Exercise withdrawal option with care, says panel
CPF Building along Robinson Road. TODAY file photo
SINGAPORE – While the Central Provident Fund (CPF) advisory panel recommended that CPF members be allowed to make a lump-sum withdrawal of up to 20 per cent upon reaching the age of 65, it yesterday cautioned that people should exercise the withdrawal option with care.
The panel also called for incentives to be provided to encourage CPF members, especially those with low balances, to leave their savings untouched. “Members who exercise this flexibility ... should bear in mind that their monthly payouts will decrease and may fall below what they would need in retirement,” said the panel, which proposed that the option be extended to CPF members who turned 55 in 2013 and after.
It noted that more liberal withdrawal rules already apply to older cohorts, who are able to take out 20 per cent or more of their retirement savings from age 55.
For those who turned 55 in 2012, the panel recommended that they be allowed to draw an additional 10 per cent of their Retirement Account savings at 65, as they were able to withdraw only 10 per cent of their balances from age 55.
The proposed lump-sum withdrawal should include the S$5,000 that can be taken out unconditionally under the current system from the age of 55, the panel said. While it received feedback that people prefer to draw a lump sum at a younger age, the panel felt the option should be offered only when they reach the drawdown age, which will be renamed as “payout eligibility age”.
By doing so, the link between withdrawing a lump sum and receiving lower monthly payouts would be “most clear”, said panel chairman Tan Chorh Chuan.
“Whereas if I make a decision at 55 to take out money, then (receive monthly payouts) in 10 years’ time, it’s very hard for many people to appreciate (the trade-off),” said Prof Tan, who is also National University of Singapore (NUS) president.
For example, a member with CPF savings of S$80,500 — the new Basic Retirement Sum — would receive a monthly payout of S$650 when he reaches 65. However, if he withdraws a fifth of his savings, the monthly payout would decrease to S$580.
The panel proposed that CPF members with S$15,000 or less in their Retirement Account (RA) should not be allowed to make further withdrawals beyond the S$5,000 — which the panel noted was more than 20 per cent of savings — they can take out under the current system.
Prof Tan said the panel had also considered giving people different options in terms of what percentage they can withdraw as a lump sum from their RA, but it ultimately felt 20 per cent is a “reasonable” balance between providing flexibility and ensuring retirement adequacy.
He said: “If you allow higher-percentage withdrawals, the impact on individuals with lower balances would be more pronounced. And this could compromise their long-term payout adequacy rates.”
NUS business professor Joseph Cherian, who also sits on the panel, said based on data, 55 per cent of members who turned 55 in 2013 had enough savings to meet the Basic Retirement Sum.
“We took comfort in the fact that people are meeting the Basic Retirement Sum because (they are) saving prudently,” he said. “So what’s the ideal number? There’s no rocket science to it, but that’s a comfortable number for those with low balances now.”
Without elaborating, the panel proposed that the Government prevent unnecessary withdrawal by incentivising members to leave their savings in their RA untouched.
Nevertheless, those who are eligible, but choose not to withdraw a lump sum when they reach 65, should retain the option to do so later, said the panel, adding that there should be more public education and financial counselling for CPF members.
