CPF partial withdrawal at age 65 – a populist compromise

In what amounts to a populist compromise regarding the Central Provident Fund (CPF) scheme, Prime Minister Lee Hsien Loong says that the Government will “allow people the option to take out part of their CPF savings in a lump sum, when they need to.”

And they will only be allowed this “after 65”.

The withdrawal refers to the Minimum Sum itself, which currently stands at S$155,000.

Mr Lee disclosed at the rally that this will be increased to S$161,000 next year.

Members are currently allowed to withdraw any sum above the Minimum Sum upon reaching 55.

The Minimum Sum itself can only be drawn out, in instalments, at the draw-down age of 63, which will be increased further to 64 next year, and 65 thereafter.

When the CPF scheme was first set up in 1955, the withdrawal age was 55. This was when CPF members could withdraw their entire CPF savings.

There was no Minimum Sum at the time, which was introduced only in 1987. Since then, the Minimum Sum – an amount which members must keep in the CPF – has been increased to the current S$155,000.

This has attracted criticisms from Singaporeans who feel that such a high sum - along with the other Minimum Sum of S$43,500 for the Medisave account - would not be attainable by most members, and thus they would not be able to withdraw a lump sum as they would need to fulfil the Minimum Sum first.

Mr Lee, in his speech on Sunday, assured members that the current Minimum Sum of S$155,000 “was not excessive”, and that it “is not too much”.

Nonetheless, the raising of the age of withdrawal of the CPF savings itself to 65 is a little of a change from the original promised withdrawal age of 55.

The last time the Government toyed with the idea of raising the withdrawal age was in 1984, when the Howe Yoon Chong report on the aged suggested raising the CPF withdrawal age to 60.

The suggestion was met with widespread anger, and in the general election that year, the ruling People’s Action Party lost an unprecedented 12.9 per cent of the vote – the biggest vote swing to date.

The idea of raising the withdrawal age was, unsurprisingly, shelved.

However, the Government then introduced the Minimum Sum and started to ramp it up, resulting in the current unhappiness among members, with both the CPF Minimum Sum and the Medisave Minimum Sum increased substantially the last decade.

Still, in recent months, academics have revisited the necessity of raising the withdrawal age, because of various reasons.

Economists such as Lee Kuan Yew School of Public Policy’s associate dean Donald Low and his colleague, economist Hui Weng Tat, suggested that the withdrawal age be raised only for younger people and in gradual doses, instead of all at once across the board.

One of the reasons cited by Mr Hui was the increase in life expectancy, which has been increasing at a rate of three to four years per decade. In 1980, for example, life expectancy at birth was 72 years. This had increased to 82 years by 2013.

“A progressive increase in the official withdrawal age - say, by two years every five years starting from 1990 - would have led to a present-day withdrawal age of 65 for workers who are entering the labour force for the first time,” Mr Hui wrote in June.

While the withdrawal age of the sums above the Minimum Sum still stands at 55, the actual withdrawal of "part of" the CPF savings itself (the Minimum Sum) in a lump sum is now put at 65 - in addition to the monthly instalment payouts members would receive.

Additionally, they will also be allowed to withdraw “part of” this “lump sum” only “when they need to”, Mr Lee said.

It is unclear what Mr Lee meant by that. Details of the changes, he said, will be worked out by a newly formed committee and will be announced at a later date.

The change to the scheme seems to be a compromise the Government has worked out to satisfy those who want a lump sum from their CPF savings upon retirement, and the advice to raise the withdrawal age.

Effectively, the Government has done what it had tried to do in 1984 – to raise the withdrawal age – but “sweeten” it by allowing members to withdraw part of it in a lump sum from the Minimum Sum, which is currently not allowed.

Be that as it may, what is still of concern is whether or how many CPF members will actually have enough in their CPF accounts for retirement.

Last year, Deputy Prime Minister Tharman Shanmugaratnam revealed that more than half of CPF members were unable to meet the Minimum Sum.

This means that these members will only be able to withdraw S$5,000 as a lump sum from their CPF savings when they reach 55.

And in a survey by Manulife last week, 4 in 5 Singaporeans said they did not feel their CPF savings were enough to meet their retirement needs.

Some had expected Mr Lee to announce an increase in the interests paid out to CPF members as a way to help members grow their savings.

But Mr Lee made no mention of this at all in his speech.

All in all, the new conditions of partial withdrawal at age 65 may tamper some people’s demands, but it may also stir more unhappiness.

Some will see this as a further betrayal of the scheme’s original promise to allow members to withdraw all their funds at age 55.

They will now have to wait a further 10 years before doing so, and even then, they will be allowed to withdraw only a part of it. Mr Lee mentioned a possible amount of 20 per cent of savings.

It is a populist compromise which, in the end, will satisfy few.