FAQs on CPF

SINGAPORE - Increases in the CPF Minimum Sum have been a source of concern for many. The CPF Board answers some frequently asked questions about the issue.

Why does the minimum sum keep rising? Isn't that like shifting goalposts, making it harder for Singaporeans to meet the amount set? Singaporeans will need more money in their retirement because they are living longer, daily needs have increased and prices will rise over time.

For members to achieve a steady stream of income that can cover their living expenses in retirement, the amount they need to set aside in the CPF - the minimum sum - has to increase correspondingly.

In 2003, the minimum sum was increased from $80,000 then, to $120,000 in 2003 dollars.

This was intended to enable CPF monthly payouts in retirement to be increased to improve retirement adequacy. The target of $120,000 (in 2003 dollars) was to be reached over a period of 10 years so as to give each successive cohort time to adjust.

Adjustments to the minimum sum were based on two components - the scheduled $4,000 stepped increase in real terms, and the headline Consumer Price Index that is used to account for inflation.

In 2012, the target was pushed back another two years to 2015 to make the increases more gradual because of the higher inflation in recent years.

The annual increases are specific to each group of members who turn 55 yearly. The minimum sum for those who have already turned 55 remains unchanged.

For those members who are unable to meet the minimum sum, there are schemes available.

For older Singaporeans, the Pioneer Generation Package will help ease the burden of health-care costs.

For home owners, there are schemes to help those who wish to unlock their housing equity: the Silver Housing Bonus and the Enhanced Lease Buyback Scheme.

To help more members meet the minimum sum, several policies are in place:

For low-income workers, there is the Workfare Income Supplement scheme, which pays into the CPF accounts of lower-wage workers.

In addition, extra interest of 1 per cent is paid on the first $60,000 of CPF savings so those with lower balances can grow their savings faster. About 60 per cent of members would be effectively earning 5 per cent on their retirement monies because of the extra interest.

The amount that employers must contribute to the CPF was raised as well, including sums for older workers and low-wage workers. Will the minimum sum continue to increase?

We have no plans to revise the minimum sum further in real terms in the near future (after the minimum sum target has been reached next year).

However, in nominal terms, the minimum sum will still have to be adjusted to account for inflation and to ensure that its real value is preserved.

Does CPF have a target in mind for attainment of the minimum sum?

Even with the increase in the minimum sum, more Singaporeans have been able to attain it.

About half of active CPF members are able to now, compared with one-third just five years earlier.

If CPF members are unable to set aside the full minimum sum in cash, their property, bought with their CPF savings, will be automatically pledged for up to half the minimum sum.

We expect even more members to meet the minimum sum over time.

If I don't reach the minimum sum by the time I hit the drawdown age, I won't be able to use my CPF or get CPF Life payouts.

Even if a CPF member is not able to achieve his minimum sum by his drawdown age, he will still receive his payouts from that age.

It is not necessary for such a member to top up in cash to make up the minimum sum, although his monthly payout would be lower than if he had accumulated the full amount.

If you have a smaller balance in your retirement account, you will receive smaller payouts.

Further, whether or they have met the minimum sum, all CPF members are allowed to withdraw the first $5,000 from their accounts at 55.

How much are people getting from their CPF Life payouts?

The median payout for members turning 55 from last year and who were automatically enrolled into CPF Life is about $890.

Members turning 55 from July 1, 2014, with the full minimum sum of $155,000 can expect to receive payouts of about $1,200 per month for life (based on the CPF Life Standard Plan).

Actual payouts for individual members might be higher if they make subsequent top-ups, which they can choose to, up to the prevailing minimum sum for that year.

This article was first published on May 31, 2014.
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