Factoring in one’s income level, gender and marital status in setting the Minimum Sum for different individuals could be one way to inject flexibility into the Central Provident Fund (CPF) system for different members. In addition, contribution rates and ceilings should also be tweaked to ensure retirement adequacy, said experts, in response to the Government’s consideration to move away from the one-size-fits-all format.
If members are free to choose how much they want to save based on what they think they need in their later years, it may result in the state having to give out more in public assistance for vulnerable groups or make the CPF system even more complex, they added.
“Giving them too much choice isn’t necessarily good because we can’t ever predict the future for ourselves,” said Institute of Policy Studies research fellow Christopher Gee, who specialises in policy implications on retirement adequacy, housing and healthcare.
In an interview last week, Manpower Minister Tan Chuan-Jin hinted that the advisory panel set up by the Government to review the CPF is mulling the introduction of varying levels of Minimum Sum and payouts because “actually, people do have different needs and people are looking at different requirements”.
The panel is expected to submit its preliminary recommendations to the Government in February.
Yesterday, experts interviewed welcomed the idea of moving away from a common Minimum Sum for all CPF members.
The Minimum Sum is the amount each member has to meet at age 55 to be able to make withdrawals. It is set at S$155,000 now, but will be increased to S$161,000 next July.
Pointing out that the Minimum Sum could be set at a “more realistic” level for lower-income groups, Nanyang Technological University economist Walter Theseira said: “It is extremely difficult for them to have any chance of meeting the Minimum Sum. But we have to accept that if we want to give them more flexibility to withdraw their money earlier, we probably have to help them more in retirement.”
Assistant Professor Theseira suggested that one’s gender and marital status could come into play, noting that other countries have retirement adequacy systems that are conceived on a family basis, unlike Singapore’s CPF system, which is more individualistic.
“Under the United States’ Social Security system, the state gives additional benefits to married households. You can claim half of your spouse’s benefits (from the state) or all of your own, depending on which is higher,” he said. “It is extra income just for being married. Our system is not like that.”
Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy noted that a higher Minimum Sum for the middle-class group would provide a more comfortable retirement. But the “relatively low” contribution ceiling of S$5,000 now would have to go up in tandem, he noted.
On the minister’s point that the advisory panel is also studying having payouts that increase progressively to mitigate the effects of inflation, Assoc Prof Hui said the change would require the returns on special government bonds (which CPF monies are invested in) to be inflation-indexed or inflation-protected.
Such a practice is already common in overseas bond markets, Assoc Prof Hui pointed out.
Asst Prof Theseira also noted that rising payouts means purchasing power is preserved over time and not that one can consume more goods as one ages. “(It means) I can buy the same basket of food today as I can 10 years from now,” he said.
Meanwhile, Mr Gee suggested that contribution rates and ceilings should also be tweaked to boost retirement adequacy.
As employer contribution rates decrease with age, “there’s less incentive for employees to continue working and this goes against the idea of encouraging people to work longer”, he said.
Allowing withdrawals only when an individual retires — instead of from age 55 as is the case now — could be an option. “The reality is that people are living longer. The average Singaporean could retire at 55 years old and live for another 30 years,” Mr Gee said.
Source: www.todayonline.com
