NDR and CPF
In short, some of the changes proposed on flexibility and options in the CPF are a mixed bag. CPF Minimum Sum for next year is $161,000 although there would not be further increases in the near future, the PAP government bowing to public pressure and political expediency if the PAP wants to survive the next GE. Currently, the Minimum Sum is $155,000. Another concession PM Lee is offering is that there can be a lump sum withdrawal although details of this tweak to the CPF are unavailable yet. So far the conditions are that it can be up to 20% and only when the CPF member has retired. Whether this lump sum can be withdrawn only if the Minimum Sum is met or not plus other details would be unveiled later.
However, despite earlier hopes when the CPF controversy raged, there are no proposed changes to the CPF interest rates. If interest rates are attractive enough, although “attractive” is subjective, the public would rather keep more money in the CPF longer. From the look of things, CPF is being tweaked further and further and becomes more complicated, because the government wants to be more populist. And once CPF becomes more complicated, all the more people find it harder to understand and CPF is misconstrued. Already minimum sum is easily misunderstood, the calculation of CPF Life payout is not transparent, the limits of using CPF on housing are overlooked when CPF is used to service home loans. The latest rounds of CPF tweaks would still eventually upset some while please others.
Singapore to Revise Parts of Pension Plan Amid Retirement Concerns
Government Wants to Give Pensioners More Flexibility in How They Tap Savings
By CHUN HAN WONG
Aug. 17, 2014 2:28 p.m. ET
SINGAPORE—Singapore wants to boost financial support to low-income pensioners and revise parts of its state-run compulsory savings plan, Prime Minister Lee Hsien Loong said Sunday, seeking to address citizens’ concerns over the inadequacy of their retirement savings.
The move comes amid growing public discontent over Singapore’s Central Provident Fund, or CPF, which culminated this year in one of the largest protests ever held in this tightly regulated city-state. Such sentiment, analysts say, stems from rising socioeconomic pressures that have drained support for the governing People’s Action Party in recent years.
In an annual policy speech, Mr. Lee acknowledged Singaporeans’ concerns and pledged to change parts of the CPF system, but defended the overall pension plan as sound.
“The CPF scheme is good but it can be improved,” the prime minister said. “It works well for most Singaporeans, but not quite for all—especially the lower income, and also it’s not quite flexible enough.”
Among the proposed changes, the government plans to give pensioners more flexibility in how they can tap their CPF savings, such as through limited lump-sum withdrawals rather than just regular monthly payouts, Mr. Lee said.
To help about 10% to 20% of elderly Singaporeans who lack sufficient CPF savings and don’t have alternative means of retirement support, the government would provide them with an annual “bonus” payment after they turn 65 years old, Mr. Lee said, without elaborating.
The CPF—a compulsory savings plan for citizens and permanent residents—requires workers and their employers to contribute to retirement-savings accounts, which earn modest interest income at rates set by the government, typically in the low single digits. Established in 1955, the plan has since been liberalized to allow fund members to use some savings to buy homes, pay for health care, and make financial investments.
The pension system came under heightened scrutiny earlier this year after the government said in May it would raise a minimum retirement-savings threshold. The move unsettled many lower- and middle-income Singaporeans who fear that they can’t save enough to meet the new requirement, and prompted some 2,000 people to stage a protest in early June.
Recent surveys also suggest perceptions of retirement inadequacy have become acute among Singaporeans. In a 2014 survey, insurance firm Manulife Financial Corp. MFC.T -1.33% found that only about 20% of respondents believed that their CPF savings were adequate for their retirement needs. A 2012 survey by U.K. bank HSBC Holdings HSBA.LN -1.21% PLC found that 56% of more than 1,000 respondents felt inadequately prepared for retirement or weren’t preparing at all.
Singapore’s rising life expectancy and declining birthrates have complicated matters, as aging citizens require greater retirement savings and have fewer working-age family members upon whom to rely. According to government projections, the ratio of working-age Singaporeans to elderly citizens, ages 65 and above, could fall to roughly 2 to 1 by 2030 from more than 6 to 1 currently.
The government has tried to mitigate this by requiring CPF members to set aside a so-called “minimum sum” in their pension accounts, which would then be released through monthly payouts after members turn 65 years old.
The minimum sum—meant to provide fund members with regular postretirement income—is revised yearly to account for inflation and increasing life expectancy. But many poorer Singaporeans resent the adjustments as a shifting of goal posts that prevents them from fully accessing their own savings.
In the latest revision, Mr. Lee said Sunday the government would raise the minimum sum to 161,000 Singapore dollars (US$129,300) starting next July—up 3.9% from its current level but more than double its 2003 level.
However, the prime minister said he doesn’t expect any “major increases” in the minimum sum thereafter, though revisions would still be made from “time to time.”