Updated: CPF advisory panel pushes for more flexibility in withdrawals and monthly payouts

THE Central Provident Fund (CPF) Advisory Panel has come up with nine recommendations in its push for more flexibility in the current CPF system.

The suggestions, which form the first part of its recommendations, focus on how the Minimum Sum (MS) should be adjusted after 2015, as well as the amount of lump sum withdrawal at 65.

In response, Manpower Minister Tan Chuan-Jin said that the government has accepted the proposals and will provide details on the CPF changes at the Budget and Committee of Supply parliamentary debates.

Currently, when a CPF member reaches 55, a Retirement Account (RA) is created and savings from the Special Account and Ordinary Account are transferred to the RA to make up the MS. Monthly payments will be made to the member from the RA starting from the Draw Down Age, which will be 65 from 2018 onwards. There is no penalty for not reaching the MS and the monthly payouts will hinge on the amount of savings they have in their RA. Members who own property can now choose to set aside only half of their MS as cash, and withdraw the sum above this through a property pledge.

The MS for those turning 55 from July 1 this year is S$161,000.

In its recommendations to the government, the panel said a member who turns 55 in 2016 and who owns a property would need to set aside half of the stipulated Minimum Sum or S$80,500 - what the panel calls "Basic Retirement Sum" (BRS). This will serve as a premium for CPF Life - the government annuity scheme that provides a lifelong monthly payout from a member's Draw Down Age.

Based on the BRS, the monthly payout works out to be about S$650 to S$700 a month from the age of 65. It is expected that seven in 10 active members turning 55 in 2020, will have enough CPF savings to meet the BRS, said the panel.

Those who wish to withdraw CPF savings above the BRS can do so if they own a property and have a CPF charge or a pledge on the value of the property.

For those who do not own their homes or do not wish to pledge their property, the panel said they should set aside a retirement sum that is double the BRS at S$161,000, to be named Full Retirement Sum. Such members at age 55 would only be able to withdraw CPF savings in excess of this sum.

As for those who want higher payouts, they should be given the option to top up their CPF Life premiums with their CPF savings or cash, up to three times that of BRS at S$241,500, known as the Enhanced Retirement Sum.

Other key suggestions include that members be allowed to defer their payout start age up to 70 years old so that they can have higher monthly payouts.

For clarity, the panel said the Draw Down Age should be renamed the Payout Eligibility Age - to distinguish it from the payout start age. For every year that the payout start age is deferred, monthly payouts will permanently increase by 6 to 7 per cent.

To ensure that the basic payouts remain adequate, the panel also pushed for the BRS for members turning 55 from 2017 to 2020 to be increased by 3 per cent for each successive cohort.

Another key recommendation is that members be given the option to withdraw up to 20 per cent of their RA savings at the Payout Eligibility Age. This is inclusive of the S$5,000 that members would be eligible to withdraw from age 55.

To encourage members especially those with low balances to not make the withdrawal, the panel suggested that the government provide incentives. And to help members with low balances further, the panel strongly supports the government's commitment to raise the CPF contribution rates for older workers.

The 13-member panel headed by Prof Tan Chorh Chuan met more than 400 Singaporeans at focus group discussions held between last November and January this year, which helped shape the panel's various suggestions.

It will be submitting the second part of its recommendations - which will focus on CPF payouts and alternative investments - later this year.