Why CPF system is better than other systems: Tan Chuan-Jin

SINGAPORE — Manpower Minister Tan Chuan-Jin today (May 25) posted a lengthy blog post explaining how the Central Provident Fund (CPF) system works — in particular, dwelling at length on the need for the Minimum Sum and why it is raised yearly — because of misperceptions about it online.

Questions about the CPF have been brought into sharp focus recently after the Government made its annual announcement about the raising of the Minimum Sum, as well as the blogger who was sent a letter of demand from Prime Minister Lee Hsien Loong’s lawyers for writing a piece accusing Mr Lee of misappropriating CPF monies.

Mr Tan explained why the CPF system here is better than other systems adopted in other countries, such as a pension scheme.

Among other things, it avoids us having to raise taxes or lower payouts as some countries are facing because “there are less and less young people paying for more and more aged people”. It has also allowed Singaporeans to own their own homes and pay for healthcare, instead of footing these bills using disposable income, he added.

“Let me state that the CPF is put in place to help Singaporeans have peace of mind when it comes to their retirement years. With increasing longevity, it has become even more important to help Singaporeans sustain their retirement adequacy for longer,” he said.

Focusing on the need for the Minimum Sum, Mr Tan also explained why the decision was made in 2003 to raise the Minimum Sum yearly.

With people living longer, prices increasing over time and daily needs rising, the target for the Minimum Sum was set at S$120,000 in 2003 dollars — now S$155,000 for those turning 55 from July this year — to ensure retirees have enough savings for the rest of their lives.

“What would happen if we withdrew everything at age 55? Or even 65? Would we ourselves be able to manage our monies for two decades or more?” he asked. “Unfortunately, most savers are unable to achieve good returns with low risk. Many have lost money because they chose the wrong products to invest in, or because of market downturns that occur in their retirement. Would we have peace of mind if we were subjected to the same uncertainties? What would happen if our monies ran out? Who would bail us out?”

If the Minimum Sum had remained at the 1987 amount of S$30,000, the monthly payouts from the CPF Life annuity scheme would be S$230 instead of the current S$1,200, he added.

Correcting some common misperceptions, Mr Tan clarified that one does not need to top up the shortfall in cash if he does not have enough to meet the Minimum Sum at age 55.

He added that despite the raising over the years, more and more Singaporeans have been able to attain the Minimum Sum — from one-third five years ago to about half now.