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SINGAPOREANS who work regularly and make prudent housing choices should have no worries in meeting their retirement needs through the mandatory Central Provident Fund (CPF) system, Manpower minister Tan Chuan-Jin has said, as he told the House that the retirement picture for younger Singaporeans was "relatively healthy".
He was addressing concerns that Singaporeans might not save up enough in their CPF accounts to meet the Basic Retirement Sum, now that they will be given more flexibility and options to use their CPF savings.
Citing the example of a 25-year-old polytechnic graduate earning S$2,200 and assuming this CPF member works 32 out of 40 years, the minister estimated that this worker would have a nest egg of about S$55,000 by the age 65. With compounded interest earned in the Special Account, he would have about S$165,000 at age 65 - three times what was put in.
"This is not magic - it is just basic mathematics and is a very conservative estimate because I did not account for any wage growth at all and whatever savings he has accumulated in his Ordinary Account after paying off his flat. And if you add those, clearly, he would have even more."
As he walked the House through a typical CPF member's stages in life, Mr Tan said that at age 65, the member would have to decide whether to withdraw up to 20 per cent of his Retirement Account savings in a lump sum.
The minister also announced that from January 2016, members will choose one of two CPF Life plans from age 65 – up from the current 55. They will also have to decide whether they want to start receiving CPF Life payouts at age 65, or between age 65 and 70.
The Manpower Ministry (MOM) will also restore the contribution rates for workers aged 50 to 55 to the same level as younger workers, as employment rates for this age band have improved and are almost on par with that of younger workers, he said.
During Monday's Committee of Supply debate, MP David Ong suggested raising CPF contribution rates for workers above 55 to the same level as younger workers.
But Mr Tan said the employment rate for those above 55 was still much lower than those who were younger, so it would not be prudent to raise contribution rates of this group too quickly. The higher rates would also put employers off hiring older workers, he said.
To encourage the employment of older workers, Senior Minister of State Amy Khor said the government has launched an additional Special Employment Credit (SEC); employers who hire Singaporean workers aged 65 and up and who draw up to S$4,000 a month will receive up to 3 per cent of the monthly wage bill under this SEC.
This is on top of the current 8.5 per cent SEC for hiring Singaporean workers above 50.
The government is supporting employers in improving workplace practices so as to attract and retain mature workers, said Dr Khor, who added that the government is putting in place legislation to extend re-employment to 67 in two to three years.
Employers should also tap existing measures available to put in place age-management practices, so that they can be better prepared to hire older workers, she added.
Mr Tan urged CPF members to be prudent with their housing purchases, especially when buying or upgrading a property later in life.
"I think it's important to pay attention to this because older members may have to take on loans with shorter tenures, higher monthly instalments; they should also factor in any decline in CPF contributions as they age, which may mean that they may need to service their monthly housing instalments with cash on top of CPF."
In response to calls for more targeted help for non-working women with low CPF balances, MOM's support for this group is two-fold, noted Mr Tan.
Firstly, it has encouraged non-working women to rejoin the workforce, which has led to higher Labour Force Participation Rates (LFPR) among women; as a result, the difference in average CPF balances between men and women have started to narrow, he said.
Secondly, with families remaining a pillar of support for women, the rules have been tweaked to make it easier for CPF members to transfer their CPF savings to their spouse's CPF.
He added that the government is providing attractive interest rates to encourage such transfers: from next year, those aged 55 and above can earn an extra 1 percentage point of interest for the first S$30,000 in their combined CPF balances.
As for Ms Foo Mee Har’s suggestion that such transfers be made automatic or require spouses’ joint consent before withdrawals from the Retirement Account, Mr Tan replied that those were ‘very personal decisions” and “best left to couples to decide”, as it would be intrusive for the government to intervene.
MPs Zaqy Mohamed and Seng Han Thong asked how MOM was communicating the various changes to its members.
The House was told that, under efforts in this direction, a guided one-to-one retirement-planning service to CPF members would be launched so they can get a better understanding of the various CPF options before making their choices.
The ministry has completed a three-month trial project and will pilot a retirement-planning service in the second half of the year. The plan is to ramp up the service gradually from next year, with priority given to those turning 55, said Mr Tan.
In his speech, he stressed that the fundamental principles of CPF will not change and that retirement adequacy remained the scheme's primary objective.
And while Singapore's social safety nets for the vulnerable need to be strengthened, the government and the CPF system alone will not be able to solve all problems.
"There is a role of collective responsibility - individuals, families, employers, social groups. We all need to step in to provide the assistance and support."
The previous article incorrectly said CPF members will choose from three payout streams from 65. The above article has been amended to reflect that members will choose from two plans under CPF Life at age 65.