Under a new system announced in Parliament on Monday, all CPF members will receive higher interest payments. Manpower Minister Dr Ng Eng Hen said about 70 percent of all CPF members will benefit from a new scheme in which a 1 percentage point additional bonus interest will be paid on the first S$60,000 in a CPF member's combined accounts.
Up to S$20,000 of this amount may be from the Ordinary Account.
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All CPF members to receive higher interest payments
In a wide-ranging ministerial statement, Dr Ng revealed more details on how the government would help Singaporeans save more for their old age through their CPF savings.
Key among the changes is the re-pegging of interest rate for the CPF Special, Medisave and Retirement Accounts (SMRA).
Dr Ng said from 1 January next year, the SMRA interest rate would be re-pegged to the yield of 10-year Singapore Government Securities (SGS), plus 1 percentage point. And as before, this SMRA rate will be set quarterly.
Dr Ng added that to help CPF members adjust to the floating SMRA rate, the government will keep the 4 percent floor for the SMRA rate for the first two years.
This 4 percent floor will also apply to the extra interest tier in the very unlikely event that the 10-year SGS rate falls below 2 percent.
After two years, the 2.5 percent floor rate will apply for all accounts as prescribed under the CPF Act.
Dr Ng said: "Some have asked if this system is fair. Are rates of return set too low or too high? Why is the extra interest only 1 percent more? Why not apply extra interest on an amount greater than S$60,000?
"The CPF system is not meant to be subsidised. Subsidies should be given in other ways and even then only to those who need them. We have put in place a long-term framework which provides a fair rate of return on CPF monies that compares well with any offer from private pension plans.
"Most importantly, our CPF system minimises the financial risk to members. The new system has to be justified to the president, that the government can afford it and that it will not draw on past reserves."
The minister also gave details on the one-off deferment bonus for those affected by changes to the draw-down age of CPF savings.
For those aged between 50 and 57, who will be most affected by the change, Dr Ng said the government would give this group a one-off deferment bonus to help them.
The amount will be based on the balances of up to S$30,000 in their retirement accounts and will range between 3 and 5 percent.
There will be larger bonuses for older workers as they have a shorter time to adjust to the new draw-down age.
For those who wish to voluntarily defer their draw-down, there will be a voluntary deferment bonus.
For each year of deferment, Singaporeans will get 2 percent on balances up to S$30,000 in their retirement account.
57-year-old Mr Tan, who earns S$1,200 a month, probably has about S$21,000 in his Retirement Account now.
By working one more year after the age of 62, coupled with higher Workfare bonus, CPF interest, and draw-down deferment bonus, he can accumulate S$11,000 more in his CPF savings.
And if Mr Tan works till the age of 65 and draws down his minimum sum at that age, he will have S$60,000 in savings - S$24,000 more than at age 62 under the old system.
Dr Ng said Workfare and the higher CPF interests would cost the government more than S$1.1 billion each year.
And the one-off package of deferment and voluntary bonuses would cost another S$1.2 billion.
Dr Ng said: "Singaporeans must come to terms with our longevity, both individually and as a nation. And the quicker we do this, the better because whether we are ready or not, the inevitable consequences from increasing needs as more grow old within our society will be upon us soon.
"We must therefore tackle this challenge now, as we have done with other national issues which can affect our nation's well-being and future. We must not construct a national plan for our retirement needs based on how long each individual thinks he might live or on anecdotal incidents or wild theories – it would be seriously flawed.
"We must build our retirement framework on solid facts, not subjective opinions. We must rely on actuarial data that the insurance companies use and reliable information from the Department of Statistics (DOS) that is updated constantly to give the true picture of how long Singaporeans are living as a whole."
Dr Ng also announced that the Chairman of the National Wages Council, Professor Lim Pin, will chair a committee to study the issue of a National Longevity Insurance Scheme, better known as 'annuity'.
The committee will recommend the best way to provide basic, affordable and flexible longevity protection for all CPF members.
Dr Ng added that the recommended plans should provide various options to members and allow them to opt in to this scheme early when it is less expensive to do so.
He said: "The changes we are making will strengthen the CPF system further. Longevity insurance is the missing critical piece that we are now putting into place. It plugs a gap in our CPF system and will give security for the many Singaporeans who are expected to live very long."
The committee's report should be ready within six months. - CNA/so
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