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Speech at 6th Citi-SMU Financial Literacy Symposium

Minister for Manpower Josephine Teo, Singapore Management University


  1. Introduction – Making better use of your CPF
  2. Good evening. Thank you for inviting me. I remember attending this event in 2015. It’s good to be back.
  3. I want to keep my remarks short and hopefully helpful to you.
  4. For many people, one of their goals in life is financial security.
    • We work, we save, to give ourselves and our families protection and cover, in case there’s a rainy day.
    • How can we achieve financial security? Can CPF help?
  5. Actually, CPF helps working people save more than they realise.
    • When you start work, every month, 37% of your pay goes into CPF.
    • 20% comes from you, out of your gross salary.
    • On top of this, your employer puts in another 17%.
    • As long as you earn more than $50 a month, you already get CPF contributions from your employer.
  6. The CPF contributions are put into 3 accounts.
    • Ordinary Account (OA): Can be used for housing
    • MediSave Account (MA): Can be used for MediShield Life and CareShield Life premiums
    • Special Account (SA): For retirement cash spending
  7. Compared to social security schemes worldwide, the CPF is actually quite unique.
    • It has helped over 90% of households to own their homes.
    • You will be able to do that as well, especially if you buy a HDB flat.
  8. Myths and facts about the CPF
  9. Whether through social media or other channels, you may come across all kinds of claims about CPF. They can be confusing.
  10. Tonight, I will touch on three of these claims and share with you the facts.
  11. Claim #1: “CPF - can see, cannot touch”.
  12. Fact: Most people start using their CPF quite early, to build up a housing asset and meet big healthcare expenses.
  13. Many people do not pay cash to service their housing loans.
    • Take a person who starts work at age 25 and earns $2,500 a month.
    • He will receive $575 in his OA every month.
    • Suppose his fiancée is in a similar position.
    • By the time they apply for a BTO at age 28, both of them would have accumulated around $22,000 each in their OA, or $44,000 in total.
    • Supposing they buy a 4-room BTO along Punggol Waterfront. Today, that costs around $340,000. If we include the government grants to help first-timers, the flat costs $300,000.
    • Their combined OA savings will be more than enough to cover the down-payment of $30,000.
    • With a modest salary increase since they started work, their monthly contributions to the OA will cover fully the monthly loan payment. i.e. they probably need not fork out cash.
    • Before they turn 55, their house will most likely be paid up already, without any out-of-pocket cash payment.
  14. That is how many Singaporeans become home owners.
    • You can too.
    • It also means that in old age, many Singaporeans need not worry about having to pay rent.
    • If they wish, the home can be used to supplement their retirement spending.
  15. More and more, retirees are findings ways to use their housing asset to get extra cash and have a more comfortable retirement.
    • They may rent out a room.
    • Or sell part of the remaining lease back to HDB.
    • Or move to a smaller flat, since their children have grown up and bought their own homes.
    • Home ownership is a good form of financial security that gives retirees more choice.
  16. Besides housing, medical expenses are another way people touch their CPF savings.
    • No one hopes to be hospitalised.
    • But if it happens, the MediShield Life premiums you paid with your savings in the MA will cover a large part of the bill.
    • For the remaining cash payment that insurance does not cover, some of it can be paid using your MA.
    • Your MA can also be used to cover your immediate family members’ medical expenses, such as your parents’ hospital bills and MediShield Life premiums.
  17. Sometimes, you may come across claims that Singaporeans pay more into CPF than people elsewhere pay into their pension schemes.
    • But that’s because CPF has more uses than for retirement only.
    • So the comparison is not an apple-to-apple comparison.
  18. Claim #2: CPF pays the “lowest returns” in the world among retirement funds.
  19. Fact: Your CPF savings earn a risk-free interest rate that few investment instruments can match.
    • The savings in your SA earn as much as 5%, risk-free i.e. there’s no way the principal may be lost, even partially.
    • This is a higher return than that offered by popular retail bonds by Temasek (2.7%) and Singapore Airlines (3.03%). Even then, there’s some risk of not getting back the amount you invest.
    • Some financially-savvy Singaporeans know this and in fact appeal to CPF Board to keep their savings in CPF as long as possible, even after age 70 when payouts start automatically.
    • These members want to enjoy the higher interest rate for longer!
    • One member even wrote in to the Straits Times Forum earlier this year to register her request!
  20. The long-term nature of CPF savings also maximises the power of compounding, much to your advantage.
    • $1,000 in SA from age 25 will multiply in value 7 times.
    • By age 65, it has become $7,000.
  21. It is simple to maximise this attractive interest, by topping up.
    • If you have spare cash after starting work e.g. you get an extra bonus, do consider topping up your SA to build up your retirement savings faster.
    • The SA earns higher interest compared to the OA.
    • CPF Board actually allows you to transfer spare savings from your OA to SA.
    • After all that, if you still have spare cash or OA savings, consider topping up your parents’ SA or Retirement Account (RA).
      • If they are aged 55 or older, they can get up to 6% interest per year on their savings.
      • Your top-ups will boost the interest they earn and their monthly retirement payouts.
      • You will also get tax relief for cash top-ups to your own and your loved ones’ CPF.
  22. Of course, if you feel you can get better returns than CPF’s risk-free interest rates, you can do so through the CPF Investment Scheme.
    • Some have tried.
    • Some succeeded.
    • But many would have been better off leaving their savings to earn interest.
  23. Claim #3: CPF rules are changed secretly due to investment losses.
  24. Fact: CPF monies are invested in Special Singapore Government Securities, which are issued and guaranteed by the Government.
    • The securities are then invested, but CPF members bear no risk at all. It is the Government that takes the investment risk and shields you from it.
    • This means that CPF savings and interest are always safe.
    • Regardless of financial market conditions and how the investments perform, the interest paid on your CPF savings and the principal sums are protected.
  25. Another fact: Rule changes that impact members are always made known in advance. We do not hide.
  26. Let me illustrate a few changes that became necessary.
    • They were fully explained in Parliament.
    • And also publicly announced.
  27. In 1987, we introduced the idea of the Minimum Sum which is today known as the Full Retirement Sum (FRS).
    • This meant that at age 55, members were required to set aside the FRS.
    • Beyond that, they could withdraw their savings.
    • If they have a fully-paid home, only half of the FRS needs to be kept; the rest can be withdrawn.
    • This is known as the Basic Retirement Sum.
    • Because most people own their homes, they only need to meet the BRS.
    • Over 6 in 10 active CPF members have the BRS when they reach 55 years of age.
  28. Even if a person does not have the BRS, he need not top up in cash.
    • If he continues to work, it will certainly help him.
    • The Government also helps him through schemes like Workfare and Silver Support.
  29. Why was it necessary to have the FRS or BRS?
    • Because Singaporeans are living much longer.
    • When your parents were born in the 1960s, life expectancy at birth was around 65. In other words, their CPF savings needed to last just about 10 years if they stopped work at 55.
    • Today, older Singaporeans can expect to live till around 85 on average. This means their savings need to last around 30 years if they stop work at 55, or 20 years if they stop at 65.
    • The BRS helps to ensure more people provide enough for their retirement.
  30. The FRS must also be updated regularly to reflect changes in living standards.
    • In 1987, it was just $30,000.
    • This means that when the person turned 60 in 1992, the savings provided a monthly payout of ~$300.
    • That was over 20 years ago.
    • Today, that amount will be considered too little for most people.
    • Today’s FRS of $176,000 will allow a member to get monthly payouts of around $1,400 for life.
  31. CPF Board also does what’s in the members’ best interest. For example:
    • Members can start their monthly retirement payouts anytime from age 65. They just need to instruct CPF Board.
    • But more than 1 in 4 residents aged 65 and above today continue to work and may not need their payouts just yet.
    • If they do not instruct CPF Board, the money remains in their RA earning the much higher interest rate than if it had been pumped into their bank account automatically.
    • This can go on for another 5 years!
  32. I have talked about three common claims and provided you with the facts. From time to time, you may come across many other claims about CPF.
  33. My simple suggestion is this: If what you hear sounds unreasonable or makes you upset, it’s probably useful to check.
    • With close to 4 million members, each case is different.
    • What you hear about another person may not apply to you.
    • If you are not sure whether something you have heard about CPF is real, check back with CPF Board at the ‘CPF Clarifies’ page on their website.
    • CPF Board also handles more than 1.7 million queries every year.
    • It is best to ask if you are still unclear.
  34. Conclusion
  35. One final point before I end.
    • You may have heard recently that our statutory retirement age is going up from 62 to 63 in 2022 and then to 65 by 2030.
    • You may also have heard that our age of re-employment will go up from 67 to 68 in 2022 and then to 70 by 2030.
    • Here’s a short quiz:
    • (a) How many of you think this means everyone must work till 70?
      • Actually, anyone can retire at any age of his choice.
      • But employers cannot ask you to retire too early.
      • These laws are to protect you, if you choose to continue working.
    • (b) If someone chooses to work till 70, does it mean he cannot start his CPF withdrawals at 55 or 65?
      • Actually, withdrawals are not being changed.
      • At 55, members will be able to withdraw some amounts.
      • From 65, the rest can start to be streamed out monthly.
  36. I’m aware that there’s a lot of heavy information I’ve shared tonight.
    • Managing money is not always easy.
    • CPF hopes to help you by taking care of the basics.
  37. If you remember nothing else, just remember this:
    • For many Singaporeans, CPF helps them become homeowners and take care of big healthcare expenses.
    • CPF also helps them have some cash in retirement.
    • It is a system that has worked well for most people and continues to be improved.
  38. Depending on your own hopes and dreams about the future, you can of course save up or invest on your own outside of CPF.
    • Just be careful about the risk.
    • Financial security is achievable with consistent work, careful spending and regular savings.
  39. The fact that you are here tells me you are already learning how to better manage your finances.
    • I’m encouraged and confident you are on your way to achieving financial security.
    • I wish you all the very best!