CPF issue: More meeting CPF Minimum Sum due to wage growth, policy improvements

SINGAPORE - More members in each cohort reaching the age of 55 have been able to meet their Central Provident Fund (CPF) Minimum Sum over the years, despite this threshold having increased over the years, said Manpower Minister Tan Chuan-Jin on Tuesday.

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Excerpt from Manpower Minister Tan Chuan-Jin's speech:

"When the CPF was first introduced almost 60 years ago, members could withdraw their money at age 55 in a lump sum. That was because at that time, someone could expect to live only another six to seven years after that. The situation is very different today where one could expect to live a further 30 years or more. Allowing a full withdrawal from CPF at age 55 today will put us at real risk of outliving our savings in old age. To blindly keep to the earlier model of full withdrawal at age 55, which made sense then, would be wrong and irresponsible.

"This is why we introduced the Minimum Sum scheme. The policy is not a new one and has been in place for about 30 years. The idea is to stream out our CPF savings every month to meet living expenses instead of having them all withdrawn in a lump sum. Neither do we require our Singaporeans to set aside all our CPF savings to be streamed out in this way. Only a basic amount necessary for retirement expenses is required, and you can withdraw your CPF savings above that in a lump sum. This basic or minimum requirement is known as the Minimum Sum.

Attaining the Minimum Sum

"Many are concerned about whether they will meet their Minimum Sum.

"Ms Tin Pei Ling and Mr Png Eng Huat asked about the balances that CPF members have for retirement. As I mentioned earlier, about 50 per cent of active members who turned 55 in 2013 achieved their Minimum Sum in cash plus property. For those who do not meet their Minimum Sum, a majority have a property that they used their CPF savings to pay for. The reason why some of them don't meet the Minimum Sum is because we kept the amount that can be used for property at half the Minimum Sum. Meaning that, while they may not have more than half the Minimum Sum in terms of cash, their property may be worth far more than half the Minimum Sum, which is why if they have less than half the Minimum Sum in cash, they are actually considered as not meeting the Minimum Sum in technical terms. Some would also have spouses with higher CPF balances who can provide for them.

"Over the years, more members in each cohort reaching the age of 55 have been able to meet their cohort Minimum Sum. This is despite the Minimum Sum having increased over the years for each cohort. For younger workers we are even more optimistic about their ability to attain the Minimum Sum.

"In a 2012 study, two local academics, Associate Professors Chia Ngee Choon and Albert Tsui, estimated that about 70 per cent to 80 per cent of new entrants to the workforce would be able to meet the Minimum Sum for their cohort fully in cash. There are several reasons why this is so: wages have been growing, and labour force participation rates have been increasing.

"Significantly, it is also because we have been making enhancements to the CPF system to help members grow their savings to meet the Minimum Sum. Mr Christopher De Souza asked what those are. First, since 2008, the CPF pays an additional 1 per cent interest on the first $60,000 of combined balances.

"As a result, about two-thirds of members earn 5 per cent interest on all their balances in their Special, Medisave and Retirement Accounts. Over half of all members earn 3.5 per cent on all their Ordinary Account savings. This is far superior to what is earned on bank deposits and far higher than many comparable financial instruments.

"Second, Singaporeans earning lower incomes also enjoy boosts to their CPF savings through Workfare. Third, we have also been raising CPF contribution rates for older workers to help them save more, and have been working with our tripartite partners to improve employment opportunities for older workers.

"The key group we are concerned about who may have insufficient CPF balances are our seniors, many of whom are currently in retirement. Many have low CPF balances because of lower wages in the past and because more liberal withdrawal rules which were calibrated for shorter life spans depleted their CPF savings. However, we also know that the majority of current seniors own their homes and have fully paid up their housing loans.

"Mr Png Eng Huat asked about the average proportion of OA savings used for public housing by older members. Among members who turned 55 years old over the past five years and had used CPF monies to purchase HDB flats, an average of 55 per cent of their OA savings had been withdrawn to finance their flats at age 55.

"These housing assets have appreciated significantly and, if needed, can be tapped on to supplement their retirement income. Various schemes have been introduced, and we will strengthen this. For example, we have the Lease Buyback Scheme and the Silver Housing Bonus. Those who take advantage of these schemes typically get enough in proceeds from the sale to top up their CPF accounts up to the Minimum Sum, with cash to spare. Our current seniors also receive additional support from the Government through measures such as the Pioneer Generation Package.

"As the CPF is founded on the principle of self-reliance and work, those who do not work and contribute regularly to the CPF are naturally less likely to attain the Minimum Sum. To give you a sense of the numbers, which Mrs Lina Chiam has asked for, we know that 23 per cent of Singaporeans who turned 55 in 2013 were inactive CPF members, while the remaining 77 per cent were active1 members or self-employed. 

"For the group of inactive members, many of whom have not worked regularly, family support will have to come in and other social safety nets are in place to provide assistance for example through the various ComCare schemes. And we have been strengthening the social safety nets over these past few years."