Your Piggy Bank, You Chip In

Source : TODAY, Wednesday, September 19, 2007

Government's role is to ensure S'poreans save up enough funds for retirement: Minister

IT WILL help Singaporeans make sure they have enough in their retirement piggy bank, but filling it up must be the responsibility of every citizen — not the Government.

This was the underlying message from Second Finance Minister Tharman Shanmugaratnam yesterday, as he spoke for the first time in the ongoing parliamentary debate on changes to the Central Provident Fund (CPF) scheme.

Nearly 30 Members of Parliament (MPs) have spoken after hearing Manpower Minister Ng Eng Hen's ministerial statement on the issue on Monday. Some have asked the Government to top up the proposed compulsory annuity scheme in times of budget surpluses, for instance, while another called instead for a national pension plan that draws on the national reserves.

Such sentiments were met with a clear signal from Mr Shanmugaratnam: Should the Government take over the role of providing for everyone's retirement, "this would mean that regardless of how much you save, it would be there as a doorstop to ensure you have enough for old age".

He added: "If we do that, there will be less and less reason to save. Over time, people will save less, knowing that Government will pay."

This is how many countries have ended up with high taxes and unsustainable pension schemes, he pointed out.

"What is absolutely critical is that we preserve the ethic of self-reliance, where every Singaporean knows and understands he has to work and save for future needs," 2nd Finance Minister Shanmugaratnam stressed.

For the CPF scheme to be "fiscally sustainable" in the long run, it was important that it did not end up subsidising existing interest rates, or paying above market rates.

"Our fundamental principle must be to peg CPF interest rates to those in the financial markets, to instruments of comparable risk and duration. The ability to pay interest on CPF balances will also depend on financial market conditions," he said.

Several MPs queried the Government's ability to sustain the CPF changes, which would cost $700 million a year. Ms Josephine Teo (Bishan-Toa Payoh GRC) noted that this amount was equal to a 1-percentage-point increase in the Goods and Services Tax, and asked if this would open the door for future tax hikes.

Mr Shanmugaratnam assured the House that the CPF Board would foot the bill through the interest received on bonds purchased from the Government. This purchase would incur a cost, which will have to paid for using the investment returns on CPF monies.

To avoid adding to this cost burden on the scheme, the Government has to avoid paying above market rate for CPF interest.

"Paying market rates ... keeps the CPF a self-sustaining savings scheme that does not result in the Government running deficits," he said. "It should never become a draw on past reserves."

President S R Nathan has been briefed on the CPF changes and "is satisfied" that reserves will remain untouched, he added.

What the state will subsidise, however, is Workfare — which will add $80 million a year to take total spending on this scheme to more than $400 million.

Another $1.2 billion over ten years will also be spent on the one-off Deferment and Voluntary Deferment Bonuses, with the minimum sum draw-down age being pushed back – from 62 in 2012 to 65 in 2018.

"Our approach (is) to put any subsidies on the Government budget and make sure that we can afford them," said Mr Shanmugaratnam.

Mr Inderjit Singh (Ang Mo Kio GRC) had suggested using the national reserves to underwrite a national pension plan, arguing that this was affordable because Temasek Holdings had earned 18 per cent a year on its investments since its inception.

And on the controversial topic of annuities, Opposition MP Low Thia Khiang (Hougang) yesterday suggested creating a state-funded longevity fund, instead of making it compulsory for Singaporeans to pay premiums themselves.

Said Mr Shanmugaratnam: "It will not be wise for the Government to do this, or for Singaporeans to want the Government to do this. We know that these pressures will build up over time for us to spend more, grant more, subsidise more. It's in the nature of every society, especially when it gets older."

The Minister gave the assurance that any surpluses earned from investments would be channelled back to society — for example through CPF top-ups, housing, education and Workfare.