How CPF changes affect Retirement Account savings

How CPF changes affect Retirement Account savings

The Central Provident Fund provides members with lifelong monthly payouts in retirement through the CPF Life scheme. On Wednesday, the Government accepted recommendations from a review panel on ways to make the system more flexible.

In the first of a three-part series, Joanna Seow looks at questions about how the changes affect the savings in your Retirement Account.

What is the Basic Retirement Sum and how is it calculated?

To provide a monthly payout of about $650 to $700, the Basic Retirement Sum of $80,500 should be set aside in your Retirement Account if you are turning 55 next year.

This is based on expected expenditure needs in 10 years' time for retirees with spending in the lower-middle range. It assumes you own a home and do not pay rent.

How much will the Basic Retirement Sum go up by?

Three per cent each year from 2017 to 2020. As a gauge, Minimum Sum increases between July 2013 and July 2015 range from 3.9 per cent to 10.4 per cent.

Why does the Basic Retirement Sum rise?

To keep pace with inflation and allow for rising standards of living. The lower-middle range of retiree household expenditure grew about 5 per cent yearly, compounded over the 10 years to 2013.

The rise also takes into account historical inflation rates - the 20-year average core inflation is about 1.7 per cent.

How do I know which cohort I belong to for the Basic Retirement Sum?

The sum will apply to people turning 55 in a calendar year. This is a change from the current system which groups people born from July 1 of each year till June 30 the following year into one cohort.

What happens to the money in my Retirement Account?

The savings are invested in special Singapore Government Securities that pay fixed interest rates over a long period of time. They are used as a premium to buy an annuity, under the CPF Life scheme.

What is an annuity?

A financial product that grows your funds and then gives you regular payouts.

How much money can I set aside for CPF Life?

Anywhere between $40,000 and $241,500 at 55, depending on how much you want to receive in monthly payouts. If you set aside the minimum of $40,000, you will receive an estimated monthly payout of $360.

The CPF Advisory Panel has three recommended levels for those turning 55 next year:

  • Basic Retirement Sum of $80,500 for monthly payouts of $650 to $700
  • Full Retirement Sum of $161,000 for monthly payouts of $1,200 to $1,300
  • Enhanced Retirement Sum of $241,500 for monthly payouts of $1,750 to $1,900.

joseow@sph.com.sg


This article was first published on Feb 7, 2015.
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