Speech at Launch of the "Are You Ready?" Campaign by CPF Board

BG (NS) Tan Chuan-Jin, Minister of State for Manpower and National Development, NTUC Centre

1. Good morning. I am very happy to join you for the launch of the “Are You Ready?” campaign. The CPF Board has put together this initiative in consultation with MoneySENSE, government partners, and industry associations, namely the Association of Financial Advisers, the Financial Planning, Life Insurance and Financial Practitioners’ Associations, to educate Singaporeans on how to plan for major financial decisions in their lives.
2. If I were to ask all of you now, are you clear about your financial situation? Are you managing your cash flows wisely? Have you planned ahead for your housing, healthcare and retirement needs? Pause, take a long hard look at your situation and ask yourself - “Am I Ready?”. This is all the more important as people are living longer now. When the CPF started in 1955, the average life expectancy of Singaporeans at birth was 61 years. Today, it is significantly higher, at about 82 years old – 2 decades longer. A 65-year old person today can on average expect to live another 20 years. Some people celebrate this longer life expectancy; others may find it hard to imagine themselves living this long. We should ensure that the decisions made earlier on in our lives, such as those relating to housing and healthcare, do not compromise but instead support our retirement adequacy. The “Are You Ready?” checklists in your goodie bags can help you make your first steps in the right direction.
   
   Role of Individual in Retirement Planning
   (a) Consider retirement needs when purchasing a property
3. Let me first touch on the area of housing. Singapore has one of the highest home ownership rates in the world, with 90% of Singaporeans owning their homes. This is important because it enables Singaporeans to have their own roof over their heads. Most comparable cities do not see their citizens being able to do this. Many Singaporeans are able to finance their homes because of their CPF savings. However, it is important that we do so within our means. We sometimes do not realise that our CPF savings may not last the full tenure of the housing loan for a variety of reasons. There could be changes in income levels or employment status. Or we forget that we contribute less CPF as we age. Or that there are limits on CPF withdrawals for housing. We should therefore carefully consider how our financing situation may change over time, before committing to housing purchases. So long as we do not overstretch and purchase within our means, owning a property actually forms an important part of our retirement savings as it represents a good hedge for inflation and we have options to monetise it if needed.
   
   (b) Make regular Medisave contributions
4. Another important area is healthcare. Taking care of one’s healthcare needs is a personal responsibility. Longer life expectancies mean that more people today are affected by chronic illnesses, compared to the past. Those who contribute regularly to Medisave enjoy a greater peace of mind as they age as they are able to use the funds to pay for their medical costs and Medishield premiums.
5. For self-employed persons, having up-to-date Medisave contributions is all the more important. This is because for many of them, Medisave is the only source of CPF savings that they have. Most self-employed persons are regular with their Medisave contributions. This is a good sign. For the minority who have not kept up with their Medisave contributions, I urge them to take action to ensure their contributions are up-to-date. In January this year, the Drive-and-Save Scheme, was launched to encourage self-employed taxi drivers to contribute to their Medisave. Thanks to the scheme, about 15,000 drivers qualify each month to receive co-contributions from their taxi companies.
   
   (c) Age 55 is the new 40
6. Ultimately, we want to ensure that Singaporeans save enough for their retirement. I understand that many of you in the audience will be turning 55 soon and will be eligible to withdraw some of your CPF savings. If you lived in the era when CPF was first introduced, your CPF savings was meant to help provide for, on average, another 6 years. Today, your CPF savings need to help you last for another nearly 30 years! I urge you to continue to exercise prudence as you decide how to use the withdrawn amount, and consider possible changes in your employment status in the years ahead and your retirement needs.
7. Some of you may decide not to make any withdrawals at all. Our records show that about 60% of members do not make withdrawals when they reach 55.
8. Many members voluntarily make CPF or cash top-ups to yourselves and your loved ones’ CPF accounts through the Minimum Sum Topping-Up (MSTU) Scheme. Over the past 5 years, the number of MSTU transactions has increased by 36%, with the top-up amount growing by 33%. There were about 30,000 MSTU transactions amounting to $250 million in 2010, with much of these top-ups enjoying tax reliefs.
9. This is something we encourage. I am also pleased to announce that today marks the start of the Minimum Sum Topping-Up Campaign for 2011. This Campaign includes a lucky draw that will continue till 15 December 2011. Members who make top-ups for themselves or their loved ones’ accounts would stand a chance to win prizes up to $4,000. To encourage members to top up electronically, the first 2,000 members who top up at least $100 via GIRO, AXS or CPFB’s e-Cashier will each receive a $10 Shopping Voucher.
10. Why do a significant number of people decide not to withdraw, and even to top up, their CPF savings? I think there are a couple of reasons. One, with their CPF savings, members can opt into CPF LIFE. CPF LIFE provides a lifelong income, and offers any retiree peace of mind that he will not outlive his savings. To date, around 70,000 members have already opted into CPF LIFE.
11. Another attraction of saving via the CPF is the good interest rates earned by CPF savings. The OA account continues to draw a guaranteed 2.5%. Just last week the Government announced that it will extend the 4% floor rate for interest earned on all monies in the Special, Medisave and Retirement Accounts for another year until 31 December 2012. This is in view of the current uncertain global economy and sustained low interest rate environment. With the extra 1% interest that the Government pays, members in fact earn up to 5% interest on the first $60,000 of their SMRA monies. Based on balances as at December 2010, 7 out of 10 CPF members would earn the full 5% interest on their SMRA balances. As many know, this is well above market interest rates even for long term bonds. This 4% and extra 1% is part of what the Government is doing to help Singaporeans prepare for retirement.
12. Some of you ask, what about inflation? This is an important question because we need to understand the real rate of return over the years. Inflation may be high now, but it fluctuates over time. The CPF interest rate structure is a long-term framework that aims to provide a fair rate of return. From the data over the last 16 years, from 1995 to 2010, the 10-year average returns, on a real basis, have been positive. In 2010, the 10-year average real rate of returns for SA was 2.63%, and for OA, 1.16%, which means that in spite of inflation over time, by and large, the returns have been positive and this is for a portfolio that is largely risk free.
    
    Encourage Members to Find Out More
13. It may seem confusing to some, to have so many options to choose from at age 55, among other decisions you may have to make. I can empathise with this feeling. This is why it is crucial for you to arm yourselves with all the information you need to make good choices.
14. Take advantage of the information that CPF Board provides. I personally have found that becoming an IM$avvy Facebook fan is a convenient way to get daily updates on CPF and financial planning matters. CPF Board also conducts talks and seminars on a regular basis. I am heartened that many of you have responded to invitations by CPF Board and are here today to attend the “Reaching 55” talks to learn more.
15. In addition to CPF Board’s many outreach efforts, they are also developing their very own financial planning mobile game called “STA$H IT”. I have played a test version of this game and have found it to be a fun and useful way to start thinking about financial planning. I understand that the iPhone version will be launched by the end of this year, and that an iPad version will be available in early 2012.
    
    Conclusion
16. Over the past 56 years, the CPF system has evolved from a simple savings scheme into a comprehensive social security system spanning housing, healthcare and retirement. Even as we continue our process of social policy innovation, we will adhere to the strong fundamental principles that have guided us thus far – every individual should accumulate savings in the CPF to provide for their own retirement. The “Are You Ready?” Campaign by CPF Board can serve as an important reminder to its members that planning for retirement can start early, and factor in housing and healthcare considerations as well. I encourage all Singaporeans to play an active role in planning their finances.
17. I wish all of you a stable and happy future. Thank you.