Young workers will have enough CPF for retirement

Young workers will have enough CPF for retirement
PHOTO: Young workers will have enough CPF for retirement

Young Singaporeans entering the workforce today will have accumulated enough savings in their Central Provident Fund (CPF) when they retire to see them through their golden years.

This was one of the key findings from a Ministry of Manpower-commissioned study, revealed Deputy Prime Minister Tharman Shanmugaratnam yesterday.

Based on the current CPF system, the study showed that the savings will "provide a comfortable level of income in retirement, a level equal to a large part of their pre-retirement income", he said.

Mr Tharman, who is also Finance Minister, was speaking at the opening of the two-day Singapore Human Capital Summit 2012, held at Resorts World Sentosa.

He said that Singapore has two major priorities when dealing with the challenges of human- capital management today.

These are: To ensure a strong Singapore core at the heart of a globally competitive workforce; and to harness a more mature workforce and ensure that people have enough after retirement.

According to the study, Mr Tharman said the male median earner who enters the workforce today will be able to achieve an Income Replacement Rate (IRR) of 71 per cent through his CPF savings.

Used by economists, the IRR is a ratio of retirement income to pre-retirement earnings.

For a female median earner, the IRR is 63 per cent.

The study estimated IRR using all CPF savings accumulated by a member up to age 65, including savings above the Minimum Sum which can be withdrawn.

The study's results will be released soon.

Mr Tharman said that Singapore's IRRs are comparable to those seen in pension systems in many developed countries.

The equivalent IRR in the median OECD (Organisation for Economic Cooperation and Development) country is 66 per cent, while the average among OECD countries is 72 per cent, he added.

However, he pointed out that Singapore's IRR is "even higher" when taking into account the fact that most Singaporeans own homes, fully paid for, when they retire. Without the need to pay rent, cash is freed up for other living expenses, he said.

Should they monetise the value of the home - by downsizing, for instance - the IRR rises to well above the 71 per cent figure, he added.

Mr Tharman noted that for low-income earners, the IRR is higher, at about 81 per cent. Through Workfare, which supplements wages, this is boosted to 93 per cent.

He noted that the study's results are an important validation of the CPF system and its refinements over the years.

But he cautioned that among older Singaporeans, many have low CPF balances. Besides having lower wages in the past, they were required to set aside less in their CPF retirement account, and allowed to use much of their CPF savings for housing, he said.

Among the ways the Government will assist them is through the Silver Housing Bonus.

Professor Chew Soon Beng, from Nanyang Technological University's Division of Economics, said: "IRR is not a perfect measure. Apart from a ratio, we should also include an absolute income after retirement."

adrianl@sph.com.sg

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