Retirement planning service to be piloted this year
Minister for Manpower Tan Chuan-Jin. TODAY file photo
SINGAPORE — With plans afoot to introduce greater flexibility into the Central Provident Fund (CPF) scheme, a one-to-one retirement planning service will be piloted in the second half of this year to help members choose the best option for their needs.
This was announced by Manpower Minister Tan Chuan-Jin as he outlined the important decisions CPF members will have to make regarding their savings as they approach retirement.
Acknowledging that more has to be done to increase the understanding of the CPF system and its coming changes following the first tranche of recommendations released by the CPF Advisory Panel last month, Mr Tan said initiatives such as the new planning service will help members.
It will be rolled out later this year and ramped up gradually from next year. “Our priority will be members who are approaching 55 and may need the service most, such as those with outstanding housing loans and may be affected by the transfer of their Ordinary Account savings to the Retirement Account at 55,” said Mr Tan.
He stressed that his ministry and the CPF Board remain committed to guiding members through critical junctures as they enter retirement, namely deciding on how much in monthly payouts is needed for retirement, which CPF LIFE plan to choose, and when to start payouts.
As for younger members worried that they would not have enough for retirement after paying off their home loans, Mr Tan, who used an example of a 25-year-old with a starting salary of S$2,200 (see below) to illustrate, said: “Most Singaporeans who work regularly and make prudent housing choices should have no worries.”
The Government has also been taking steps to boost Singaporeans’ retirement savings and income, he said, referring to the restoration of CPF contribution rates of workers aged 50 to 55 to the same level as that of younger workers, as well as smaller increases for those aged 55 to 65. However, it would not be prudent to raise the contribution rates of those above 55 too quickly, as the employment rate for this group is still considerably lower than for those who are younger, he said.
And while Members of Parliament Lee Li Lian (Punggol-East) and Ms Foo Mee Har (West Coast GRC) had called for more flexibility in the use of Retirement Account (RA) savings for housing, Mr Tan stressed that some leeway had already been given.
Upon turning 55, CPF members can choose to leave in their Ordinary Account the amount that they require for housing obligations and not transfer the monies to their RA. However, this means that these savings would not be accorded the higher RA interest rates of up to 6 per cent.
The CPF Board will be including information on this option in its letters to members turning 55 this year, said Mr Tan. However, he urged members to be prudent with their housing purchases, especially when buying or upgrading properties at an older age, as this would draw down their retirement savings. “This is because older members may have to take on loans with shorter tenure and higher monthly instalments,” he said.
He also noted that the CPF is not the only pillar of retirement adequacy, with housing also a key pillar to provide security, and MediShield Life to provide better healthcare protection and coverage for all. The Government will continue to provide subsidies and top-ups for the vulnerable.
He added: “This is a collective responsibility. Individuals, families, employers, social groups, will all need to step in to provide assistance and support.”
CPF Special Account ‘about maths, not magic’
“For someone with a salary of S$2,200, he and his employer will contribute S$130 per month into his Central Provident Fund Special Account alone. This contribution will grow up to S$250 per month as more gets allocated to his Special Account as he gets older. Let’s assume that he works 80 per cent of the time, which is 32 out of 40 years. If these contributions were to be set aside in a Khong Guan biscuit tin, he would have about S$55,000 by the time he reaches 65. But the CPF Special Account is ‘special’, because his monthly contribution earns interest of up to 5 per cent before age 55, and up to 6 per cent thereafter. Adding the interest earned, he would have about S$165,000 at age 65 — three times what he put in. This is not magic, just math. This is a very conservative estimate — it does not even account for wage growth or whatever savings he has accumulated in his Ordinary Account after paying off his flat. If you add those, he would have even more ... most Singaporeans who work regularly and make prudent housing choices should have no worries.”
--Manpower Minister Tan Chuan-Jin, sharing an example to highlight the healthy retirement picture for younger Singaporeans
