5 May 2022

Sue-Ann Tan

Source: The Straits Times © SPH Media Limited. Permission required for reproduction

SINGAPORE - Central Provident Fund (CPF) monthly payouts have increased with each successive cohort and are set to keep going up for future cohorts as well, according to a trends report by the CPF Board out on Thursday (May 5).

Median payouts have risen by 25 per cent from 2019 to 2021, thanks to income growth, increased labour force participation and overall improvements to the CPF system.

Figures show that a CPF member who turned 65 in 2019 got monthly payouts of $460, compared with the $580 that a member who turned 65 in 2021 now gets.

This 25 per cent increase is above the inflation rate, a CPF Board spokesman noted. Those who are concerned about rising prices can also opt for the CPF Life Escalating Plan which provides monthly payouts that increases by about 2 per cent per year. 

CPF members can generally gain 30 per cent more in their monthly payouts if they defer their payouts to 70 years old, the study showed.

A person who turned 65 in 2019 is projected to get $610 if he defers his payouts to age 70, the latest age at which payouts can start. Meanwhile, a person who turned 65 in 2021 can get $760 if he starts the payouts at 70 years old.

Indeed, the proportion of members choosing to defer their payouts has increased, CPF Board said in its report.

This proportion stood at 43 per cent in 2019 but grew to 54 per cent in 2021.

The figures refer to all members who can start their payouts at 65 years old and are on the CPF Life Standard Plan.

The Standard Plan provides level payouts that remain the same for the rest of a member's life. This is opposed to the Escalating Plan, for instance, where monthly payouts increase by 2 per cent every year to help protect the member against rising prices.

People might be delaying payouts because they remain economically active even after retirement, said National University of Singapore business professor Lawrence Loh. 

“In the new economy which is characterised by flexibility in work scope and location, there are income opportunities – all the more, we are also seeing the emergence of the so-called gig economy where there may be much temporary work for independent contractors and freelancers,” he observed. 

Institute of Policy Studies senior research fellow Christopher Gee added: “As Singaporeans have become wealthier, their non-housing, non-CPF financial assets have increased so as to allow them to live on that income instead of relying on their CPF payouts. 

“The decline in interest rates and rates of return from reasonably safe investments has also boosted the relative attractions of just letting the CPF balance accumulate more by deferring that payout beyond age 65."

But the report also noted that about 70 per cent of members made lump-sum withdrawals before payouts began at the age of 65.

Members can make withdrawals from 55 years old.

This is despite the fact that payouts would be higher if members did not make withdrawals before they turned 65, thanks to the interest compounding over the 10 years from the time they turned 55.

Mr Gee said: “It’s because of the strong norm that has formed around getting your hands on this money that has been locked away in the CPF that some people - still a significant majority- will still do, even though this is not the most optimal decision from a long-term retirement planning point of view.”

The interest rate floor stands at 2.5 per cent for the Ordinary Account and 4 per cent for the Retirement Account from April 1 to June 30 this year.

The monthly payouts are also expected to increase for future cohorts, because of the measures to help boost retirement adequacy.

For example, the CPF contribution rates for those aged 55 to 70 will be increased gradually to help workers earn more and save more even after turning 55.

The retirement and re-employment ages for Singapore workers will also be progressively raised to 65 and 70 by 2030, to support older Singaporeans who wish to continue working.

For low-wage workers, Workfare will be enhanced to increase payouts for all recipients and be extended to younger workers from 30 years old.

The Matched Retirement Savings Scheme launched last year will also help seniors who have not reached their Basic Retirement Sum to build their retirement savings.

Eligible members aged 55 to 70 with lower balances can receive a dollar-for-dollar matching grant – up to $600 for a year – for cash top-ups made to their Retirement Account under this scheme.

But more also needs to be done with retirement planning, especially starting when people are still young, the experts said. 

Prof Loh said: “The worrisome bugbear is inflation and the rising cost of living – some may find it necessary to make lump sum withdrawals to tide over the challenging times.

“But lump sum withdrawals should be the exception rather than the norm as these may affect the payouts.”

Mr Gee also noted that there might be a persistent group of people who will fail to achieve the Basic Retirement Sum, such as those who were never really engaged in the labour market or who fell out of the labour force due to job losses for instance. 

So CPF payouts will continue to rise, but with some caveats, he said. 

“There is some momentum behind these trends still, at least for the next decade. But there are also some emergent trends that could affect this trajectory, such as the rise of gig work or the numbers of self-employed persons who may find it much less easy to make contributions.”

People can also use a CPF tool to estimate the amount of monthly payouts they will get so that they can plan their future retirement lifestyle. It is available at this website.

Article was first published in The Straits Times on 5/5/2022