Bonus For Those Who Wait To Tap Minimum Sum

Source : The Straits Times, Mon, Aug 20, 2007

THE Government will sweeten the wait for older workers who delay drawing down the Minimum Sum in their CPF account.

Those in their 50s will get a 'D-bonus', a one-off Deferment Bonus interest, to be paid into their CPF Retirement Account.

A smaller 'V-bonus' or Voluntary Deferment Bonus will also be given to those aged 58 and older who are unaffected by the changes, but voluntarily delay drawing down their Minimum Sum.

Details of the bonuses will be announced later, said Prime Minister Lee Hsien Loong, who announced changes to the draw-down age for the Minimum Sum.

The raising of the draw- down age, now at 62, will be done from 2012. It will go up gradually to reach age 65 by 2018.

By making people wait longer, the Government hopes Singaporeans - who will live and work longer - will have enough retirement savings to last them through their golden years.

This idea of raising the draw-down age for the Minimum Sum was first mooted by Minister Lim Boon Heng, who oversees ageing issues, as a way to encourage older folk to work longer.

Mr Lee knows it is not a popular move, citing a recent Straits Times survey which found that four in five people opposed it.

'But we have no choice. People are living longer, we have to work longer, and we've got to start drawing on the reserves later. Therefore we have to start moving now,' he said.

People can withdraw a portion of their CPF account at age 55, but must leave aside the Minimum Sum which is now $99,600. They will then get a monthly payout from their Minimum Sum over a 20-year period, from age 62.

This means the Minimum Sum will last till a person turns 82. 'But many will live beyond,' he said, especially women as their life expectancy is longer than men's.

To prevent the Minimum Sum running out too quickly, the solution is to defer the draw-down age to 65.

'If the draw-down age is 65 and you draw it down over 20 years, 65 plus 20 means it will last till you are 85 years old, which I think is better.'

Some workers may worry they will be left in the lurch - with neither a job on retiring at 62 nor CPF savings. But the CPF change is timed to go hand in hand with the new re-employment law in 2012. The law will get employers to re-employ workers after retirement but not necessarily in the same job or at the same pay.

Hence, the CPF Minimum Sum draw-down age must be raised to match the rising retirement age, said Mr Lee.

Labour economist Shandre Thangavelu agreed: 'We're living longer, so it makes sense to push the draw-down age to 65. But the key point is also to make sure people can work longer. The re-employment law has an important role to play.'

Mr Lee cautioned that even with the new, higher CPF interest rate, 'if we start drawing down on CPF too early, the money will run out too soon'.

Mr Lee worked out the sums. If one defers the draw-down by one year, the extra interest earned will make the money last two years longer.

Security officer Mohamad Noh Tahir, 57, has no issue with the new draw-down age. 'But I must still be working. If I'm not working, there may be a problem.'

But not all workers are happy. Sales executive Angie Tan, 49, said: 'I'm very much against it because it means we've got no control over our own CPF savings. I want to draw down earlier.'