Speech at Suntec Convention Hall 401
Mr Gan Kim Yong, Minister for Manpower, the CPF Board's Celebrating 55! Seminar
Mr Koh Yong Guan, Chairman, Central Provident Fund Board
Mr Liew Heng San, Chief Executive, Central Provident Fund Board
Ladies and gentlemen
- Good afternoon. I am pleased to join you in celebrating the Central Provident Fund Board's 55th anniversary. I understand that come 1 July, some of you here will be turning 55, just like the CPF Board. I wish the CPF Board and all of you a 'Happy 55 Birthday'.
CPF - Cornerstone of Singapore's Social Security
- Since 1955, CPF has been a key pillar of Singapore's social security system, helping Singaporeans save for their retirement, own homes, and afford good quality healthcare. Over the past 55 years, CPF has evolved from a simple savings scheme into the comprehensive social security system it is today.
- To meet evolving needs arising from changing demographics and economic conditions, the CPF has undergone major reforms over the years, such as the introduction of the Minimum Sum Scheme in 1987 and the CPF Retuning Exercise in 2003. More recently, the 2007 CPF Reforms introduced key changes to help members save more, improve returns on their CPF savings and make their savings last for as long as they live through CPF LIFE.
- Although the CPF system has come a long way, we still face major challenges ahead. These include increasing longevity, declining fertility and an ageing population.
- Today, Singapore's life expectancy is already among the top 5 in the world. Half of Singaporeans aged 65 can expect to live beyond age 851. We are one of the world's fastest ageing populations. In 2000, there were about 230 centenarians in Singapore; this number doubled in 2007 to 5002. By 2030, 1 in 5 residents will be aged 65 and above, an increase from 1 in 12 today. Our low fertility rate also means there will be fewer children to support elderly parents.
- If you find it hard to believe how long statisticians say you will live, you are not alone. A study by the University of Nottingham showed that most people tend to underestimate their own life expectancy by at least 5 years. One reason is because life expectancy improves over time. One expert on ageing, Professor Sarah Harper, has estimated that every hour we live adds 5 minutes to our life expectancy.
CPF – An institution that is built to last
- We are fortunate that the CPF did not begin as a tax-funded "pay-as-you-go" system, which is what many developed countries have. Today, many developed economies are struggling under tremendous fiscal strain. Some face the difficult choice of either raising taxes or lowering pension payments, as it has become clear that their pension system is not sustainable. For example, some experts in the United States worry of a looming social security crisis as the trust fund from which social security payments are made may be depleted in less than 30 years3.
- Our fully-funded approach is based on the core principle that every individual should accumulate savings in the CPF to provide for his or her own retirement. This approach has served us well. It is the foundation upon which we have built a CPF system that is sound and sustainable. While the CPF system may be improved from time to time and changes made, this core principle has never changed over the 55 years – with the objective to help Singaporeans enjoy financial security during their retirement.
- For example, CPF LIFE is designed to preserve the principle of self-reliance and self-provision. While CPF LIFE pools longevity risk, members must fund the insurance premiums with their own savings. The level of payouts one receives from CPF LIFE depends on the amount of CPF savings the member has for CPF LIFE.
- Although CPF is built on the principle of self-reliance and self-provision, the Government does help. From time to time, when there are surpluses, the Government may make top ups in to the CPF, just like what we announced in this year's budget for the Medisave. When CPF LIFE sign-ups began last year, the Government also offered a LIFE Bonus (L-Bonus) for members who are less well-off. More than $80 million worth of L-Bonus has been credited to LIFE participants since the launch of CPF LIFE. I would like to take this opportunity to encourage older Singaporeans who qualify for the L-Bonus to consider joining CPF LIFE before the bonus eligibility period runs out at the end of this year.
- It is encouraging to note that the overall retirement adequacy among CPF members is improving – between 1997 and 2009, the total balances of CPF members more than doubled to $167 billion. More importantly, female members' balances grew faster by an average rate of 5.3%, compared to 4.6% of their male counterparts. This is likely to be because more women have joined the workforce and are commanding higher wages compared to a decade ago.
3 tips for Singaporeans
- While the Government has enhanced the CPF system to improve retirement adequacy, Singaporeans must also do their part to save enough for retirement. Let me highlight three areas where I hope Singaporeans can do more, or do better.
- First, with increasing longevity, we must be prepared to remain in productive employment for longer. This creates a longer runway to save for retirement, and also defers when we have to begin drawing on our savings. Besides, doctors tell us that remaining active in old age is good for us. In a recent study of retirees in the United States, renowned pension professor, Olivia Mitchell found that retirement savings shortfalls are substantially reduced by just another two to four years of work at older ages. To encourage more Singaporeans to continue working beyond the official retirement age of 62, the Government will introduce re-employment legislation by 2012. This year, we have also enhanced the Workfare Income Supplement (WIS) Scheme to give older low wage workers more reason to remain in regular work.
- Second, I would like to encourage Singaporeans to make use of the Minimum Sum Top-Up Scheme (or the MSTU Scheme). Children can help top up their parents' balances while husbands can help top up the accounts of their wives who may not have a chance to work and build up their own CPF savings. We have progressively liberalised the MSTU Scheme since 2007. Now, parents, spouses and silbings can top up the balances of their loved ones to build up their retirement savings. Furthermore, they can enjoy tax relief on their top-ups. We have seen increases in MS top-ups. Last year, members made 24,000 top-ups, a 44% increase from 2008. The total amount of top ups was $228 million in 2009, compared to $158 million in 2008. The MSTU Scheme has contributed to the increase in the average balance of all CPF members from $31,000 to $51,000, over the past ten years. But more can be done through top ups.
- Third, plan for your retirement early. The National Financial Literacy Survey 2005 found that only 24% of the 2,000 respondents aged 18 to 60 have actually calculated how much they need in retirement. While the majority of Singaporeans correctly expected CPF to provide a modest standard of living in their retirement, 42% assumed that their CPF monthly income would be equivalent to their last drawn monthly salary! This shows that insufficient thought is being put into planning for retirement finances.
- The building up of a nest egg is something we must all think about, not just for the old, but for the young as well. As part of CPF's 55th Anniversary Celebrations, I am told CPF Board is hoping to set an entry in the Singapore Book of Records by having the Largest Retirement Nest of Golden Eggs. Each egg carries a retirement wish made by a CPF member. Earlier this morning, I too have made my wish for all Singaporeans on a Golden Egg – and my wish is for all Singaporeans in their golden years to stay active, healthy and save more. I encourage all of you to make your retirement wishes on the Golden Eggs to support CPF Board during these two-day celebrations, or online on the CPF Board's website. Start thinking about and planning early for how to build up your own retirement nest eggs.
- The CPF has worked well over the last five and a half decades, enabling Singaporeans to save for retirement. We will continue to enhance CPF to tackle the challenges posed by our ageing population so that Singaporeans can enjoy their golden years.
- Once again, a happy 55th birthday to CPF and members who are also celebrating their birthday. Thank you.
1 Department of Statistics, Complete Life Table for Singapore Resident Population, 2009 (Preliminary).
2 State of Elderly In Singapore 2008/2009, MCYS
3 Article from The Washington Post, “Alarm Sounded on Social Security”, 2009.