about 70% are on the Standard Plan.
Committed to Improve the CPF System
- To sum up, the CPF remains a key pillar to help Singaporeans cater for their needs in old age. There are areas that can be improved, and I welcome different views and perspectives. While it is not possible to meet every single member’s specific needs, I can assure members that we will look into all feedback and make changes where warranted.
- As Prime Minister Lee Hsien Loong mentioned during the recent Debate on the President’s Address, our focus over the next few years will be on two key challenges: helping members cope with the rising cost of living during their retirement years which could erode the value of their CPF LIFE payouts. Second, helping low wage workers who may have accumulated lower CPF balances over their working lives. We will also put in more resources to help Singaporeans better understand the CPF system.
1 An active member refers to a person who has at least one CPF employment contribution paid for him for the current or for any of the preceding 3 months.
For the reply to related Parliamentary Questions, please see:
DPM Tharman Shanmugaratnam's Reply to Parliamentary Questions on CPF Interest Rates and Investment of CPF Funds