Better to Help Older Workers Keep Working
- The Business Times, 07 February 2007
Please refer to the letter "Review phasing out 50% CPF withdrawal" by Mr Leong Sze Hian (Business Times, 25 Jan 2007).
2. The CPF Minimum Sum is meant to provide a basic income to last the average life expectancy of Singaporeans – currently around 82 years at age 62 years of age. In 2013 the Minimum Sum reaches $120,000 in 2003 dollars. Since most members pledge their property for the MS, their cash component is half of this sum and will only provide $475 dollars per month in 2003 dollars for twenty years.
3. Currently, only about 40% of the members meet their Minimum Sum. Allowing 50% withdrawal at age 55 will only deplete retirement savings further. It is the wrong approach to helping older workers as it only postpones the problem. We should instead increase employability to build up their retirement savings.
4. To help older workers find work and stay employed beyond the retirement age, the Government together with the tripartite partners have put in place various programmes. For instance, the Tripartite Committee on Employability of Older Workers introduced the ADVANTAGE! Scheme, early last year to encourage and help companies hire workers above 40, and to re-employ workers above the retirement age of 62. Under the Workfare Bonus Scheme, low wage older workers will also be rewarded for working regularly.
5. Recent data shows that more older workers have been finding and staying in work. In 2006, the employment rates for those aged 55-59 and 60-64 rose to 60.6% and to 41.9% from 55.9% and 33.6% in 2004 respectively. This approach is more sustainable to improve the retirement adequacy of workers.
Review Phasing out 50% CPF Withdrawal
- The Business Times, 25 January 2007
I refer to media reports about the manpower minister addressing Members of Parliament on Jan 22.
'To a question if the minimum CPF sum of $90,000 would be enough for retirement, Mr Ng said changes are being made so Singaporeans can have more money when they retire. The minimum sum, for example, is gradually being increased and the 50 per cent withdrawal rule will eventually be phased out in 2009.'
According to the CPF Board's website, the rationale for phasing out the 50 per cent withdrawal rule is as follows: 'As Singaporeans are living longer, and having smaller families on which to rely, they will have to depend more on their CPF for their retirement. With the cut in the CPF contributions, it has become even more important for Singaporeans to ensure they have enough CPF savings for their old age. The current withdrawal rule allows members to withdraw 50 per cent of their combined Ordinary Account and Special Account balances, even if this leaves the Retirement Account with less than $47,300 in cash. This leaves many members with insufficient CPF to see them through their retirement. Phasing out the 50 per cent withdrawal rule will help more Singaporeans set aside their CPF Minimum Sum.'
The 'cut in the CPF contributions' may result in some Singaporeans having even less cash at age 55, because they have to use more cash to pay off their home mortgage, children's tertiary education tuition fees and Dependents' Protection Scheme insurance premiums. Currently, for those with $10,001 to $189,200 at age 55, 'the member can withdraw up to 50 per cent of the total balance in his Special and Ordinary Accounts. The remainder will be set aside in his Retirement Account. Starting Jan 1, 2009, the 50 per cent withdrawal rule will be phased out gradually. The percentage for withdrawal will drop to 40 per cent, and thereafter be further reduced every year by 10 percentage points until the withdrawal rule is phased out. Therefore, from Jan 1, 2013, you must meet the CPF and Medisave Minimum Sums first before you can withdraw your remaining Ordinary Account and Special Account balances at age 55. However, you can continue to withdraw the first $5,000 from your Ordinary Account and Special Account balances. We believe this gradual phasing in will give CPF members time to make adjustments to their financial plans. The Minimum Sum will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013, and will be adjusted yearly for inflation.'
Hence, by 2013, those with less than the Minimum Sum of $120,000 and the Medisave Required Amount of $25,000 (currently $11,500), will not be able to withdraw any CPF money. With older workers finding it harder to keep their jobs and find new jobs, some Singaporeans may have no choice but to rely on the current 50 per cent CPF withdrawal allowed. This may cause financial stress to those affected. Consequently, I would like to suggest that the phasing out of the 50 per cent withdrawal rule be reviewed.