MOM Reveals More Details Of CPF Changes

Source : The Straits Times, 21 Aug 2007

AS A follow up to Prime Minister Lee Hsien Loong's National Day Rally Speech last Sunday, Manpower Minister Ng Eng Hen has elaborated on the coming CPF reforms and other measures to help Singaporeans improve retirement adequacy and work longer.

These changes included improving CPF returns, implementing compulsory annuities for younger CPF members, and delaying the draw-down age (DDA) for Singaporeans.

Improving returns on CPF savings

PM Lee had announced that the CPF Board will pay a higher interest of one percentage point more on the first $20,000 in the Ordinary Account (OA), and up to a total of $60,000 on combined Accounts.

On top of this, the CPF Board will also re-peg the SMRA (Special, Medisave, Retirement Accounts) interest rates - which is now four per cent - to an appropriate long-term bond rate.

This bond rate will be dependent on the market and so fluctuations are expected - but not as volatile as equities.

So Dr Ng says expect a lower SMRA rate at the start, but over time, he expects the rate to do better than four per cent.

The CPF changes will take effect by January 2008.

Compulsory Annuities for younger CPF members
On annuities, which will be made compulsory for members aged 50 and below, Dr Ng explained the CPF member pays a basic premium which goes into a general pool that will start giving out monthly payouts after the member turns 85.

However, if he lives less than 85 years, the premium goes towards supporting others in the pool who are still alive.

The Minister, however, said that the actual premium amount has yet to be decided.

After turning 85, the monthly payouts to members will start off with a subsistence figure of around $250 to $300 per month.

For members who want some or all of the unused premiums to be returned to their loved ones instead if they die before reaching 85, they will have to pay a higher premium for the same payout.

Similarly, if a member wants a higher payout than the subsistence payment, they would have to fork out a higher premium as well.

Re-employment Legislation
By 2012, MOM will require employers to offer re-employment to workers reaching 62 up to the age of 65, and eventually, 67.

The change will precede the raising of the Draw-Down Age, the age at which you can start withdrawing your CPF retirement funds.

DDA will be raised gradually to age 65 by 2018 - offering workers and employers time adjust to work to this legislation.

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CPF changes: Mixed reactions to an emotional issue
Clearly, the most emotive, some would say controversial, aspect of Prime Minister Lee Hsien Loong's National Day Rally speech had to do with bread-and-butter issues - Singaporeans' livelihoods, retirement savings and financial future.

Although many in the audience welcomed Mr Lee's announcement of a higher CPF interest rate and higher Workfare payments, his disclosure of a later draw-down age for the Minimum Sum and of plans to make annuities compulsory were met with somewhat mixed reactions.

Increased Workfare Income Supplement (WIS) for older workers

The WIS payout will be doubled, to offer those aged above 55 and above 60 an added incentive to stay working.

That means, an older low-wage worker aged 61, earning $1,000 per month, will get $200 per month of WIS.

Out of this additional $200, $143 will go to their CPF, and $57 will go to his take home pay.

The higher WIS for older workers will cost the Government an additional $83 million a year, bringing the total WIS budget to $432 million.

The Government hopes the combined effects of higher WIS, working longer, later DDA and higher CPF returns will make a big difference in helping both old and young workers.

More details will be unveiled when Dr Ng addresses Parliament in September.