Singapore's Central Provident Fund system better understood now

Workers outside CPF Building in the financial district area. Singapore has made some progress in helping international organisations such as the Organisation for Economic Co-operation and Development (OECD) to better understand the local Central
Workers outside CPF Building in the financial district area. Singapore has made some progress in helping international organisations such as the Organisation for Economic Co-operation and Development (OECD) to better understand the local Central Provident Fund (CPF) system, said CPF deputy chief executive officer Don Yeo. -- ST FILE PHOTO: CAROLINE CHIA

Singapore has made some progress in helping international organisations such as the Organisation for Economic Co-operation and Development (OECD) to better understand the local Central Provident Fund (CPF) system, said CPF deputy chief executive officer Don Yeo.

As a result, he added, the OECD will be making a few changes to the way it compares pension systems around the world in its future reports.

Mr Yeo noted that there have been studies, such as the Melbourne Mercer Global Pension Index and the OECD's Pensions at a Glance report, which compared pension systems across the world and found Singapore's to be lacking.

But this is because these organisations used a common set of parameters to compare all countries, failing to take into account certain nuances of Singapore's CPF system, which is quite different from many pension systems around the world, he said.

For example, these studies have derived a rather low income replacement rate (IRR) for Singapore as they only considered CPF contributions to the Special Account and overlooked CPF contributions channeled into the Ordinary Account (OA), which serves both housing and retirement needs.

The IRR indicates how far post-retirement income goes towards replacing pre-retirement income.

"But our experience shows that a significant number of members do not utilise all their Ordinary Account contributions for housing," Mr Yeo said.

"A substantial portion of Ordinary Account savings are in fact channeled to the Retirement Account and paid out as monthly pension income."

The OECD has recently agreed that it is realistic to factor in part of the OA contributions, and will build it into their IRR computations in upcoming reports, Mr Yeo said.