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Extra interest helps members stretch CPF payouts

Employment practices
  • The Straits Times (26 February 2019): Why use extreme end of bell curve to compute CPF payout?
  • The Straits Times (26 February 2019): CPF policies should be simple and logical

Extra interest helps members stretch CPF payouts
- The Straits Times, 2 March 2019 

  1. We thank Mr Lawrence Loh and Mr Teo Hoon Seng for their views on CPF payouts (“Why use extreme end of bell curve to compute CPF payout?” and “CPF policies should be simple and logical”, 26 Feb).
  2. Mr Loh is right that every member can make CPF withdrawals at 55, of up to $5,000. With a property pledge, a member can also withdraw savings above the Basic Retirement Sum. His remaining savings will fund a monthly payment stream. Such monthly streaming of retirement benefits is not unusual. Pension systems worldwide have similar designs.
  3. How long should these monthly payouts last? Views may differ, but more than half of Singaporeans aged 65 are expected to live for more than 20 years, past 85. 
  4. Therefore, the Retirement Sum Scheme (RSS) payouts are computed to last a member about 20 years, taking into account the base interest rate of 4% for his Retirement Account balances.
  5. However, for CPF members with low balances, the payouts will last less than 20 years. This means that significantly more than half of RSS members will outlive their monthly payouts. The Government is very concerned for them.
  6. Thus, since the Government introduced extra interest of 1% for the first $60,000 of CPF savings and additional extra interest of 1% for the first $30,000, it has used this extra interest to extend the period of support.
  7. In other words, when a member’s CPF savings are exhausted after 20 years, the extra interest provided by the Government kicks in to continue the monthly payouts until the extra interest is also used up.
  8. This reduces the risk that RSS members will outlive their payouts. If the member does not outlive his payouts, the balance will form part of the member’s estate that he can leave to his family.
  9. For members who defer the start of their payouts until they are older, there is less need to further extend their payouts. CPF Board exercises flexibility for these members to opt for a shorter payout duration and higher monthly payouts instead. CPF Board will review the current arrangements to see if they can be adjusted to take into account the life expectancy of members who start their payouts later.
  10. We have contacted Mr Teo to explain the matter and acceded to his request for an increase in monthly payouts.

Sim Feng-Ji
Divisional Director
Ministry of Manpower

Why use extreme end of bell curve to compute CPF payout?
- The Straits Times, 26 February 2019

  1. I was surprised at the low average monthly retirement payout data presented by Manpower Minister Josephine Teo, until a recent correspondence I had with the Central Provident Fund Board.
  2. Although I belong to the cohort whose payout starts at age 63 and lasts for 20 years, I am now "artificially constrained" to receiving a lower monthly payout because changes implemented in 2017 require my payout to stretch to age 93. And all because I was prudent to voluntarily opt for deferring my drawdown.
  3. Interestingly, a study published in the medical journal The Lancet showed the average lifespan in Singapore to be 83.3 years in 2016 (Singapore 3rd in global life expectancy rankings, Oct 18, 2018).
    The researchers estimate that this average is expected to move up to 85.4 years by 2040, that is in about 20 years' time.
  4. When did we move from utilising average or median age for such calculations to the extreme right of the bell curve?

Teo Hoon Seng

CPF policies should be simple and logical
- The Straits Times, 26 February 2019

  1. I totally agree with Dr Ho Ting Fei's suggestions (Make full CPF payout by age 70, Feb 23).
  2. The Central Provident Fund's (CPF) rules and policies should be simple and logical, instead of being complicated, confusing and potentially contentious.
  3. If savings can be withdrawn from the Ordinary Account at the age of 55, then the same spirit should apply for the Retirement Sum, in that members should be able to withdraw it at the retirement age of 62.
  4. What is the rationale for starting payouts at the ages of 65 to 70, when the minimum retirement age is 62?
  5. And even if we were to accept that payouts must be made monthly even after the age of 70, we cannot assume that everyone will live beyond 90. Those that do are outliers, even with improved medical technology.
  6. Instead, look at the average lifespan, and compute monthly payouts up to that age, with the balance able to be withdrawn at the age of 70.
  7. Those who prefer to keep their savings in their CPF due to the interest rate can do so by opting in.
  8. Ultimately, CPF savings belong to the members, and they should have more say in how they can be used.

Lawrence Loh Kiah Muan