SINGAPORE, Feb 27 — The recent announcement to close the Central Provident Fund (CPF) Special Account of those aged 55 has put the spotlight again on retirement adequacy, with Members of Parliament (MPs) asking that more support be given to people who are already retired as well as working Singaporeans building their nest eggs.
About 10 of the 29 MPs who spoke on Monday (Feb 26) during the first day of a debate on the Budget statement touched on this topic, with some saying that the upcoming change in 2025 may disrupt years of retirement planning by some Singaporeans.
Even though they approve of the measures trotted out to boost retirement adequacy with this year’s Budget, more should still be done, they added.
Pritam Singh, Leader of the Opposition and head of the Workers’ Party, pointed to an annual study by a Singapore bank last year, which found that about 79 per cent of Singaporeans either do not have a retirement plan or are not on track with their retirement plans. This proportion grew from the 71 per cent in 2022.
Noting that the Government has announced various measures to boost the CPF savings of Singaporeans, Singh who is also MP for Aljunied Group Representation Constituency (GRC) added: “These moves make it clear that sufficiency of CPF balances for retirement is a serious and ongoing concern.”
CPF is a national social security savings scheme, which mandates that Singapore citizens and permanent residents set aside money for retirement. Some of the money may be used to pay for property purchase, medical bills, insurance, education or for investment when certain conditions are fulfilled.
The CPF Special Account, where the money saved is meant for investments and retirement payouts, has limited usage but earns a higher interest rate than the Ordinary Account.
The Retirement Account is created when a person turns 55, with money moved there first from the Special Account followed by that in the Ordinary Account.
Plans disrupted
The MPs said that they understood the rationale behind closing the Special Account, but that it has thrown a spanner at some CPF members’ retirement planning.
West Coast GRC MP Foo Mee Har said: “They have systematically saved and trusted this scheme to build up their retirement nest eggs.
“This sudden, unexpected change disrupts their retirement planning.”
Yio Chu Kang MP Yip Hon Weng said that some residents were saying that they are left with “limited time” to adjust their plans, given that it will take effect next year.
“The limited withdrawal options from the Retirement Account raise concerns about accessing emergency funds,” Yip added.
Housing payments eat away at savings
MPs also raised concerns about how the usage of CPF funds to pay for residential property affects retirement adequacy.
Singh said that public housing in the late 1960s picked up in popularity after CPF funds were allowed to finance down payments and mortgage repayments for Housing and Development Board (HDB) flats.
“It would not be a hyperbole to say that the CPF changed from a statutory board in charge of Singaporeans’ retirement to a subsidiary of the HDB with the aim of helping Singaporeans purchase property,” he continued.
Today, though, younger Singaporeans cannot expect the same home equity appreciation that residents had experienced from the 1990s, he added.
“More money set aside for a HDB flat purchase means less funds available for retirement, notwithstanding options to downgrade,” Singh said.
“If property prices and general inflationary trends rise faster than wages, plans for retirement will have to start later for many people since they would have less to set aside for their nest egg with mortgages to serve today.”
If such a trend continues, the Government may end up committing itself to make public housing affordable by increasing subsidies.
“Make no mistake: Direct subsidies for HDB flat purchases do not make HDB flats cheaper. They merely transfer the cost to current taxpayers,” Singh added.
Non-Constituency MPs from the Progress Singapore Party (PSP) took the opportunity to revisit their “affordable homes scheme” idea, which they first mooted last year.
Leong Mun Wai, for example, argued that the party’s idea — which involves excluding land costs when pricing HDB flats — would mean that less CPF funds need to be set aside for housing.
“With the affordable homes scheme, we will not need to enhance the retirement adequacy of Singaporeans through schemes like the Matched Retirement Saving Scheme and the occasional top-up of CPF accounts,” he said.
The Government introduced the Matched Retirement Savings Scheme in 2021 to help Singaporeans primarily aged 55 to 70 who have yet to meet the CPF Basic Retirement Sum save more for retirement — by matching every dollar of cash top-ups made to an eligible member’s account up to an annual cap of S$600 (RM2,133).
PSP’s idea has been criticised by the Government and MPs for possibly distorting the housing market.
Indranee Rajah, Second Minister for National Development, had said that the idea would raid the national reserves.
Re-examine CPF rates
When the Special Account closes under the upcoming change, a CPF member’s savings exceeding the Enhanced Retirement Sum will be moved into the Ordinary Account, which attracts an interest rate of 2.5 per cent yearly — much lower than the prevailing 4.08 per cent per annum in the Special Account.
Leong of PSP asked the Government how much interest is now being paid in the Special Account and “how much will it save in interest payments” from the move.
MPs also asked if the Government would consider reviewing how the interest rate is determined.
Bishan-Toa Payoh GRC MP Saktiandi Supaat suggested including more than the three major Singapore banks that are now being referenced, to better reflect funding conditions here.
“Another suggestion is to take into consideration the promotional interest rates that are offered by the banks instead of just the board rates,” he said, adding that the Government may then apply a slight discount to the interest rate to reflect the lower risk of putting money in the CPF account.
Sengkang GRC MP Louis Chua resurfaced an earlier idea to allow everyday Singaporeans to “directly participate in the long-term returns” from the country’s sovereign wealth fund GIC, albeit with adequate safeguards in place.
GIC’s portfolio 20-year nominal rate is 6.9 per cent, he added.
“Based on a simple Rule of 72, the number of years it takes for our CPF monies to double goes from about 10 years based on GIC’s returns, to 29 years based on the prevailing Ordinary Account rate.”
Rule of 72 refers to a simplified formula commonly used to estimate the number of years needed for an investment to double in value.
Employment support for older workers
MPs also welcomed the move to raise CPF contribution rates for workers aged 55 to 65 by 1.5 percentage point starting from next year, though they would like more steps to be taken to allow older Singaporeans to continue earning their own income.
Singh said that employers have to redesign jobs so that older residents may continue to work for far longer if they wish to do so.
Ang Mo Kio GRC MP Gan Thiam Poh wanted more support to be given in terms of job search and job matching for older persons who wish to continue working, particularly so for those who have been retrenched.
He also asked the Government to share more detailed re-employment figures for retrenched workers, especially those above the age of 50.
Helping asset-rich seniors, sandwiched families
Some MPs drew attention to the plight of seniors who may be disadvantaged by the way current policies are structured. One such group is the asset-rich but cash-poor retirees.
Yip noted how the sharp increases in the annual value of homes have “devastated” retirees who lack income to absorb the cost of rising property tax.
Looking at the adjustment of annual value bands for owner-occupied properties from next year, he urged the Government to consider rolling this out earlier.
He also suggested taxing people with multiple properties instead of those who just have one to their name.
“What the Government is doing now is essentially asking retirees living in their own home who cannot pay their property tax to sell away their homes and uproot from the environment that they are familiar with,” Yip said.
This could be detrimental to their mental health or “even cause dementia to set in earlier”, he added.
Another group potentially disadvantaged are elders who live with their family members, who may be disadvantaged when it comes to the Silver Support Scheme.
The scheme provides quarterly payments to seniors who had low incomes during their working years and have less family support. One qualifying criteria is the per capita household income, or the income of each person in the household.
Tanjong Pagar GRC MP Joan Pereira said that sometimes, three or four generations of a family live together in the same address for mutual care and support or due to financial circumstances, giving all the more reason to extend more support to them.
“Today, I would like to take the opportunity to appeal for more middle — and long-term support for the sandwich generation, whom I would refer to as the group that has to provide for the care and expenses of children and elderly parents while having to prepare for their own retirement needs,” she added.
The Silver Support Scheme should also be extended to elders living with family members, albeit in the lower — and middle-income brackets, she proposed.
“Such a support programme will help to alleviate the burden on the sandwich generation.” — TODAY
