CPF rate hike will augment annuity payouts

MANPOWER MINISTER JOSEPHINE TEO.
MANPOWER MINISTER JOSEPHINE TEO.
MR NG CHEE MENG.
MR NG CHEE MENG.
DR ROBERT YAP.
DR ROBERT YAP.
ASSOCIATE PROFESSOR CHIA NGEE CHOON
ASSOCIATE PROFESSOR CHIA NGEE CHOON

Central Provident Fund (CPF) contribution rates for older workers aged 55 to 70 will be raised over the next 10 years or so, to help ensure they have enough for retirement.

How do the panellists view this?


Associate Professor Chia Ngee Choon For the people who are in the upper end, as long as they continue to work consistently, they really have no problem with retirement adequacy.

We should really focus on the median worker - people who are earning the median wages. I did a quick calculation: Implementing the changes would help them to accumulate enough savings in the CPF Special Account (based on 4 per cent interest rate). This will actually enhance their monthly payout from CPF Life by close to 22 per cent. So, in other words, if they still keep the drawdown age at 65, technically speaking, they can be drawing down their annuity and continuing to get a pay cheque.

If let's say they get re-employed to 70, then they will use the accumulated additional savings in the CPF to translate to an annuity product. A quick calculation shows they will be better off and it will augment the original payout by almost 22 per cent.

Then I did a quick calculation for the low-income workers. I find that they still need the most... There is still an increase but because they start off with a smaller base, this group of people still needs attention in terms of the Government helping them to improve their retirement adequacy.

Mrs Josephine Teo Our social security system isn't dependent on only CPF. Even for the lower income, there is home ownership and the home ownership amongst even poorer households in Singapore is very high - it's about 80 per cent, which is really not so achievable in other cities in the world. And what we help people to do with their housing asset is an area that continues to be enhanced. So the Lease Buyback Scheme and how to help people rightsize at different times of their life, that's very useful.

Apart from this, part of our social security is also bolstered by Workfare and, very importantly, we've introduced Silver Support.

 
 
 
 

We enhanced Workfare earlier this year, and at the appropriate time - Silver Support was introduced in 2016, it's about time for us to review it and we will keep this question of how to moderate the effects of income inequality in this review.

Dr Robert Yap I think for a majority of employers, this is a cost problem. Of course, we have comfort that the Government will have transitional support when we see the first increase in 2021. I feel that from an employer's viewpoint, this is something that we have to also do for the good of the country.

More should be done in terms of how we actually make workers more relevant. So the part about training, how we actually reskill, upskill, to make sure that our workers remain relevant for the companies, so companies can get additional value, is important.

Mr Ng Chee Meng In terms of CPF, well, the workers are also a little bit hesitant because when we raise the CPF rates, there is an individual component of contribution as well.

But the bigger picture that we have convinced our workers is that: Look at the total wage, and will it prepare you better for retirement adequacy?

If you look at Prof Chia's projection, every per cent compounded over 10 years, it's a totally different number when you actually draw it from 65 onwards, and that actually augments your retirement adequacy in a disproportionate way from today, where you lose that disposable income of 1 per cent.

And if we can get our workers to be more productive, businesses more competitive, if our workers can enjoy the average real wage increase of the last five years of about 4 plus per cent, it means that instead of 4 per cent increase of income, 1 per cent now goes to CPF, and you still have 3 per cent for daily requirements.

Is that a useful trade-off? Well, workers come around to see that, overall, it's good.

A version of this article appeared in the print edition of The Straits Times on August 27, 2019, with the headline 'CPF rate hike will augment annuity payouts'. Print Edition | Subscribe