Making Savings Last for Life Expectancy

1. How is the Government helping to make savings last for a members' lifetime?

With rising life expectancy, many members will outlive their Central Provident Fund (CPF) monthly payouts. There is a need to raise the draw-down age (DDA), currently 62, so that the savings can last longer. Deferring draw down by 1 year will allow more interest to be earned and  extend the draw down period by two more years.

With the introduction of the re-employment legislation the CPF draw-down age will also be progressively raised starting from 2012, to reach 65 in 2018, and eventually to 67. Re-employment legislation will kick by 1 Jan 2012 but the DDA at 65 will be in effect, six years later, in 2018. The DDA will be pushed up to 63 years in 2012, then 64 years in 2015 to reach 65 years in 2018.  This will provide enough time for everyone to adjust to the changes.

Those aged 57 or younger in 2007 will be affected by the later DDA. To help the group 50 – 57 cope with the increase in DDA, a one-off deferment bonus (D-Bonus) will be given to them into their Retirement Account (RA). Older members will receive larger D-Bonuses. Those aged 54 to 57 will receive 5% on their balances up to $30,000 in their RA, i.e. up to a maximum of $1,500. Those aged 52 and 53 will receive 4% on RA balances, up to $1,200, while those aged 50 and 51 will receive 3% on RA balances, up to $900.

The Government will also encourage members to voluntarily defer their DDA to 65 by giving a voluntary deferment bonus (V-Bonus) for each year of deferment up to age 65. Members aged 54 to 63 this year who have not started draw-down are eligible. The V-Bonus is set at 2% interest on RA balances capped at $30,000, i.e. up to a maximum of $600 for each year deferred.

Age at 31 Dec 07	DDA	D-Bonus	V-Bonus	Maximum Total Bonus
63	62	-	2%, up to $600 x 1 year	$600
62	62	-	2%, up to $600 x 2 years	$1,200
58 to 61	62	-	2%, up to $600 x 3 years	$1,800
56 to 57	63	5%, up to $1,500	2%, up to $600 x 2 years	$2,700
54 to 55	64	5%, up to $1,500	2%, up to $600 x 1 year	$2,100
52 to 53	65	4%, up to $1,200	-	$1,200
50 to 51	65	3%, up to $900	-	$900

2. Why must CPF members provide for Longevity Insurance?

This is in line with the principle that CPF members should make provision to ensure that they have an income for life. Few people can predict for sure how long they will live. The alternative of stretching the Minimum Sum over a longer period is not a good one because this will mean making every member over-provide for the risk of longevity while at the same time reducing the payout for those who do not live for so long. The National Longevity Insurance Committee, which will look into setting up a basic and affordable scheme, will also consider options that the scheme can offer so that members' needs are addressed.

3. Why not fund a national pension scheme from our Government reserves?

Such a system would become unsustainable as Singapore is among the fastest ageing societies. It would also encourage younger people to save less if the state were to guarantee a pension when they are old.

We should not repeat the mistakes of other countries which are now trying to move away from such schemes. For example, Italy spends 14% of its GDP on state pension alone, which is equivalent to our Government's total budget share of GDP. The more sustainable solution is for CPF members to make provision to be self-reliant in their old age.

4. Who will be affected by the rise in draw-down age?  

Members who are aged 57 and below in 2007 will be affected.

Age as at 31 Dec 2007	New draw-down age
56 to 57	63
54 to 55	64
53 and below	65

5. When will the draw-down age be increased to 67?

We will first take steps to raise the draw-down age up to 65 as announced, and decide on the next steps in the next review.

6. How is the Government helping affected members currently aged 50 to 57 cope with the rise in draw-down age?