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Explainer: What is the relationship between one’s retirement age and CPF payout eligibility age?

SINGAPORE — The issue of the minimum age at which an individual can receive payouts from his Central Provident Fund (CPF) savings has resurfaced after Manpower Minister Josephine said in Parliament on Tuesday (March 5) that the retirement and re-employment age will be raised, though no details were given.

SINGAPORE — The issue of the minimum age at which an individual can receive payouts from his Central Provident Fund (CPF) savings has resurfaced after Manpower Minister Josephine said in Parliament on Tuesday (March 5) that the retirement and re-employment age will be raised, though no details were given.

Mrs Teo also made clear during the announcement that the payout eligibility age would remain at 65 years old.

DBS senior economist Irvin Seah said that Mrs Teo probably had to “especially emphasise” that the payout age will not be adjusted given that “people have been stuck with this idea that the retirement age and payout eligibility age” should be the same. 

TODAY takes a look at the relationship between the retirement and payout eligibility age through the years and why it’s a contentious topic.

THE EARLY YEARS

Before 1987, members could withdraw all their CPF savings in a lump sum from age 55. At that time, there was no statutory retirement age although it was widely accepted to be 55.

In 1987 then Acting Labour Minister Lee Yock Suan introduced the Minimum Sum Scheme, in which members would receive monthly retirement payouts from 60 years old. This was known as the drawdown age back then.

In 1993, the statutory retirement age was set at 60 years old.

Amendments to the CPF Bill were passed in 1994 which allowed the Minister for the Labour Ministry, now known as the Manpower Ministry, to raise the drawdown age to correspond with the prevailing retirement age.

Dr Lee Boon Yang, who was Labour Minister then, said in Parliament that “pegging the monthly withdrawal age to the prevailing retirement age is necessary in order to ensure that the Minimum Sum can last the duration of a CPF member's retirement”. 

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A year later in Parliament, Dr Lee said linking both the retirement age and drawdown age is “logical because as long as the employee continues to be working he does not need to draw from his retirement account to support himself because he will be earning a monthly salary and he can carry on as before”.

“He only needs to depend on his Minimum Sum when he finally retires completely,” he added.

When the retirement age was raised from 60 to 62 in 1999, the drawdown age was raised to 62 as well.

In his National Day Rally speech in 2007, Prime Minister Lee Hsien Loong announced that the drawdown age would be progressively raised from 62 to 65.

This was in view of plans to legislate re-employment in 2012, which would make it mandatory for employers to offer re-employment for workers who have reached the retirement age until they turn 65.

“We are legislating for re-employment until 65. … Therefore, drawdown age should also go to 65 because you are working, you work till 65, when you stop working, probably at 65, then you start drawing down,” Mr Lee said in 2007.

During the Parliamentary debate on CPF reforms in 2007, then-Manpower Minister Ng Eng Hen said that the drawdown age will be raised to 65 and “eventually to 67, in line with the re-employment law”.

Once re-employment legislations were enacted, the drawdown age increased to 63 in 2012, then to 64 in 2015 and finally 65 in 2018.

Now called the payout eligibility age, it has remained at 65 even though the re-employment age was raised to 67 in 2017. 

DELINKING THE RETIREMENT AND PAYOUT AGE

The proposal in 2007 to raise the drawdown age above the retirement age of 62 drew strong reactions from Members of Parliament (MPs) from both sides of the House.

It also generated “unhappiness on the ground”, said Mr Seah.

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Based on Parliamentary records, several MPs brought up the conundrum of older workers who retire at 62 and are not receiving any income, but yet are not able to withdraw from their CPF savings till three years later when they turn 65.

Then-Hougang MP Low Thia Khiang said the Workers’ Party opposed the raising of the drawdown age.

“Although we support the gradual increase in retirement age, we are of the view that the retirement age and the CPF withdrawal age should be delinked,” he added.

Ten years later, then-Manpower Minister Lim Swee Say said in Parliament that there is “no longer a direct point-to-point linkage” between the payout eligibility age and the retirement or re-employment age.

“They are still related because both are related to the expected lifespan but yet at the same time, I think from 2012, you would notice that even though we raised the re-employment age to 65, the CPF payout eligibility age, in fact, went up much slower to 63 in 2012 and 64 in 2015, and 65 only in 2018. The increase in our payout eligibility age is already something like six years lagging behind the re-employment age,” he said in 2017.

‘HOT POTATO’

Calling any changes to the minimum age of CPF payouts a “hot potato”, experts TODAY spoke to agreed that it should be de-linked with the retirement or re-employment age.

The linking is a “cause of angst for many Singaporeans”, said political observer Devadas Krishnadas, who is also the chief executive of Future-Moves Group, an international strategic consultancy and executive education provider.

“For those who like to retire earlier, deferring (the payout age) compels them to work longer to support themselves through income rather than savings,” he said. 

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OCBC Bank economist Selena Ling said that there is no “pressing urgency” for both to be linked together.

Delinking gives flexibility, noted Ms Ling, as not every older worker would choose to be re-employed after they retire. Hence, those without an income would then rely on their CPF payouts.

When asked how far the retirement and re-employment age should be raised to and when the changes should come into effect, Ms Ling said there are “no magic numbers” but that changes made should be “palatable” to both employers and workers.

Mr Seah, however, believed that the changes could come into effect as early as the second half of this year.

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