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Oral Answer by Mrs Josephine Teo, Minister for Manpower, to Parliamentary Question on CPF payout start age

Employment practices

NOTICE PAPER NO. 1523 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2572 FOR ORAL ANSWER

MP: MR LIM BIOW CHUAN

To ask the Minister for Manpower whether the CPF Board will (i) amend its policy to allow automatic withdrawal of the CPF payout when a member reaches 65 years of age and (ii) allow members who wish to withdraw their CPF funds later than age 65 to then indicate their choice in an opt-out form.

NOTICE PAPER NO. 1525 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2574 FOR ORAL ANSWER

MP: MR PATRICK TAY TECK GUAN

To ask the Minister for Manpower whether the CPF Board will be reviewing the opt-out scheme for payouts and allow automatic CPF payouts when a member reaches 65 years of age.

NOTICE PAPER NO. 1525 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2577 FOR ORAL ANSWER

MP: MS JESSICA TAN SOON NEO

To ask the Minister for Manpower given the feedback and concerns received regarding the CPF payout under the Retirement Sum Scheme, whether the CPF Board will consider revising the default option for CPF payout age to 65 years instead of the current 70 years.

NOTICE PAPER NO. 1527 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2580 FOR ORAL ANSWER

MP: MISS CHERYL CHAN WEI LING

To ask the Minister for Manpower (a) whether sufficient public communication was done prior to the letters being sent to individuals with regard to the option on the timing of their CPF payout; (b) whether there are other approaches to notify the general public of this option before the official process kicks in; and (c) for those who have earlier failed to notify CPF that they wish to receive their payouts upon age 65, whether they are allowed to do so at any point of time before they turn 70.

NOTICE PAPER NO. 1530 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2588 FOR ORAL ANSWER

MP: MS FOO MEE HAR

To ask the Minister for Manpower (a) what can be done to ensure that the public understands that the CPF payout age remains at 65 years of age; and (b) how can engagement with CPF account holders be improved to facilitate easy access to CPF funds at payout age.

NOTICE PAPER NO. 1535 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2597 FOR ORAL ANSWER

MP: MR LIANG ENG HWA

To ask the Minister for Manpower (a) whether the CPF payout starting at age 65 can be made as a default option; and (b) whether the CPF payout starting beyond age 65 can be made simpler and more appealing as an option

NOTICE PAPER NO. 1535 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2599 FOR ORAL ANSWER

MP: MR CHONG KEE HIONG

To ask the Minister for Manpower whether the Ministry will consider making the age of 65 the default option for CPF monthly payouts while providing incentives for CPF members who opt for the payouts to be deferred.

NOTICE PAPER NO. 1535 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2616 FOR ORAL ANSWER

MP: MR PNG ENG HUAT

To ask the Minister for Manpower since the start of 2018 (a) what is the number and proportion of members on the Retirement Sum Scheme (RSS) who activated their CPF payouts upon reaching their Payout Eligibility Age (PEA); (b) what is the number of members who, having missed the activation deadline, appealed to start their payouts before age 70; and (c) whether the Ministry will consider setting the default automatic CPF payout age of RSS and CPF Life scheme to the PEA to further simplify the activation process.

NOTICE PAPER NO. 1536 OF 2019 FOR THE SITTING ON 18 FEBRUARY 2019
QUESTION NO. 2632 FOR ORAL ANSWER

MP: ASSOC PROF WALTER THESEIRA

To ask the Minister for Manpower (a) for each year of age between 65 and 70 what is the proportion of eligible CPF members who apply to start payouts; (b) for members of the 65 to 70 age group receiving payouts, what is known about their use of payout monies, in particular, the extent to which payouts are retained in low-interest deposit accounts instead of used for expenses; and (c) whether and to what extent there are cases of financial hardship due to eligible members not applying to receive payouts

Answer

  1. Mr Speaker, may I take Questions 1 to 9 together please?
  2. I thank the MPs who have raised important questions.  There are several key questions I hope to address in this reply.

    3. Has the CPF Payout Eligibility Age shifted from 65 to 70?

  3. The first question is whether the CPF Payout Eligibility Age has been shifted from 65 to 70. 
  4. The answer is no.
  5. As MPs are aware, the Payout Eligibility Age (or PEA for short) is the earliest age at which CPF members can start their monthly retirement payouts.
  6. From 1 January 2018, the PEA has been 65.  It is still 65 today.  We have not shifted the PEA from 65 to 70, as was alleged by a spurious online post.    Members can start their retirement payouts any time from 65. 

    7. Has policy changed to now require members to start payouts?

  7. The second question is whether the policy has been changed to now require CPF members to come forward to start their retirement payouts.
  8. The answer is again no.
  9. This is in fact a long-standing practice, and there has been no change.  Members can instruct CPF Board when to start their retirement payouts at any time after they reach their PEA.  Members are in the best position to decide based on their individual circumstances.  It is also the same approach as in many other countries.
  10. There is no advantage for CPF Board or Government to want members to defer their payouts beyond 65.  Those who defer their payouts in fact enjoy the higher interest paid on their CPF monies.     
  11. Members who have reached their PEA can instruct CPF Board at any time to start their retirement payouts.  Let me explain how the process works for those on the Retirement Sum Scheme (RSS), which is the main retirement payout scheme for members born before 1958.  The members are now aged 61 and above.
  12. About six months before their PEA, RSS members will receive a letter from CPF Board informing them that they can start their payouts any time from PEA.  The form to start payouts is attached.  Members only need to fill in basic information – their name, NRIC, contact details and bank account details – and send back the completed form.  Alternatively, members can apply online through the CPF website or come to a CPF Service Centre.
  13. Members who do not instruct CPF Board to start their payouts are reminded through their Yearly Statement of Account.

    14. Why start the payouts automatically at 70?
  14. The third question is why the payouts start automatically at age 70.
  15. In the past, some RSS members had their savings in their CPF accounts until they passed away.  This is unsatisfactory.  We therefore introduced a Latest Payout Start Age of 70 for members turning 70 from 2018. 
  16. Even if such members have not applied to start payouts, CPF Board will start the payouts for them.  But I must again emphasise, if a member wants to start his payout before 70, he can do so any time from his PEA onward; he does not need to wait till 70.  In other words, the Latest Payout Start Age is not the same thing as the PEA.  It is a way to ensure members get to enjoy the benefit of their CPF savings by 70 at the latest.
  17. Members of the House may therefore recall that in October 2016, Parliament agreed to amend the CPF Act to bring this into effect.  Some MPs who are still in the House today spoke in support of this amendment, including Mr Chong Kee Hiong, Er Dr Lee Bee Wah, Mr Louis Ng, Mr Png Eng Huat and Mr Saktiandi Supaat.

    18. Why not start payouts automatically at 65?
  18. Several members have asked if CPF Board should automatically start payouts at age 65.  Some are concerned about those experiencing financial hardship.  I appreciate the reasons for MPs’ questions and also share your concerns. 
  19. There are in fact tangible benefits to members when payouts start later.
  20. Members earn more interest and enjoy enhanced payouts.  With every year that they defer their payouts, their CPF savings will earn risk-free interest of up to 6% a year, which is well above the interest rates they would get in the market.  This 6% includes the extra interest of 1% for the first $60,000 and additional extra interest of 1% for the first $30,000.  For members on CPF LIFE, for every year deferred, the payouts go up by up to 7%.  For 5 years of deferral, that is up to 35% more.
  21. Members may therefore prefer to start their CPF retirement payouts later.   This is especially so if they have other savings to draw on that are earning low interest, or if they are still working.  But if the payouts automatically start at 65, such members will also automatically not get the benefits of deferral.
  22. At the end of 2017, six in 10 members on the RSS who had reached their PEA that year did not start their payouts.  Even by the time RSS members reach 70, about half have not come forward to start their retirement payouts. 
  23. Some among them may have consciously decided to keep their savings in CPF because they had no need of the payouts.  Others may not have known they could have started their payouts earlier and thus did not instruct CPF Board.   
  24. The right thing to do is therefore to reach out to those members who may not have a good understanding, and give them clear and simple information to help them make their decisions.  With the benefit of knowledge, those who wish to can still start their payouts any time after 65.

    25. Improving communications with CPF members
  25. The fifth question which Ms Foo Mee Har, Ms Cheryl Chan and Mr Liang Eng Hwa have asked, is whether CPF Board can improve its communications with members.
  26. The answer is yes.
  27. While CPF Board has stepped up outreach efforts, there is much room for improvement in the way it communicates key issues such as starting payouts. For example, we will review the letters sent to members who are approaching their PEA, so as to avoid misunderstandings which confused members unnecessarily. 
  28. The Board has also started to invite all members reaching PEA to attend and benefit from a CPF Retirement Planning Service from the start of this year.  This is a face-to-face service in which a CPF Board officer provides personalised guidance. 
  29. In addition, we will work with other agencies to reach out to CPF members.  For example, where appropriate, staff at the Social Service Offices (SSOs) will ask members who approach the SSOs for financial help whether they have activated their CPF payouts, and assist them to do so if they wish.  We will also collaborate with the Silver Generation Office to communicate this issue to elderly members. 

    30. Members in CPF LIFE
  30. Mr Speaker, I would also like to take this opportunity to clarify the position for CPF LIFE, which is a relatively new scheme. 
  31. Members who joined CPF LIFE prior to July 2015 may have been confused whether they too have to come forward to activate their payouts when they reach PEA.  Some pointed out that the Latest Payout Start Age of 70 was not mentioned in previous communications with them. 
  32. Let me assure these members that nothing has changed for them.  They joined CPF LIFE before July 2015.  Back then, there was no flexibility to defer CPF LIFE payouts and the policy letter has already stated that payouts would start from their PEA.  For such members, CPF Board will indeed start payouts at PEA, unless otherwise instructed.  In fact, by the end of 2018, about 35,000 of such members had already started to receive their payouts upon reaching their PEA.
  33. Members who join CPF LIFE after July 2015 will be like members on the RSS.  They can start their payouts any time between their PEA and 70 by instructing CPF Board.

    34. Conclusion
  34. Mr Speaker, allow me to conclude.  All members can start their payouts any time after PEA by issuing a simple instruction to CPF Board.  This has not changed.
  35. However, the exact payout application process and letters sent to members may vary, depending on each member’s particular circumstances, such as whether they are on RSS or when they joined CPF LIFE.  Hence, CPF members should not rely on letters sent to others.  They should instead contact CPF Board if they are in doubt about any letter sent to them. 
  36. With your permission, Mr Speaker, may I ask the Clerk to distribute handouts summarising the key points of my reply?  We welcome Members of the House’s assistance to further disseminate this handout to their residents, if Members find it useful.  We will also be happy to collaborate with Members to share relevant information with their residents. 

    37. Response to Ms Foo Mee Har’s supplementary question on the calculation and duration of CPF Retirement Sum Scheme payouts
  37. Mr Speaker, Singapore has one of the highest life expectancies in the world. In 2017, more than half, 1 in 2 Singapore residents aged 65 was expected to live beyond 85.  1 in 5 of them was expected to live to about 95 or above.
  38. When designing the RSS payouts, they were initially meant to last about 20 years, taking into account the base interest rate on the Retirement Account (RA), which is now 4%.  So consider the fact that they will earn 4%, consider the fact that RSS payouts should last 20 years, then you work out what the payouts will be. A current RSS member reaching his Payout Eligibility Age of 65, will get base payouts that would last till approximately 85.
  39. What this means, however, is that more than half of the members, still alive at 85, will have no CPF payouts at all. And this would be a major cause for concern.
  40. The better solution for the member to managing this longevity risk is CPF LIFE, which provides lifelong payouts. However, because CPF LIFE is mandatory only for those turning age 65 in 2023 with $60,000 in RA balance, most of our elderly will still not be on CPF LIFE, but they remain on the RSS.
  41. With this concern in mind, the Government introduced the CPF Extra Interest about ten years ago, and the Additional Extra Interest in 2016, so these came about a decade ago and 3 years ago. This bonus interest, provided by the Government, is used to extend the RSS payouts beyond 20 years. We took the base payouts and then we said here is the extra interest and the additional extra interest, how much longer can you stretch it?  And in this way, the members will enjoy payouts for longer and there’s less risk that their savings will run out.
  42. But we also put in a cap so that the payouts do not extend past 95 years old, as this will already cover about 4 in 5 elderly. So about 80% of them will be covered by this duration extension.