CPF payouts must rise to match inflation, warn experts

SINGAPORE - There is a "missing ingredient'' in the Central Provident Fund and the CPF Life annuity schemes, finance experts said yesterday.

It is: Payouts need to rise with inflation to ensure Singaporeans have enough to retire on.

Another feature that they suggested needs fixing is letting people use too much of their CPF savings to buy a home.

This would prevent young Singaporeans from locking up too much of their savings in property, a non-liquid asset which cannot be converted quickly into cash if needed, they said.

These are the main measures they proposed for the review of the two schemes which the Manpower Ministry (MOM) said yesterday it plans to undertake to strengthen Singapore's social safety nets.

The review is part of MOM's plan set out in the second addenda that spells out the broad direction in policies that President Tony Tan Keng Yam laid out last Friday for the rest of the Government's term in office.

Each day, a different theme of the addenda will be released, until Friday. On Monday, the motif was making Singapore a "nation of opportunities", while yesterday's was "A caring society", a goal that involves nine ministries.

Ensuring a comfortable retirement is an important feature of a caring society, noted the experts.

But providing for a higher monthly payout from CPF Life to match the expected rise in inflation will require the CPF minimum sum to be raised, said Professor Joseph Cherian of the National University of Singapore Business School.

This could be a political hot potato, as some people are unhappy about being unable to withdraw even more of their CPF money.

"The Government has to do its share for those 'left behind' who cannot save the requisite amounts," added Prof Cherian.

The cash-poor, asset-rich phenomenon underlines the experts' call for reducing the proportion of CPF savings for buying a home.

Currently, monthly CPF contributions are allocated to different uses according to age.

The bulk of younger Singaporeans' CPF goes into their Ordinary Accounts (OA), which can be used to buy property.

This proportion shrinks as they grow older, with more CPF funds going into personal funds for retirement and health care instead.

On a person's 55th birthday, any remaining OA funds, along with those in a Special Account, are put into a Retirement Account. This means the more that has been spent on housing, the less there is for retirement.

"The problem of digging into one's retirement savings to buy that dream HDB flat is that you may realise too late you don't have enough saved up," said Prof Cherian.

Experts such as Singapore Management University finance professor Benedict Koh noted that many seniors own their homes but some are reluctant to sell their flats or flats' leases for money.

He too wants contribution rates to Special Accounts raised and those to Ordinary Accounts lowered to minimise withdrawals for other purposes.

This article was published on May 21 in The Straits Times.

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