SINGAPORE - It is important to help Singaporeans save more for retirement adequacy, said Minister for Manpower Josephine Teo. To meet their needs, especially as they live longer lives, the Central Provident Fund (CPF) basic retirement sum should be regularly adjusted to ensure that payouts remain relevant to members.
She was speaking at the National University of Singapore Faculty of Arts and Social Sciences 90th anniversary gala dinner held on Friday (Nov 15) at Carlton Hotel.
Mrs Teo was a student at the faculty from 1987 to 1991.
After setting aside a basic retirement sum at age 55, CPF members receive lifelong monthly payouts that can cover basic living expenses from the time they turn 65.
The basic retirement sum is raised yearly as part of the recommendations made by the CPF Advisory Panel in 2015.
The panel recommended that the basic retirement sum be increased by 3 per cent each year for members who turn 55 between 2016 and 2020.
This rate of adjustment takes into account long-term inflation and increases in standard of living.
The basic retirement sum for a CPF member who turned 55 in 2016 was $80,500, while the basic retirement sum for a member who turned 55 in 2017 was $83,000.
The basic retirement sum for a member who turns 55 this year is $88,000. This amount will go up to $90,500 next year.
Mrs Teo said: "One factor affecting retirement adequacy is inflation. When savings and monthly payouts are fixed, their real value erodes over time."
For instance, she brought up the minimum sum (the rough equivalent of the full retirement sum today) which was first introduced in 1987. The sum was set at $30,000 and provided about $300 in monthly payouts for 20 years.
"The same payout may have felt all right when the payouts first started, but fast forward to today, that same payout feels inadequate," she noted.
The minister also explained that the government wants to ensure the basic retirement sum is properly set, taking into account the fact that the CPF member will get the payouts only a decade later.
A member turning 55 in 2020 who sets aside his basic retirement sum of $90,500 will get $740 to $800 in lifelong monthly payouts from age 65 in 2030.
She said: "How can we be better assured that the basic retirement sum will produce adequate payouts 10 years down the road, and throughout retirement? How can we ensure that the basic retirement sum is set so that payouts continue to cover basic expenses in the future?
"With rising aspirations, retirement adequacy is not just a matter of meeting basic expenses."
Mrs Teo noted that over the last decade, the proportion of active CPF members who met their basic retirement sum at age 55 has improved, from 38 per cent to 62 per cent.
This is even as the basic retirement sum has been gradually raised to keep pace with inflation and improvements in standard of living.
The CPF has to evolve to keep pace with changes like increasing longevity, she added.
"With people living to 100 or beyond, patterns of working life and retirement will change... More people change careers or reskill later in life. They may not always be employees, but can choose to be self-employed for a while. They take breaks mid-career, but can continue working into their 70s," she said.
She reiterated that over the next decade, CPF contribution rates for older workers will be gradually raised. This move was first announced by Prime Minister Lee Hsien Loong during this year's National Day Rally.
Mrs Teo said: "Progressive CPF interest rates of up to 6 per cent per year benefit all members, especially those with lower balances. We provide tax reliefs to people who top up their own retirement savings or that of their loved ones."
She added that homes can also potentially supplement retirement incomes, as people can rent out rooms or the home. Others can right-size their homes after their children have moved out.
Schemes like the Lease Buyback Scheme and Silver Housing Bonus for Housing Board flat owners can also help them unlock value from their homes.
Singapore has done well, but the system can be constantly improved by planning ahead, she added.
"In that sense, the CPF must remain a 'live system', always evolving and ever-responsive to emerging needs."