The Central Provident Fund (CPF) system plays an integral role in serving the needs of Singaporeans in areas such as housing, healthcare and retirement. The National Trades Union Congress (NTUC) therefore supports the Government’s effort to further enhance key components of the CPF system to better meet the retirement needs of our workers.
Over two months in end last year, NTUC engaged over 250 union leaders, rank-and-file workers, freelancers and self-employed, youths, active agers, low-wage workers as well as Professionals, Managers and Executives (PMEs) through focus group discussions to understand their concerns. Their feedback will be shared with the Government through the CPF Advisory Panel so that the impending CPF changes will take into account the needs and concerns of our workers.
Below are four broad areas that the CPF system can be improved to better meet the retirement needs of our workers:
a. holistic enhancement to the CPF system to help our workers build up CPF savings and Minimum Sum;
b. greater transparency and predictability of the Minimum Sum, and flexibility with Lump Sum withdrawal;
c. provide options on CPF Life payout structure to better cope with inflation during retirement years; and
d. continue to strengthen CPF Life Scheme, the basic national life annuity plan, that provides assured monthly payouts to retirees for the rest of their lives.
Building Up CPF Savings and Minimum Sum for Retirement
In February last year, NTUC called for alignment of the total CPF contribution rates between workers who are >50 to 55 years old, and those who are aged 50 and below. We are heartened that the gap has narrowed with a 2.5 percentage point increase for workers in the age band of >50 to 55, with effect from 1 January this year. But there remains a gap of 2 percentage point. NTUC therefore calls for a further closing of the gap towards full alignment in total contribution rates for all workers who are aged 55 and below. And in tandem, level up the total contribution rates for workers who are more than 55 years old. We had earlier also called for a review of the long term contribution target rates as the ones set in 2003 by the Government have been reached or surpassed. NTUC reiterates our call to the Government to review and share the revised long term contribution target rates.
The Ordinary Wage Ceiling for CPF contribution is $5,000 today. CPF policy parameter pegs CPF salary ceiling to wage growth at the 80th income percentile. In view that the residents’ gross salary, excluding employer CPF, at the 80th percentile was $6,000 in 2012, it is therefore timely for the CPF Ordinary Wage Ceiling to be raised by an amount of between $500 to $1000 as a first step, and progressively adjust the ceiling to correspond with the 80th income percentile.
The Workfare Income Supplement (WIS) Scheme augments the income of low-wage workers whose average gross monthly income is not more than $1,900 as they receive payouts in both cash and to their CPF accounts. Under the current scheme, the highest WIS total payouts across ages are given to workers earning an average gross monthly wage of $1,000. With concerted efforts by tripartite partners to uplift the wages of low-wage workers, it is congruent that the average gross monthly wage for workers to receive the maximum WIS payouts be adjusted upwards from the current $1,000 to $1,200.
Self-employed who make the relevant contributions to their Medisave Accounts also receive WIS payouts in cash and to their Medisave Accounts. To encourage them to also build up their CPF Special Accounts and be retirement ready, NTUC proposes that the Government provide WIS top-ups to the Special Accounts of the self-employed if they make contributions to their Special Accounts. Besides supplements from WIS, the Government can also provide incentives to encourage service buyers and principals to contribute to the CPF savings of self-employed and freelancers which will help build up their savings for retirement.
Family support also plays an important role in retirement adequacy, especially for those who have been economically-inactive and will not have sufficient CPF savings for retirement. Under the Minimum Sum Topping-Up (MSTU) Scheme, CPF members will receive additional tax relief if they top up the CPF accounts of their family members. To encourage more people to help their family members achieve financially secure retirement, NTUC suggests that the additional tax relief be computed based on number of family members receiving top-ups; and raise the income ceiling of receiving spouse or siblings from the current $4,000 to $12,000 per annum.
The current CPF system is helping our workers achieve retirement adequacy with risk-free returns on their CPF savings. NTUC hopes that the Government will continue to pursue new investment opportunity that will further boost the returns of our workers’ total savings with risk-free interest rates. And currently, CPF members receive an additional 1 per cent interest on the first $60,000 combined CPF savings, with up to $20,000 from the Ordinary Account, to help members with lower balances earn a higher effective interest. This additional interest rate was introduced in 2008 when the average net CPF balance was $46,800. This has since rose to $67,300 in 2012. NTUC therefore calls for a review of the $60,000 limit so that workers may earn more interests to improve their retirement savings.
Minimum Sum and Lump Sum Withdrawal
It was announced in 2003 that the Minimum Sum (MS) will be set at $120,000 in 2003 dollar. Over the past decade, MS was adjusted annually to take in inflation and higher living standards for different cohorts of CPF members who turn 55 years old. NTUC agrees with the approach of adjusting MS to retain its real value over time so that workers are able to meet the basic standard of living during retirement. This year is the final instalment of MS adjustment since 2003. To allow workers to make better financial decisions and retirement planning with their CPF savings, NTUC urges the Government to set a 10-year Minimum Sum Schedule with corresponding CPF Life monthly payout so that there is greater certainty and predictability. And there should be mid-term review of the schedule to ensure relevancy. In addition, any adjustment or changes should be explained to members adequately in advance, including how the MS is calculated and CPF Life monthly payout is determined.
On Lump Sum withdrawal, Prime Minister Lee Hsien Loong said at last year’s National Day Rally that CPF members may be allowed to take out part of their CPF savings during retirement as a lump sum but subject to some limits. NTUC welcomes this flexibility as it allows workers to use part of their CPF savings for large expenditure that they may incur during retirement. To cater to CPF members with varying Retirement Account balances, NTUC recommends a percentage withdrawal of the Retirement Account balance, even for those who do not meet MS. To help CPF members understand the impact of withdrawing the Lump Sum, and the trade-off between Lump Sum withdrawal and CPF Life monthly payout, financial counselling should be provided to all CPF members.
Besides providing the above flexibility, the Government could also look at encouraging CPF members not to make the Lump Sum withdrawal so that their CPF Life monthly payouts will be higher, especially to those who are unable to meet MS. NTUC therefore proposes that the Government provides a one-time “Non-Withdrawal” incentive which is substantial enough to incentivise CPF members to keep the total amount in their Retirement Accounts intact.
CPF Life Monthly Payouts
At the age of 65, CPF members will receive a constant stream of monthly payouts under the CPF Life scheme. Currently, it is a flat amount throughout the lives of CPF members. To help them cope with rising cost of living during their retirement, NTUC suggests giving members the option of receiving an escalating payout stream. The Government could provide incentives to those who opt for lower initial monthly payouts or defer their Draw Down Age ie they start to draw the monthly payout at a later age.
There are also CPF members who are able to meet the MS and would like to retire comfortably by receiving even higher monthly payouts. The Government may also want to give CPF members the option to voluntarily top up their MS beyond the national stipulated amount, subject to a cap.
Continue to Strengthen CPF Life
The Labour Movement understands that the Government may be looking at offering alternative investment and annuities to CPF members who have high risk appetites. At NTUC’s focus group discussions, nearly all our participants placed high value on the peace of mind that is provided by CPF Life, the national annuity plan, with its assured monthly payouts that CPF members receive for the rest of their lives upon retiring. NTUC therefore calls the Government to continue to strengthen CPF Life as the basic national annuity plan so that the interests’ of majority of our workers are taken care of. And any alternative investment or annuity plans, that are high risk-high return, should be optional and supplement CPF Life.
Ms Cham Hui Fong
Assistant Secretary-General
National Trades Union Congress
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