01 November 2010

Raising The Retirement Age In Singapore

Earlier this year, people protested in a number of European countries when their governments raised the minimum retirement age and/or reformed the pension schemes.

What has Singapore's experience been in raising the minimum retirement age and/or reforming the pension scheme?

Minimum Retirement Age
Prior to 1 July 1993, Singapore did not have a statutory minimum retirement age.  People generally retired at age 55 years.

The minimum retirement age was set at 60 years in 1993.  It was raised to 62 years in 1999.

When the law on re-employment comes into effect in 2012, employers have to re-employ their older employees from the existing retirement age of 62 years to age 65 years, and later to age 67 years and beyond, on a mutually agreeable basis taking the needs of the employers and the older workers into account.

Central Provident Fund
Previously, a person could withdraw the entire balance in his account with Central Provident Fund ("CPF", the national social security savings plan) on reaching age 55 years.

Now, a CPF member can withdraw the balance in his CPF account on his 55th birthday after setting aside the Minimum Sum (to form his retirement funds) and the Medisave Required Amount.  He is allowed to withdraw a percentage of the balance even if it is less than the Minimum Sum, but this legacy concession will be phased out in 2013.

The Minimum Sum was first set at $30,000 in 1987. It is $123,000 now.  The target Minimum Sum is $120,000 (in 2003 dollars) by 2013 to ensure that CPF members set aside sufficient retirement funds for themselves.

Among active CPF members who reached age 55 years in 2009, 37.5 per cent met the Minimum Sum requirement; 62.5 per cent did not.  Active CPF members accounted for approximately 55 per cent of all residents in the 50-59 years age group in 2009 (the remainder were inactive CPF members or not CPF members).  Among CPF members brought into the Minimum Sum Scheme in 2009, 25.4 per cent had no Minimum Sum to set aside as they had small balances in their CPF accounts or were otherwise exempted.

The age at which a CPF member can start to draw down on his CPF retirement funds was raised to 62 years in 1999.  It will be raised to age 63 years in 2012, age 64 years in 2015 and age 65 years in 2018.

In the future, the drawdowns will take the form of monthy payouts from CPF LIFE, a national annuity plan that was introduced in 2009.  Participation in CPF LIFE is compulsory if a CPF member has in his CPF account (excluding his Medisave account) at least either $40,000 at age 55 years or $60,000 at age 65 years.

CPF LIFE will pay its members for as long as they live.  The quantum of the payouts is not guaranteed, but will be adjusted regularly, taking into account interest rates and mortality experience, to ensure solvency of the fund.  The payouts, which may stretch over 20 years to 30 years or longer, are not adjusted for inflation.

Prior to the introduction of CPF LIFE, only 1,140 CPF members used their retirement funds to buy annuities from insurance companies in 2008.

Medisave
Medisave was introduced in 1984.

The Medisave Required Amount is $22,500, and the target is $25,000 (in 2003 dollars) by 2013.

No withdrawal from a CPF member's Medisave account is allowed if the balance is less than the Medisave Minimum Sum, presently $34,500 (adjusted annually).

Minimum Retirement Age, CPF and Medisave
As a CPF member's social security plan and hospitalisation plan are self-funded, a higher minimum retirement age gives him the right but not the obligation to work longer.  This is useful if he does not have sufficient funds for his retirement (and that of his spouse, if she is not employed), or wishes to continue working for any other reason.

This may partly explain why there have been no protests in Singapore against the raising of the minimum retirement age.  Also, protests are usually futile.  And they may not be legal.

However, as the minimum retirement age is being raised, the age at which a CPF member can draw down on his own retirement funds is also raised.

Even without an increase in the minimum retirement age, the Minimum Sum and Medisave Required Amount have been raised over the years.  Although it was (and continues to be) done to address rising longevity and rising healthcare costs, it reduces the amount a CPF member can withdraw from his CPF account on reaching age 55 years.

Unless a person has sufficient retirement funds over and above his CPF savings, retiring at age 55 years is not an option.

The situation is best summarised by prime minister Lee Hsien Loong in 2007 who said "Singaporeans are living longer.  They must work longer.  They must draw down their CPF Minimum Sum later.  They must save more and must take care in case they live beyond 85."  [Central Provident Fund Board annual report 2007].

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Notes:

1. The above is a simplified description of the history of Singapore's minimum retirement age, and the national pension scheme.

2. Every working CPF member and his employer must make monthly contributions to his CPF account. The contributions remain in his account.

3. A CPF member is a citizen or permanent resident with a CPF account.  An active CPF member is one who had at least one employment contribution paid into his account for any of the latest four months.

4. The ratio of active CPF members to residents in the 50-59 years age group in 2009 is an approximation.  The number of active CPF members refers to those above age 50 years to age 60 years as at 31 December 2009.  The resident population data refer to those in the 50-59 years age group as at 30 June 2009.

5. A CPF member is exempted from setting aside a Minimum Sum if he is terminally ill, has withdrawn his CPF funds on medical grounds, has passed away, has his own annuity, has left Singapore permanently or is a pensioner in receipt of a monthly pension.

6. Medisave is the national savings scheme to help CPF members meet the hospitalisation expenses and approved medical insurance premiums, especially after retirement, of themselves and their dependants.  Every CPF member and his employer must make monthly contributions to his Medisave account.

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