More returns and flexibility for CPF

Speech by Png Eng Huat, MP for Hougang for the debate on President’s Address (29 May 2014)
 
Madam Speaker, every working class generation has a dream to look forward to and that is to be able to stop and smell the roses one day and retire.  For our pioneer generation workers, the anxiety of not knowing what is to come after retirement was somewhat moderated by the anticipation and excitement of being able to finally collect their lifelong CPF savings in full at retirement age, which was 55 then.
Before the introduction of the Minimum Sum Scheme (MS) in 1987, turning 55 of age is an exciting day for many retiring workers.  For low wage workers who found it hard to save on their meagre income, those CPF savings could be their only life savings after 30 to 40 years of hard work.  I have witnessed that excitement through the eyes of my father.
Such excitement and anticipation no longer exist at age 55 for many Singaporean workers today.  We are living longer and the statutory retirement age has been raised to 62.  The re-employment age will be raised from 65 to 67 over time and the CPF draw-down age will follow suit.  CPF savings up to the Minimum Sum will be locked up all in the hope of achieving retirement adequacy.
I welcome the pledge by the President that the Government will enhance retirement adequacy to give greater assurance and peace of mind to all Singaporeans.   But for Singaporeans attaining the age of 55 going forward, greater assurance and peace of mind are question marks.
Minimum Sum
I met a Singaporean who works 2 jobs to support his family.  He said he is working hard as he wishes to perform his umrah next year when he turns 55.  He had calculated that he can withdraw some of his CPF savings to help fund the pilgrimage to Mecca.  The announcement on 8 May 2014 changed everything for him.  The CPF Minimum Sum was raised from $148,000 to $155,000 thereby reducing his projected withdrawal by $7,000 – a big sum of money especially for someone who has to take on 2 jobs to make ends meet.
In 2012, only 48.7 per cent of active CPF members were able to meet their Cohort Minimum Sum.  With the latest increase, how many more CPF members like the gentleman I met will need to change their pre-retirement plans and how many more will need to do some serious financial planning for housing mortgage payments in the future?  I am sure we have met residents who were caught by the change in the Minimum Sum at our MPS.
While it is prudent to adjust the Minimum Sum every year to beat inflation, the way to achieving it should not rest solely with the members because the CPF scheme is a tightly regulated instrument.  At this moment, the only way for most Singaporean workers to meet any revised Minimum Sum is basically to work longer and harder and nothing else.
The goal of the CPF Minimum Sum Scheme is to help local workers meet their basic retirement needs.  The CPF acknowledged that there are many ways that can help members achieve this goal, some of which are to live within one’s means, to invest wisely, as well to continue employment beyond age 55.
To live within one’s means is something the Government cannot legislate.  To continue employment beyond age 55 has already been legislated.  So the missing component now is to invest wisely our CPF savings so that it can beat inflation.  And that is a challenge as most CPF members may not have the technical knowledge and financial literacy to make an informed choice to grow their savings.  This is something the Government can certainly help.   The former Minister for Manpower had promised to look into this as well.
Madam, while we want Singaporeans to work longer and harder for their retirement, it is also prudent to make our CPF savings work harder for us at the same time.
The former Minister for Manpower said in 2007 that money place in the Special, Medisave and Retirement Accounts (SMRA) should enjoy a higher rate of return than the Ordinary Account.  The current interest rate for SMRA is pegged as the yield of the 10-year Singapore Government Security (SGS) plus 1 per cent.  This formula came into force on 1st January 2008.  In the MOM website, it was stated that the Government will review the formula after 5 years, to fine tune if necessary.
We have passed the 5-year mark.  The interest rates for our CPF savings had not changed for the past 15 years.  The call by the President to enhance retirement adequacy is certainly more than timely.  The formula, including that for the Ordinary Account, should be reviewed so that our workers will have enough to retire on in an aging society.  We need better SMRA returns so that our workers do not need to worry about not meeting the Cohort Minimum Sum every year and having nothing more than $5,000 or less to withdraw at age 55.
Draw-Down Age
This brings me to another issue – the draw-down age.
The Workers’ Party believes that draw-down age should not be linked to the retirement age or re-employment age.  I understand this issue has been debated in this House before.
Whatever amount our workers can withdraw at age of 55 will be the last they see of their CPF savings if they do not meet the Minimum Sum until they reach the draw-down age.  For workers born in 1954 or later, the draw-down age is 65.  This draw-down age will be raised to 67 over time as the government intends to link it to the re-employment age.  By doing so, it will leave no room for Singaporeans to decide how they want to live their lives after age 55 or upon reaching the statutory minimum retirement age.
The President has said that the Government will strengthen safety nets to help the vulnerable and elderly cope with the vicissitudes of life.  Madam, the vicissitudes of a working life begin at age 55 when the Minimum Sum kicks in, at age 62 when retirement kicks in and then a few years later when draw-down age kicks in.  For workers who do not have any other form of life savings, these CPF savings are the only safety nets.
Delaying the CPF payouts for these older workers may cause them undue anxiety and stress.  Older workers on part-time employment may need such draw-downs to supplement their income.  And not all older workers can work after age 55 or 62.  As SMS Amy Khor had said on Tuesday, sometimes the spirit is willing but the flesh is weak.  And for workers who do not have any other form of savings other than their CPF accounts, it spells trouble when ‘the spirit is willing but the flesh is weak.’
The Minimum Sum Scheme, before CPF Life comes into existence, is designed to last for about 20 years or until the member’s Retirement Account savings are depleted.  The CPF Life, which is a better scheme, guarantees payout for life.
Madam, our life expectancy at birth is 82.5 years.  At draw-down age of 65 to 67, most members will probably enjoy about 15.5 to 17.5 years of payout under CPF Life; which is about 13 to 23 per cent shorter than the 20-year payout period under the old scheme although the payout under CPF Life is slightly more.  Can we not allow a member to draw down on his CPF Life a little earlier then?
When we are young, we need a disciplined instrument like CPF to help us save for the future.  But when we are old, we need a more flexible instrument to help us plan for the uncertainties of aging.  Issues like job security, health, mobility, etc. cannot be taken for granted anymore.  The current CPF Life plans do not offer older workers the flexibility to plan for an early or semi-retirement.
I call for a 3rd CPF Life plan to address this issue.  This plan will give a monthly payout with no bequest, similar to the old Life Income Plan, but come with an early draw-down age of 60.  This plan will give our workers a choice to go slow after age 60 for whatever reasons.  Many pension schemes in OECD and Asia/Pacific countries do offer such “early age” withdrawal.
Madam, we are an aging society.  I urge the Government to look into providing more choices for older Singaporeans to access their CPF savings.