The great balancing act of CPF

SINGAPORE - Why can't Central Provident Fund returns be higher?

Why must the drawdown age be pushed back? Is the CPF money yours?

These questions have dominated the online sphere but some were also tabled by Members of Parliament.

Yesterday, Manpower Minister Tan Chuan-Jin drew out the choices that have to be made and the inherent balancing act.

If Spider-Man had his great power and great responsibility speech, then the superfund, commonly referred to as CPF, has this - higher returns mean higher risks.

"We all know that with higher returns come higher risk. If we have funds and there's a downturn in the market at the point of withdrawal, would it affect your returns?

"You can always smoothen it out, but that would always affect returns ultimately," said Mr Tan in Parliament yesterday.

He said the 2.5, 4 and the plus-1 per cent extra interest on the first $60,000 in every member's account, are rates that are far higher than the equivalent rates provided by similar products in the market today.

But what of those who have been arguing for higher returns without higher risks?

"If there are people who can assure us that they can get high returns with low risks, do let me know. I would like to be their friend.

"There are many people who believe they can get high returns, but it does not happen in real life," said Mr Tan.

The CPF is not perfect but it remains valid, said Mr Tan.

Why not allow people the flexibility of drawing out their CPF funds earlier?

Hougang MP Png Eng Huat had suggested a new CPF Life plan that offers more flexibility, and an early drawdown age of 60. The drawdown age for CPF Life payouts now is 63. It will increase to 64 in 2015 and 65 in 2018.

He said: "When we are young, we need a disciplined instrument like CPF to help us save for the future. But when we are old, we need a more flexible instrument to help us plan for the uncertainties of ageing."

Mr Tan said the CPF allows for a constant stream of income at the point of retirement. "But if you allow monies to be extracted out early, prematurely, I think there will be concerns," he added.

Addressing Mr Png's suggestion, Mr Tan said: "The more you draw out earlier, what it means is that the payouts correspondingly will reduce."

With the life expectancy increasing, Mr Tan pointed out that the focus of CPF is to ensure that "we can live long but we can live well as well".

Mr Tan outlined the different needs that the CPF scheme must continue to cater for.

The first is housing, at both the early and later stages in life.

Then, there is health care. Mr Tan said the Government is "looking out for the health care needs of the people" through the CPF system.

Third is retirement adequacy. By helping workers earn good wages and making sure jobs are available will help boost their retirement funds, Mr Tan said.


Another way is to raise the retirement age so workers can choose to work longer.

But this is not to force them to work longer. Mr Tan said: "If you don't want to work longer, you can actually stop working any time that you wish to.

"But the fact of the matter is that we are living longer, we are staying healthier and many people find that working is part of active ageing."

So the Government had to find a way to allow people to work longer but with adjustments to help them accumulate funds for their retirement needs.

He said the Government is looking at enhancing CPF Life, a system which provides payouts for life.

"We've been working on that together with the Pioneer Generation Package for some time," he said, adding that details will be out closer to the National Day Rally period.

If there are people who can assure us that they can get high returns with low risks, do let me know. I would like to be their friend. - Manpower Minister Tan Chuan-Jin

This article was first published on May 30, 2014.
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