Extra interest helps members stretch CPF payouts

The Retirement Sum Scheme payouts are computed to last a member about 20 years, taking into account the base interest rate of 4 per cent for his Retirement Account balances.
The Retirement Sum Scheme payouts are computed to last a member about 20 years, taking into account the base interest rate of 4 per cent for his Retirement Account balances.PHOTO: ST FILE

We thank Mr Lawrence Loh Kiah Muan and Mr Teo Hoon Seng for their views on Central Provident Fund payouts (CPF policies should be simple and logical; and Why use extreme end of bell curve to compute CPF payout?, both published on Feb 26).

Mr Loh is right that every member can make CPF withdrawals at 55, of up to $5,000. With a property pledge, a member can also withdraw savings above the Basic Retirement Sum. His remaining savings will fund a monthly payment stream. Such monthly streaming of retirement benefits is not unusual. Pension systems worldwide have similar designs.

How long should these monthly payouts last? Views may differ, but more than half of Singaporeans aged 65 are expected to live for more than 20 years, past 85.

The Retirement Sum Scheme (RSS) payouts are computed to last a member about 20 years, taking into account the base interest rate of 4 per cent for his Retirement Account balances.

However, the payouts will last less than 20 years for CPF members with low balances. This means that significantly more than half of RSS members will outlive their monthly payouts. The Government is very concerned for them.

Since the introduction of the extra interest of 1 per cent for the first $60,000 of CPF savings and the additional extra interest of 1 per cent for the first $30,000, the extra interest generated has been used to extend the period of support.

In other words, when a member's CPF savings are exhausted after 20 years, this extra interest kicks in to continue the monthly payouts until the extra interest is also used up.

This reduces the chances of RSS members outliving their payouts.

If the member does not outlive his payouts, the balance will form part of the member's estate that he can leave to his family.

For members who defer the start of their payouts until they are older, there is less need to further extend their payouts. The CPF Board exercises flexibility for these members to opt for a shorter payout duration and higher monthly payouts instead.

The CPF Board will review the current arrangements to see if they can be adjusted to take into account the life expectancy of members who start their payouts later.

We have contacted Mr Teo to explain the matter and acceded to his request for an increase in monthly payouts.

Sim Feng-Ji

Divisional Director

Ministry of Manpower

A version of this article appeared in the print edition of The Straits Times on March 02, 2019, with the headline 'Extra interest helps members stretch CPF payouts'. Print Edition | Subscribe