(SINGAPORE) Reassuring younger Singaporeans that they will have enough Central Provident Fund (CPF) savings to meet their basic needs in retirement, Deputy Prime Minister Tharman Shanmugaratnam yesterday unveiled a simpler CPF Life annuity plan that almost all who turn 55 from next year must join.
'2013 will be a milestone for the CPF,' said Mr Tharman, who is also Minister for Finance and Manpower. 'From Jan 1, 2013, the majority of (CPF) members turning 55 will join CPF Life, instead of the Minimum Sum (MS) Scheme.'
Singaporeans with balances of above $40,000 in their Retirement Account (RA) will be automatically included in CPF Life. Those with lower balances may opt in.
CPF board estimated that about 58,000 Singaporeans in the CPF scheme will turn 55 in 2013.
CPF Life, intended to replace the MS Scheme, was first offered to older Singaporeans on the CPF scheme in September 2009 when they were given a choice to switch from the MS Scheme to one of four plans under CPF Life - Balanced, Plus, Basic or Income Plans.
Except for the Income Plan, the plans offer different variations of monthly payouts and bequests. The Income Plan leaves no bequests for beneficiaries.
From Jan 1, 2013, there will be only two options for those who turn 55: a new Standard Plan that combines the best features of the two most popular existing plans - Balanced and Plus Plans; and the existing Basic Plan (Click here to see Monthly payout illustration).
The Income Plan, which is the least popular among existing plans - only 3 per cent of CPF members opted for this - will be dropped.
The Standard Plan provides higher monthly payouts while still allowing Singaporeans to dip into the RA to pay for housing until they are 65 years old. Singaporeans can leave a bequest to beneficiaries under the Standard Plan, which is also the default plan.
The Basic Plan is retained for Singaporeans who prefer larger bequests and lower monthly payouts. The plan also allows Singaporeans the flexibility to use their RA savings to pay for housing after 65.
Some 73,000 older Singaporeans had chosen to move from the MS Scheme to CPF Life in the past two odd years when there were four options. They may remain on their existing plans or switch to the new Standard Plan, but they must exercise their choice by Dec 31, 2013.
Those on the MS Scheme can continue to stay on it.
But with Singaporeans living longer, Mr Tharman cautioned that a growing number of retirees will outlive their CPF savings if they were on the MS Scheme.
While the MS Scheme provides payouts for slightly over 20 years, CPF Life provides Singaporeans with an income for life.
'CPF Life is therefore both an important and timely evolution of the MS Scheme,' Mr Tharman said.
The transition for Singaporeans who turn 55 next year will be smooth, he assured.
'We already have a MS Scheme that everyone is used to, where monthly payouts begin at the draw-down age of 65, and a bequest is left for members' beneficiaries at their demise,' Mr Tharman said. 'This will continue under CPF Life. What CPF Life does is to extend the MS Scheme to last for life, with minimal reduction in monthly payouts.'
Older Singaporeans are asset-rich but cash-poor, he said. But younger Singaporeans - especially those in the middle and lower-income groups that the CPF system serves mainly - have significantly higher CPF savings to provide for retirement 'at a level comparable to the median for the developed countries, even without taking into account the fact of higher home ownership in Singapore'.
Mr Tharman said the MS - $132,000 today - is not excessive, and the percentage of active CPF members who meet their MS at 55 has been improving over the years, from 36 per cent in 2007 to 45 per cent last year.
'Among those starting work today, about 70-80 per cent should be able to attain the current level set for the MS in cash by the time they retire, adjusted for inflation, even after they have withdrawn money for home,' he said.
CPF returns have also been reasonable at 2.2 per cent per annum - on top of inflation - over the last 20 years, he said. And the extra one per cent interest on the first $60,000 of CPF balances starting in 2008 would boost future returns.
'The compounding effect of this extra one per cent interest, on top of long-term bond rates, will over the long run help shore up members' CPF savings - especially for those in the lower-income group,' Mr Tharman said.