SINGAPORE — Beyond gradually raising contribution rates, the Government would need to re-examine the Central Provident Fund (CPF) system holistically as it seeks to ensure Singaporeans have enough for their financial needs in their golden years, observers and Members of Parliament have said.
Among their suggestions are increasing the interest rates for the Ordinary Account (OA) and Retirement Account (RA), lowering the withdrawal limits for buying property and relooking the allocation between the OA, the RA and the Medisave Account.
Yesterday, the Ministry of Manpower (MOM) said it would continue to review and improve the CPF system in consultation with the labour movement and employers, “so Singaporeans can retire with peace of mind, while taking into account the cost implication to employers”.
The MOM was responding to President Tony Tan’s address last Friday at the reopening of the 12th Parliament, when he said the Government would improve the CPF savings and annuity schemes, and develop more options for elderly Singaporeans to monetise their homes. The ministry, however, did not provide details of its review.
To boost older Singaporeans’ financial capability in retirement and improve healthcare affordability, it was announced during the Budget in February that CPF contribution rates for older workers would be increased next year. Amid concerns from employers about higher business costs and that older workers could be less attractive to hire, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said the Government did not expect to make further changes soon to total CPF contribution rates.
Members of Parliament (MPs) who spoke to TODAY reiterated that continuously increasing the contribution rates was unsustainable.
Ang Mo Kio GRC MP Inderjit Singh suggested that, in tandem with more affordable housing, the CPF Board could allow Singaporeans to use less money from their OA to buy a property. “If we use less for housing, we will have more for retirement. We start earning 4 per cent (interest rate) earlier,” said Mr Singh, who also suggested raising the interest rates, which currently stand at 2.5 per cent per annum for the OA and 4 per cent for the RA.
Money in the OA can be used to repay housing and education loans, for instance. The RA is to cater to a CPF member’s retirement needs.
Currently, CPF monies are invested in bonds that are issued and guaranteed by the Government. Chua Chu Kang GRC MP Zaqy Mohamad proposed an investment-linked plan managed by the CPF Board to pool together investments from different members and provide higher returns.
The Government stated previously on several occasions that higher returns would entail greater risks.
Still, Mr Zaqy noted: “What Singaporeans are looking for are higher returns but, at the same time, they know there is someone trusted like the CPF watching their backs.”
Agreeing with the plan to create more ways for the elderly to unlock the value of their homes, Mr Zaqy also called for greater flexibility in the Minimum Sum scheme, which requires Singaporeans to set aside a certain sum in their CPF, so they can receive monthly payouts when they reach the draw-down age. The Minimum Sum has been increased over time to account for inflation.
National Trades Union Congress deputy secretary-general Heng Chee How reiterated that raising CPF contribution rates is only one way to enhance savings.
Offering a slew of suggestions, Mr Heng, who is also MP for Whampoa, said the CPF wage ceiling could be reviewed periodically to help those earning above the ceiling to save more in their CPF accounts. The allocation to the sub-accounts — the proportions vary as one ages — could also be tweaked and payout rates from the CPF LIFE annuity scheme could be increased, among other things, he said.
Citing the plight of workers who have low disposable incomes, unionists said employers should bear higher CPF contribution rates.
Noting that the contribution rates of employers are currently lower than those of the vast majority of workers, Amalgamated Union of Public Employees deputy general secretary Yeo Chun Fing said the first step might be to level up employers’ contribution rates.
A paper by National University of Singapore economists in 2012 showed that the CPF system would be able to provide adequately for retirement “with prudent choice of housing and the wise use of withdrawn CPF savings”.
CIMB economist Song Seng Wun felt it was inevitable that contribution rates — from both employers and employees — would have to increase over time to ensure retirement adequacy, however unpalatable that might be.
“The profile of the population is ageing … healthcare costs are certainly going to rise. From a demographic standpoint, it seems inevitable in terms of planning for the future,” he said.
While the CPF system could theoretically be made more flexible to consider one’s financial acumen and whether he or she has adequate personal savings, this would be challenging to implement, Mr Song added.
He said: “It is never going to be easy when you act on behalf of your citizens … From a citizen’s standpoint, why are you so controlling over every aspect of my life?”