CPF system constantly enhanced for more retirement assurance

• TODAY (19 August 2016): CPF system constantly enhanced for more retirement assurance
• TODAY (11 August 2016): CPF system still flawed despite new proposals

CPF system constantly enhanced for more retirement assurance
- TODAY, 19 August 2016

1. We refer to Mr Geoffrey Kung's letter (“CPF system still flawed despite new proposals”, 11 August).
2. The Government has been continually improving the CPF system to help Singaporeans meet their basic retirement needs, recognising that Singaporeans will live longer. Among Singaporeans aged 65 today, 1 in 2 will live past age 85, and 1 in 3 will live past age 90.
3. CPF LIFE was introduced in 2009 to help the increasing number of Singaporeans who will live longer, by giving them CPF payouts for life. Since then, more than 89,000 CPF members have voluntarily opted to join CPF LIFE. It will become the retirement scheme for the majority of CPF members turning 55 from 2013 onwards.
4. We have also progressively enabled Singaporeans to save more through CPF. The CPF salary ceiling, which is the maximum monthly salary that is subject to CPF contributions, has been raised from $5,000 to $6,000. We have also raised the CPF contribution rates for workers aged 50 to 55 to the same level as those for younger workers. To help lower-wage workers save more for retirement, we have provided them with CPF top-ups through the Workfare Income Supplement Scheme.
5. We have also improved the returns on CPF savings. CPF members aged 55 and above now earn an additional 1% extra interest on the first $30,000 of their CPF balances. This is on top of the 1% extra interest on the first $60,000 of CPF balances that all CPF members receive.
6. Mr Kung stated that CPF LIFE provides a return of 3.5% per annum. This is incorrect. CPF savings used to purchase a CPF LIFE plan receive the current CPF interest rate floor of 4% per annum as well as the extra interest rates of up to 2%. This will increase the member’s CPF LIFE payouts.
7. Most recently, the CPF Advisory Panel recommended the introduction of a CPF LIFE plan with a lower starting payout that increases at 2% annually. This plan will provide more choice for CPF members. It is in addition to the current CPF LIFE Standard and Basic plans and does not replace them.
8. The Government remains committed to continually enhancing the CPF system so that we can better help Singaporeans prepare for their retirement.

CPF system still flawed despite new proposals
- TODAY, 11 August 2016

1. I refer to the report “Flexible annuity, new CPF investment scheme recommended” (Aug 4). It seems there is a need for flexibility because the Central Provident Fund scheme affects a wide range of different individuals.
2. However, the fundamental flaws in the system remain, at the root of which is the inadequacy of CPF savings to see one through retirement.
3. This is obvious because the CPF contribution rates and accumulation period were calculated decades ago to last a shorter lifespan.
4. Singaporeans’ increasing longevity has blown a hole in the original computation and intention of the CPF.
5. If retirement savings are inadequate, then higher returns are needed to compensate for this. The Lifetime Retirement Investment Scheme promises better returns but may come with a higher risk, which cannot be taken with CPF money.
6. The real bugbear in the existing CPF Investment Scheme is that management fees take a bite out of the yield in the current low interest rate environment.
7. To lop 0.5 per cent off a 4.5 per cent yield is to reduce the return for retirees by 11 per cent. The CPF Board should adopt a two-pronged approach: Lower management fees and increase returns by hedging risks.
8. As for the current CPF Life yield, it is approximately 3.5 per cent. If the vesting period receives 4-plus per cent, then the same 4 per cent should apply to payout periods.
9. The reluctance or inability to pay annuitants more has given rise to the most visible problem. Inflation is seen to eat into already-inadequate payouts, hence the call for some inflation-protection features.
10. But to propose starting payouts about 20 per cent lower to hedge against a 2 per cent annual inflation is a worse deal for members.
11. One of the more common reasons for resisting annuities is that the annuitant may live less than the average life expectancy used in calculating payouts.
12. And the new proposal seems to have overlooked the poor response to the original CPF annuity scheme, before it was made compulsory.