RETIREMENT SECURITY OF SINGAPOREANS

RETIREMENT SECURITY OF SINGAPOREANS: 8.

Mdm Halimah Yacob asked the Minister for Manpower, considering that only four in ten Singaporeans had the mandatory Minimum Sum savings in their CPF accounts in 2005 and a survey result released in February 2006 showed that only one in ten actively saved for retirement, what more can be done to help enhance Singaporeans’ retirement security.

Dr Ng Eng Hen: Sir, about four in ten active CPF members who turned 55 in 2005 met the Minimum Sum of $90,000.

One reason for this is that members were and are able to withdraw 50% of their CPF balances when they turn 55, before they set aside the Minimum Sum. In other words, previously we said, "Even if you did not, you could withdraw an amount of your CPF." If we had not allowed that, 60% of active members would have met this Minimum Sum.

This is the reason why the Government had announced in 2003 that the Minimum Sum should be gradually increased, and the 50% withdrawal rule will be progressively phased out starting from 2009. These changes will help

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Singaporeans to set aside more funds for their retirement.

Besides changing the withdrawal rules, the Government will help Singaporeans to enhance their retirement security in a number of other ways.

Firstly, the Government will help older Singaporeans keep their jobs and stay longer in their jobs so that they can earn more and put more into their CPF.

Secondly, we will find ways to help CPF members enhance the returns on their CPF savings. In February this year, the CPF Board has tightened the criteria for admitting funds into the CPF Investment Scheme (CPFIS) in order to improve the quality of funds in CPFIS. In other words, we set out a number of criteria, both on expense ratios and fund loading charges as well as how they perform. So, we are using two levers. One is information, ie, to put out the information on how the funds perform. We rank them in terms of their expense ratios, as well as set benchmarks for how much they can charge.

Finally, the CPF Board will continue to educate CPF members on ways to improve their retirement adequacy. We are working with market players to provide members with better information about their investments, educating members so that they can make informed investment decisions, providing online financial tools and reaching out to Singaporeans through seminars and road shows on the need for retirement funding. The most recent road show at the HDB Hub in September 2006 attracted 92,000 visitors. So Singaporeans are actively engaged, and I take it that they want to learn also how to plan their retirement. We will also work with the Housing and Development Board to encourage the prudent use by members of CPF for housing.

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Mdm Halimah Yacob: Sir, I would like, firstly, to ask the Minister whether, in the Minister's view, the Minimum Sum that members can withdraw after 62 is sufficient to take care of their retirement needs. Secondly, the Minister alluded to the fact that there is a study that is going on to look into how to enhance the returns to members' CPF contributions. When will that study be completed and its recommendations made and put in place? Thirdly, are there any proposals to look into how to help Singaporeans make use of their flats or assets to convert them into cash to make use of them for their retirement income?

Dr Ng Eng Hen: Sir, I thank Mdm Halimah for bringing up those salient questions, which give us the opportunity to touch on them.

The Minimum Sum, as it is called, is the minimum sum, ie, minimum enough for substantial living and let me translate it into monetary terms. If we assume a 20-year lifespan from age 62, the average life expectancy now at age 62 for males is 81 and that for females is 84. For females, 84 minus 62 is 22 years. If we translate so many in dollar terms, ie, about $90,000 over 20 years, we get the amount. That is the amount that we think is adequate for subsistence living. That is why it is called the Minimum Sum.

The second point which Mdm Halimah asked is whether we are considering a variety of plans to enhance the retirement savings for members and when the study would be completed. Sir, the study is on-going. But even as we are looking at various aspects, we have moved. Some of the changes the CPF Board has made in terms of tightening entry of funds and dictating maximum expense ratios were as a result of this study. There was a proposal put that the CPF Board should consider itself as an aggregating body to put out funds. That is a little bit more complex and it has taken us a while. We

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are still consulting various stakeholders. The issues are risk-tolerance and educating members, which the industry tells us is not that easy. No matter how much we educate members, some do make wrong decisions in investments. In any framework where we liberalise the investment framework, members must be willing to live with that risk.

There was a third point, on the monetisation of assets. As the Prime Minister mentioned, the majority of Singaporeans have assets. Even the lowest 20% of households have a positive equity of $138,000. This is a significant asset that we can help them monetise and have an income stream. It is an added revenue for their retirement. I think the Minister for National Development is actively studying these options in terms of how we can provide options that allow our elderly to monetise.

Dr Lily Neo: Mr Speaker, Sir, could I ask the Minister what is the total amount of members' balances in the CPF presently? How are members' funds being invested and what are the returns of such investments? How are the CPF rates of return being protected against the current rates of inflation? Can there be better returns to members, especially during retirement, to address the issues of longevity and inflation risks? Lastly, could the Minister look into the CPFIS scheme, ie, the early withdrawal scheme, to see whether such funds should be centrally managed, instead of leaving them to individual choice, for better return outcomes for members?

Dr Ng Eng Hen: Sir, as I mentioned, these are active suggestions that we are looking into. But we cannot run away from one cardinal principle on investing, ie, higher returns come with greater risks. So, if a member wants to put in his funds which may have a projected higher return, he has to live with the fact that he may also lose money in the short term. That is

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why the current framework, which pays 4% for the SA and the MA accounts, is risk-free, the Government bears the risks. Members, if they want to, for example, could invest in the CPFIS. Unfortunately, as our results show, about three-quarters of them do not make good investment decisions and fail to outperform CPF's interest rates.

Mdm Lily Neo asked whether we should invest on behalf of members. That is a good suggestion. It allows us to aggregate the sums and reduce the expense ratio. But the problem we are still grappling with is one of investment risk. Even though I may do it cheaper for you, ie, at a lower amount, if the stocks go down and there is a loss of money, there is a risk that we will have to factor in. So, we are looking at all these issues. Currently, at the 4% interest risk-free rate on SA and MA, I think it is quite reasonable, given the current conditions of the market.

Dr Ahmad Mohd Magad (Pasir Ris-Punggol): Mr Speaker, Sir, the Supplementary Retirement Scheme (SRS) has been indeed one of the vehicles used to enhance Singaporeans' retirement security. May I ask the Minister to please explain why the maximum contribution cap on the SRS declines each year instead of going the other way round?

Dr Ng Eng Hen: Sir, that is a very good question best answered by the Minister for Finance.