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CPF makes investing simple for older workers
FINANCIAL planning and investment practitioners say the Central Provident Fund (CPF) changes introduced in this year's Budget will boost retirement adequacy and make investing for older workers straightforward.
This is since those aged 55 and above can get up to an attractive 6 per cent of guaranteed interest on the first S$30,000 of their CPF savings from next year.
"Younger members, however, should not rely on the government's generosity to ensure their long-term financial and retirement goals," said Nicholas Hadow, chairman of fund manager association Investment Management Association of Singapore (Imas).
Mr Hadow said Imas also welcomed other changes introduced, like a higher CPF salary contribution ceiling and a higher contribution cap for a government savings and investment scheme known as the Supplementary Retirement Scheme (SRS).
"Increased CPF and SRS balances should help workers build up more funds for retirement," he said.
"A guaranteed return of 4, 5 and now 6 per cent on some portion of workers' savings would also aid in simplifying investment choices for older CPF members, reducing the need for them to take market risks," Mr Hadow said
However, Neil Narale, Asean retirement market business leader at consulting firm Mercer, noted that the extra one per cent return, while welcome, kicks in only for a limited period before retirement.
"The government should continue to review the CPF Investment Scheme structure and consider allowing private employers the option to manage part of the investments," he said.
At age 55, people's Ordinary Account, Special Account and Medisave Account monies in excess of the Medisave minimum sum will be combined into a Retirement Account. This pool of monies will be used to meet the CPF member's chosen retirement sum amount, which will be used to pay for the CPF Life annuity scheme.
From next year, the government will pay an additional one per cent of interest on the first S$30,000 of CPF savings belonging to CPF members aged 55 and up. This is on top of the one per cent extra interest currently paid out for the first S$60,000 of combined CPF savings, and on top of the current 4 per cent floor rate earned by Special, Medisave and Retirement account monies.
Other than the interest rate increase, other significant CPF-related changes introduced in the Budget include higher contribution rates for workers aged 50 to 65 and a rise in the CPF salary ceiling from S$5,000 to S$6,000 from next year. The annual contribution cap for the SRS, a scheme that results in tax savings, will go up to S$15,300 from S$12,750 currently.
The higher salary ceiling will mean higher contributions from employers. However, some Singaporeans said their disposable income has been reduced, because more of their ordinary wages as well as bonuses will attract CPF contributions.
Vincent Ee, president of the Association of Financial Advisers (Singapore), said that from a financial planning perspective, the higher salary ceiling is good news for Singaporeans because they will have more retirement savings.
"Compulsory savings schemes such as CPF are always superior to voluntary schemes when it comes to accumulating funds for future use," he said.