TALK about the Central Provident Fund (CPF) scheme has been rife in recent months and yesterday, Manpower Minister Tan Chuan- Jin sought to set the record straight about the Minimum Sum.
This is the amount a CPF member must set aside in his Retirement Account (RA) on turning 55 to get a steady stream of income later.
"Some are unhappy when the Minimum Sum increases with every cohort that turns 55," he noted. "Some see it as a shifting goalpost that locks up more and more of their CPF savings."
But many of the views are misguided, Mr Tan indicated as he prefaced his reply to CPF questions from eight members of the House by setting out "to dispel misconceptions and myths that have surfaced in the recent public discussion".
- First, the Minimum Sum does not change once it is set for a specific cohort. For instance, those turning 55 from July 2014 to June 2015 must set aside $155,000.
This is more than the $148,000 required of the previous cohort. But the sum for this earlier group remains unchanged.
- Second, the increases are part of a planned, gradual adjustment which began in 2004, to bring the sum up to the required amount for retirement, as the cost of living rises.
For instance, $155,000 is the amount needed for a monthly payout of about $1,200 when the cohort turns 65 in 10 years' time.
The Minimum Sum is worked out based on the Government's estimate of what a lower-middle income household spends for daily living during retirement.
- Third, a member who does not meet his Minimum Sum at 55 does not need to top up the shortfall in cash. Also, he does not need to sell his property to make up for the shortfall.
- Fourth, only half the Minimum Sum needs to be in cash from the member's Ordinary or Special Account.
The other half can be in the form of a pledge of the property the member owns.
What is left in the OA can be used to finance property purchases, or withdrawn by the member.
Last year, about 15 per cent of active CPF members used their properties to help meet up to half of the Minimum Sum, Mr Tan said, in response to Mr Gan Thiam Poh (Pasir Ris-Punggol GRC).
While some are unhappy their savings are locked up, others have voluntarily left their savings untouched.
"One reason they do so is to continue to earn the risk-free returns on their CPF savings.''
Mr Tan added that as of December 2013, about 20 per cent of members who turned 55 in that year had balances above the Minimum Sum that were not withdrawn.
He acknowledged that the CPF system could be hard to understand, as different rules may apply to different cohorts.
The reason for keeping old rules, he said, was to avoid disrupting older cohorts' plans midway through retirement.
"But it would not be responsible of this Government to leave unchanged the CPF rules for those who are younger, when the situation around us has changed dramatically," he added.
He also told MPs like Ms Tin Pei Ling (Marine Parade GRC) that despite the continual rise in the Minimum Sum, more members in each cohort can meet it.
"For younger workers, we are even more optimistic," he added. A 2012 study by two local academics estimates about 70 to 80 per cent of those entering the workforce would be able to meet their Minimum Sum fully in cash.
The group that worries the Government is current retirees, who may not have enough CPF balances owing to past low wages and more liberal withdrawal rules. Still, most have fully paid their home loans, and there are schemes to help them tap their property for income.
Replying to Non-Constituency MP Lina Chiam, he said 23 per cent of those who turned 55 last year were inactive members who are less likely to meet the Minimum Sum and must rely on family and other social safety nets.
Following his speech, Ms Lee Bee Wah (Nee Soon GRC) suggested letting people take out the full amount in their Minimum Sum at an age "five to seven years" before the average life expectancy.
Mr Tan was cool to the idea, saying: "The more you take out, the more you reduce the monthly payout that you have available."
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