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Budget 2015: DPM Tharman addresses clarifications on CPF

SINGAPORE — Following Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam’s Budget round-up speech in Parliament today (March 5), Workers’ Party MPs Gerald Giam and Png Eng Huat rose to seek clarifications on Mr Tharman’s comments about WP’s proposal to have an option for earlier CPF payouts.

The CPF Building along Robinson Road. TODAY file photo

The CPF Building along Robinson Road. TODAY file photo

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SINGAPORE — Following Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam’s Budget round-up speech in Parliament today (March 5), Workers’ Party MPs Gerald Giam and Png Eng Huat rose to seek clarifications on Mr Tharman’s comments about WP’s proposal to have an option for earlier CPF payouts.

Here are the clarifications, in full:

CLARIFICATIONS ON THE BUDGET DEBATE ROUND-UP SPEECH

Mr Gerald Giam:

Madam, I want to thank DPM for taking the time to explain why he disagreed with our proposal for an early payout eligibility age. I just wanted to clarify a few points just to make sure that the whole house is clear on what our proposal was.

Firstly, we also did not propose that proposal in isolation. That means, we weren’t just saying that just lower the payout eligibility age. Just to clarify, this is not the same as asking for an entire lump sum withdrawal at age 60. So, it’s really just stretching out the period which the payouts from CPF are given to members, so instead of starting at age 65 until their death, it’s from age 60 until their death.

Secondly, this is an option, it’s not saying that everybody has to start at age 60.

Thirdly, I did propose also that there should be more personalised public education on the CPF scheme especially if our proposal is taken up. It must be explained to the members that there will be consequences for an early withdrawal, we did say that there will be a 6 – 7 per cent decrease in the payout.

So, really, the terms of the early withdrawal/payment will really only be attractive to those who really need the money at that point of time. Like I explained in my speech it could be because they are out of work and they cannot find work or they are not able to work for whatever reason. So our main point is that life is unpredictable and we cannot presume to know the financial situation of every person at age 60. So there might be some members who really have a need too and we should give them that flexibility.

DPM Tharman Shanmugaratnam:

Madam Speaker, I thank Mr Gerald Giam for that clarification and let me say once again, and I didn’t mean this rhetorically, it is not a crazy idea. But it would be unwise to move in this direction, because we do have to learn from the experience of other countries that have introduced it.

There is something in human nature that none of us fully understands, but we will always place more emphasis on what we can get early. We will take advantage of an option to get something early, even if it is at the expense of what we need later on. And that has been the experience in Denmark and several other countries that have had to reverse course.

So it is not a crazy idea, it is just that we have to be honest about the risks and find ways to help people address their needs, because I agree that there is a need. Life is unpredictable as you say, and if you are medically unable to work, we’ll make sure you are able to draw on your CPF.

But (we must) find every way in which we can help people stay at work and save for longer, because the monumental challenge that faced in every maturing society, every aging society, is helping retirement savings stretch throughout life. It’s a huge challenge and we are doing it through the CPF system as well as through the Government Budget with the advantage of being a triple-A rated government, that gives assurance that this would be continued.

That is the big challenge. So you have not proposed a crazy idea at all. As Ms Chia Yong Yong has said she has great unease about it. I think basically we have to take lessons from the rest of the world and we only learn what happens many years after we introduce schemes.

In Denmark, it took 30 years before they reversed course and with great political difficulty, but they are doing it with both opposition and government agreeing that they have to do it. So when it comes to flexibility and choice, we should make haste slowly.

Mr Png Eng Huat:

Thank you, Madam. I like to seek clarification when you say that they reverse course in Denmark. That means what? They are not going to continue with early retirement? Because from what I know they have early retirement at 60. And what’s going to happen is that they are going to peg the early retirement to life expectancy. So it moves, so by 2022 it moves, means early retirement age would be probably 62, 63. Not that they are reversing and they are not going to allow early retirement. They have a normal retirement and they have an early retirement, just that the early retirement currently is 60 but they are just going to peg it to life expectancy. So it moves after 2022.

DPM Tharman Shanmugaratnam:

I am not the Danish Finance Minister and I do not want to get into a detailed discussion on Denmark but let me assure you that they realised that their early decision made in 1979 to allow for early retirement was a mistake; they realised that it was going to impose a cost on the individual as well as the rest of society; and they want to phase it out.

And that is the trend that’s been taken in several societies. Every society is trying to find the way in which the pension age, pension drawdown age, as well as the retirement age can move up.

It does not mean doing so solves all our problems. Some individuals would be in difficulty. Some individuals will be in difficulty, and all pension schemes have to deal with these trade-offs. Some individuals will be in difficulty, and we have to find ways of helping them. But do not compromise the basic features of the system. Find ways of helping them and in Singapore, we can do it, we can help them.

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