Ms Teo hints CPF Minimum Sum may be raised again; CPF payouts not enough for basic standard of living

Speaking at NUS Faculty of Arts and Social Sciences 90^th anniversary gala dinner held at Carlton Hotel yesterday (15 Nov), Manpower Minister Josephine Teo hinted that CPF Minimum Sum may be raised again.

It is important to help Singaporeans save more for retirement adequacy, she said. To meet their needs, especially as Singaporeans live longer, the CPF basic retirement sum should be regularly adjusted to ensure that payouts remain relevant to members.

The last time when the CPF Minimum Sum (Full Retirement Sum) was adjusted upwards was in 2015. It defined the Minimum Sum up till the year 2020 (next year). For those turned 55 on or after the stated dates, the Minimum Sum is:

For example, those who turned 55 this year, the Minimum Sum would be $176,000. This is the mandatory sum to be kept with CPF Board at 55. One can only get monthly payouts from it at 65 and after.

However, if one has a property to pledge, the amount to be kept with CPF board at 55 can be reduced by half, called Basic Retirement Sum:

Minimum Sum to be raised due to inflation

Minister Teo said Minimum Sum needs to be raised in view of inflation. She said, “One factor affecting retirement adequacy is inflation. When savings and monthly payouts are fixed, their real value erodes over time.”

She also mentioned that the stipulated monthly payouts 10 years later when a person turns 65 may not be enough too due to inflation. She said, “How can we be better assured that the basic retirement sum will produce adequate payouts 10 years down the road, and throughout retirement? How can we ensure that the basic retirement sum is set so that payouts continue to cover basic expenses in the future?”

Hence, the CPF Minimum Sum for 2021 and beyond, which is yet to be announced, would likely to be higher than the 2020’s $181,000.

In terms of monthly payouts at 65 and after, for Singaporeans on Basic Retirement Sum (half Minimum Sum with property pledge) scheme, the payouts are at $700-800 a month with Basic Retirement Sum at $88,000 for those who turned 55 this year:

Even though Minister Teo noted that over the last decade, the proportion of active CPF members who met their basic retirement sum at age 55 has improved, from 38 per cent to 62 per cent, the monthly payouts are generally not enough for one to live decently in Singapore.

In fact, monthly payouts of $700-800 for Basic Retirement Sum has been found to be less than that required to meet a basic standard of living in Singapore, according to a recent study conducted by NUS and NTU in May. The study shows that the budget required to meet basic standards of living is about $1,379 a month for a single man or woman aged 65 and above (‘Study finds older singles need $1,379 per month‘, May 23).

Even with Full Retirement Sum, the present stipulated monthly payout of about $1,350-1,450 ten years later at 65 may not be enough since the $1,379 basic standard of living figure would have gone up even more by then, due to inflation.

Work till you drop dead

The government’s solution seems to be getting Singaporeans to work till they drop dead to as to supplement their meager CPF monthly payouts.

Indeed, at the NUS gala dinner, Minister Teo said, “With people living to 100 or beyond, patterns of working life and retirement will change… More people change careers or reskill later in life. They may not always be employees, but can choose to be self-employed for a while. They take breaks mid-career, but can continue working into their 70s.”

She reiterated that over the next decade, CPF contribution rates for older workers will be gradually raised, and added that homes can also potentially supplement retirement incomes, as Singaporeans can rent out their rooms or home. Others can right-size their homes after their children have moved out, she said.

Schemes like the Lease Buyback Scheme and Silver Housing Bonus for Housing Board flat owners can also help them unlock value from their homes, she shared.

Singapore has done well, but the system can be constantly improved by planning ahead, she added. “In that sense, the CPF must remain a ‘live system’, always evolving and ever-responsive to emerging needs.”