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Written Answer by Mr Tan Chuan-Jin, Acting Minister for Manpower & Senior Minister of State, National Development, to Parliamentary Question on Adequacy of Singaporeans' Retirement Income

Mr Laurence Lien: To ask the Acting Minister for Manpower in view of Singapore's ranking of 17 out of 18 countries in the Adequacy section of the Melbourne Mercer Global Pension Index 2012, whether there is a need to review if new batches of retirees, particularly middle-class Singaporeans, have enough replacement income at retirement to sustain the quality of life they were accustomed to while working.

Mr Tan Chuan-Jin:

  1. Comparing pension systems across countries is not straightforward as pension systems are designed to fit the social context of each country and can be highly varied. Many international indices on social security are designed with European models in mind, and these are quite different from Singapore’s CPF system.
  2. In other countries, social security contributions do not have components equivalent to the Special Account, Ordinary Account and Medisave Account, as we have in Singapore. Hence many international measures, including the Melbourne Mercer Global Pension Index, disregard how CPF Ordinary Account balances contribute to retirement adequacy in Singapore.
  3. International indices generally place much emphasis on a universal basic pension as a means to achieve financial security in old age. In Singapore, our approach is different, with greater focus on self-reliance and less on universal entitlements. We help Singaporeans own a home, so that they do not need to worry about where they will live when they retire, and these homes also serve as valuable assets which can be monetised if necessary. We boost CPF balances of those with lower-incomes through Workfare and CPF top-ups. For those who need more help, we have ComCare and Medifund. Again, international indices on retirement adequacy are not comprehensive enough to factor in how home ownership is an important pillar of retirement adequacy in Singapore. Mercer has acknowledged that the CPF is designed to address a broader range of needs such as home ownership and medical costs than their index seeks to measure.
  4. International indices do not account for the uniqueness of how we achieve retirement adequacy in Singapore. These indices do not accurately measure how we fare, and they should be interpreted carefully with these limitations in mind.
  5. We recognise that it is important for the public to have assurance that the CPF can provide adequately for their retirement. MOM recently commissioned an independent study by NUS academics to compute the level of retirement income that the CPF can provide for young Singaporeans entering the workforce today. The study finds that such new entrants will be able to save enough in their CPF to provide a reasonable level of income in retirement, as long as they work consistently. The median male earner will be able to replace about 70% of his pre-retirement earnings through his CPF savings, whereas a female median earner is able to replace almost 65% of her pre-retirement earnings. In other words, using a methodology that factors in the uniqueness of our CPF system, the study found that income replacement rates in Singapore are comparable to those seen in the pension systems in many developed countries, and within the recommended range by the World Bank. The study will be released later this week.
  6. The member also asked about the current generation of older Singaporeans. This issue was given some focus in MOM’s Committee of Supply debate in March this year. Older Singaporeans generally have lower CPF balances due to lower incomes and greater leeway to use CPF of housing in the past. But the CPF has helped them own their homes, and they have benefited from the healthy appreciation of their homes over the decades. Such older Singaporeans have the option to tap on their housing asset to supplement their retirement income if they wish to, and we will provide avenues such as the Silver Housing Bonus and the enhanced Lease Buyback Scheme to help them do so.