If people work and save on their own, Govt will help top up savings: Tharman
AMID calls to spend more on people's retirement needs, the Government yesterday reminded Singaporeans of a long-standing ethic - self-reliance.
It is the principle at the heart of the system here, where everyone knows and understands he must save for his future needs, said Second Finance Minister Tharman Shanmugaratnam.
'That's why the approach that we have taken is to give Singaporeans incentives to work and save on their own,' he told Parliament.
'If you work and save, we will help top up your savings.'
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Second Finance Minister Tharman's speech
Related Video Link - http://tinyurl.com/2l2exnCPF Reforms will not draw on Govt's reserves
Second Finance Minister Tharman Shanmugaratnam today assured Parliament that the CPF reforms are sustainable and will not draw on the Government's reserves.
He attempted to clear the air over issues on affordability and whether or not Singaporeans will be worst off with a fluctuating interest rate for the Special, Medisave, and Retirement Accounts (SMRA).
Over 15 MPs joined in the debate on CPF changes today.
This principle guides the reform of the CPF. The changes, which include giving workers higher interest to build up retirement savings, will cost the Government $700 million a year.
He said: 'This approach of helping Singaporeans to save for retirement is quite different from the Government taking over and providing for everyone's retirement...
'If we do that, there will be less and less reason for people to save. This is what has happened in many countries, where people save less, knowing that the Government will pay.'
His comments came on the second day of the debate on the CPF changes, announced by the Prime Minister in his National Day Rally last month.
Manpower Minister Ng Eng Hen spelt out the details on Monday, and MPs, even those from the ruling People's Action Party, clamoured for the Government to pour more money into an ageing society's needs.
Among them was Ang Mo Kio GRC MP Inderjit Singh. He said the Government could afford to give higher interest on all CPF savings as Temasek Holdings earns 18 per cent returns annually.
Mr Tharman stressed that changes must be fiscally sustainable - not just for now, but for the long term.
The Finance Ministry, he said, is satisfied that they will keep the CPF a 'self-sustaining savings scheme that does not result in the Government running deficits'.
'It should never become a draw on past reserves,' he took pains to stress.
The Government has briefed the Elected President, and he is satisfied the changes will not dip into past reserves, he said.
On the specifics, he set out the thinking behind floating the guaranteed 4 per cent to a rate pegged to 10-year Singapore Government Securities plus one percentage point. This new rate is for the Special, Medisave and Retirement Accounts (SMRA).
Assuaging MPs' doubts, he said that, 'by any reasonable assessment, it offers a good long- term return', with no risk of capital loss.
In the short term, members with $60,000 or less - more than 80 per cent of them - would immediately earn 5 per cent on their SMRA.
Over the long term, he expects the yield to be above the current 4 per cent. It was a 'fair and reasonable' rate, he said. If the Government paid above market rates, the CPF would become an 'interest rate subsidy scheme'.
But this hardly meant the Government was loathe to subsidise anything. What it does subsidise: the Workfare income top-ups for low-wage workers; special bonuses to those affected by the delay in the Minimum Sum draw-down; as well as education, housing and health. It does so by funding from the Budget.
'That's our approach - put any subsidies on the Government Budget, and make sure we can afford them,' he said.
He rejected calls from the likes of opposition MP Low Thia Khiang, Nominated MP Siew Kum Hong and Mr Singh for the Government to be more generous, such as by underwriting a longevity insurance fund or a national pension plan.
'It will not be wise for the Government to do this, or for Singaporeans to want their Government to do this,' he said.
'We know that these pressures will build up over time, for Government to spend more, grant more, to subsidise more.'
That was why, he explained, the Elected Presidency was created to guard the reserves and ensure that the Government did not chalk up debts for future generations to pay.
'This is the way we must run Government. There is no easy way out,' he said.
'Ours is a disciplined and sustainable approach which will ensure that whatever we do now will last, not just for a few years, but for generations to come.'
The debate continues today.
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