SINGAPORE — Meeting the "basic retirement", housing and healthcare needs of members remains the "core priorities" of the Central Provident Fund (CPF), Manpower Minister Tan See Leng.

However, the Government will also "work hard" to provide stable returns appropriate to both savings that can be withdrawn in the shorter term as well as to longer term retirement needs, he added of the mandatory savings that Singapore citizens and residents need to contribute to CPF.

He noted that some CPF members hope to tap the social security fund for higher investment returns or to leave a bequest for their family members.

Speaking in Parliament on Monday (March 4) during a debate on his ministry’s budget, Dr Tan also revealed that only 8,400 CPF members — or less than 1 per cent of all CPF members aged 55 and above who will be affected — will not be able to fully transfer their Special Account savings to their Retirement Account.

This minority is made up of “relatively high-income earners”, while the vast majority of more than 99 per cent can transfer their entire Special Account savings into their Retirement Account to continue to earn higher long-term interest rates, he added.

Dr Tan was explaining an upcoming move announced during Budget 2024 to close the Special Account of those aged 55 and above, and transfer savings there into the Retirement Account, up to the Full Retirement Sum.

The balance will go into the member’s Ordinary Account, which attracts a lower interest rate of 2.5 per cent yearly, as opposed to the prevailing 4.08 per cent a year for the Special Account and Retirement Account.

The announcement has led to several Members of Parliament (MPs) raising concerns and suggestions during the Budget debate such as exempting certain members from the upcoming policy change, or reviewing the mechanism to determine the Ordinary Account interest rates.

Dr Tan touched on some of these matters in his speech.

On Monday, he also highlighted how the proportion of active CPF members setting aside their Full Retirement Sum at age 55 either in cash or a mixture of property and cash has improved from five in 10 to seven in 10. 

"Therefore it is not as alarming as what the Leader of Opposition (Pritam Singh) characterised it to be, (that it will be) a 'serious and ongoing concern'," he added.

CPF NOT TO ‘BUILD UP BEQUESTS’

Dr Tan said that the CPF is fundamentally designed to provide for its members "basic retirement needs" as well as support their housing and healthcare needs, though some may hope to leave a bequest for their future generations.

The change is also part of CPF’s “necessary” evolution over the years.

He noted that Singaporeans had little retirement savings when CPF was first rolled out in 1955.

Over time, they have benefitted from high employment rates and strong wage growth, resulting in members being able to set aside more savings in their CPF.

“The number and proportion of CPF members with withdrawable Special Account balances has also increased and will continue to do so,” he said.

“This is not consistent with the principle that only long-term savings should earn the higher long-term interest rate.”

Dr Tan addressed a suggestion by some MPs of grandfathering the Special Account for existing members aged 55 and above — or exempting them from the closure of the account next year.

He said that such moves would “inadvertently create a generational divide” that would benefit the current generation of older Singaporeans, while disadvantaging younger ones.

This was when he revealed that the changes will affect those who are generally “more well off”, namely less than 1 per cent of all members aged 55 and above.

“In other words, more than 99 per cent of CPF members aged 55 and above today will be able to transfer all their Special Account savings to their Retirement Account to continue to earn the higher long-term interest rate, and receive higher retirement payouts, should they wish to do so,” he said.

“I hope Ms Hazel Poa and Mr Leong Mun Wai can see that closing the Special Account is not a move to save interest payments,” he added, referring to a point raised by the Non-Constituency MPs from Progress Singapore Party at earlier sittings.

The 8,400 affected members may transfer their CPF savings to the Retirement Account of their family members, or grow them outside the CPF system, the minister suggested.

However, Dr Tan noted that almost 720,000 members who are able to withdraw their Special Account balances — amounting to a median balance of around S$2,000 — may experience “some loss” in liquidity.

These members may choose to either transfer the balance to their Ordinary Account for liquidity, invest in safe instruments through the CPF Investment Scheme, top up their Retirement Account up to the raised Enhanced Retirement Sum to receive higher retirement payouts or withdraw the monies to invest outside the CPF system.

At the median, the difference in interest earned in the Ordinary Account compared to the Special Account is about S$30 a year, he said.

CPF LIFE RISK-POOLING, ADJUSTING INTEREST RATE

There were several concerns and suggestions raised by MPs earlier in relation to CPF.

For example, Workers' Party MP Louis Chua of Sengkang Group Representation Constituency referred to the CPF Board's website, which states that when CPF members die, the interest earned on the CPF Life premiums is not included in the amount that gets paid to beneficiaries after the death.

This is because the premiums are risk-pooled — a fundamental concept behind annuity schemes that enable members to get regular lifetime payouts, even if they live longer lives than expected.

Dr Tan explained that this risk-pooling is “necessary” because it allows CPF members to get monthly payouts “for as long as they live”. 

“CPF Life is form of insurance. It is not an investment vehicle. Each member will need to assess for themselves what level of retirement payouts they desire,” Dr Tan said.

He referred to a media report that described CPF Life as “the best annuity in the market”.

“If Mr Chua knows of any similar or better products, he, too, can apply to opt out of CPF Life.”

Dr Tan then turned to Mr Chua’s and Ms Poa’s calls to implement the proposed Lifetime Retirement Investment Scheme — a suggestion put forward by a CPF review panel back in 2016 as an alternative to the CPF Investment Scheme.

The minister reiterated that, if this were to be rolled out, this proposed scheme would introduce a new element of risk for retirees.

“But having said that, regardless, we will continue to study the proposal and work on making the CPF system even better for Singaporeans.”

As for suggestions by some MPs to relook how the Ordinary Account interest rate is determined, Dr Tan urged everyone to take a long-term view, noting that CPF has paid 2.5 per cent interest as well as extra interest over the past two decades while the market was paying well below that.

An MP had highlighted previously that the rate had remained stable while other instruments in the market have offered higher yields.

Dr Tan said: “On average, the annual Ordinary Account interest rate was 1.7 percentage points higher than the 12-month fixed deposit rates from 1999 to 2021.

“Nevertheless, we are monitoring the situation, and will continue to review CPF interest rates periodically, to ensure their relevance in the prevailing operating environment.”