Clarification on Withdrawal of CPF Savings at Payout Eligibility Age

Mr Patrick Tay Teck Guan asked the Minister for Manpower whether the CPF Board will be reviewing the opt-out scheme for payouts and allow automatic CPF payouts when a member reaches 65 years of age.

Ms Jessica Tan Soon Neo asked the Minister for Manpower given the feedback and concerns received regarding the CPF payout under the Retirement Sum Scheme, whether the CPF Board will consider revising the default option for CPF payout age to 65 years instead of the current 70 years.

Miss Cheryl Chan Wei Ling asked the Minister for Manpower (a) whether sufficient public communication was done prior to the letters being sent to individuals with regard to the option on the timing of their CPF payout; (b) whether there are other approaches to notify the general public of this option before the official process kicks in; and (c) for those who have earlier failed to notify CPF that they wish to receive their payouts upon age 65, whether they are allowed to do so at any point of time before they turn 70.

Ms Foo Mee Har asked the Minister for Manpower (a) what can be done to ensure that the public understands that the CPF payout age remains at 65 years of age; and (b) how can engagement with CPF account holders be improved to facilitate easy access to CPF funds at payout age.

Mr Liang Eng Hwa asked the Minister for Manpower (a) whether the CPF payout starting at age 65 can be made as a default option; and (b) whether the CPF payout starting beyond age 65 can be made simpler and more appealing as an option.

Mr Chong Kee Hiong asked the Minister for Manpower whether the Ministry will consider making the age of 65 the default option for CPF monthly payouts while providing incentives for CPF members who opt for the payouts to be deferred.

Mr Png Eng Huat asked the Minister for Manpower since the start of 2018 (a) what is the number and proportion of members on the Retirement Sum Scheme (RSS) who activated their CPF payouts upon reaching their Payout Eligibility Age (PEA); (b) what is the number of members who, having missed the activation deadline, appealed to start their payouts before age 70; and (c) whether the Ministry will consider setting the default automatic CPF payout age of RSS and CPF Life scheme to the PEA to further simplify the activation process.

Assoc Prof Walter Theseira asked the Minister for Manpower (a) for each year of age between 65 and 70 what is the proportion of eligible CPF members who apply to start payouts; (b) for members of the 65 to 70 age group receiving payouts, what is known about their use of payout monies, in particular, the extent to which payouts are retained in low-interest deposit accounts instead of used for expenses; and (c) whether and to what extent there are cases of financial hardship due to eligible members not applying to receive payouts.

I thank the Members who have raised important questions. There are several key questions I hope to address in this reply.

The first question is whether the Central Provident Fund (CPF) Payout Eligibility Age has been shifted from 65 to 70. The answer is no.

As Members are aware, the Payout Eligibility Age (PEA) is the earliest age at which CPF members can start their monthly retirement payouts. From 1 January 2018, the PEA has been 65. It is still 65 today. We have not shifted the PEA from 65 to 70, as was alleged by a spurious online post. Members can start their retirement payouts any time from 65.

The second question is whether the policy has been changed to now require CPF members to come forward to start their retirement payouts. The answer is again no.

This is in fact a long-standing practice and there has been no change. Members can instruct the CPF Board when to start their retirement payouts at any time after they reach their PEA. Members are in the best position to decide based on their individual circumstances. It is also the same approach as in many other countries.

There is no advantage for the CPF Board or the Government to want members to defer their payouts beyond 65. Those who defer their payouts in fact enjoy the higher interest paid on their CPF monies.

Members who have reached their PEA can instruct the CPF Board at any time to start their retirement payouts. Let me explain how the process works for those on the Retirement Sum Scheme (RSS), which is the main retirement payout scheme for members born before 1958. The members are now aged 61 and above.

About six months before their PEA, RSS members will receive a letter from the CPF Board informing them that they can start their payouts any time from PEA. The form to start payouts is attached. Members only need to fill in basic information – their name, NRIC, contact details and bank account details. This gets sent back to the Board. Alternatively, members can apply online through the CPF website or come to a CPF Service Centre. Members who do not instruct CPF Board to start their payouts are reminded through their Yearly Statement of Account.

The third question is why the payouts start automatically at age 70. In the past, some RSS members had their savings intact in their CPF accounts until they passed away. They never touched it at all. This is unsatisfactory. We therefore introduced a Latest Payout Start Age of 70 for members turning 70 from 2018.

Even if such members have not applied to start payouts, CPF Board will start the payouts for them. But I must again emphasise, if a member wants to start his payout before 70, he can do so any time from his PEA; he does not need to wait till 70. In other words, the Latest Payout Start Age is not the same thing as the PEA. It is a way to ensure members get to enjoy the benefit of their CPF savings by 70 at the latest.

Members of the House may therefore recall that in October 2016, Parliament agreed to amend the CPF Act to bring this into effect. Some Members who are still in the House today spoke in support of this amendment, including Mr Chong Kee Hiong, Er Dr Lee Bee Wah, Mr Louis Ng, Mr Png Eng Huat and Mr Saktiandi Supaat.

Several Members have asked if CPF Board should automatically start payouts at age 65. Some are concerned about those experiencing financial hardship. I appreciate the reasons for Members’ questions and also share your concerns.

There are in fact tangible benefits to members when they start their payouts later. Members earn more interest and enjoy enhanced payouts. With every year that they defer their payouts, their CPF savings will earn risk-free interest of up to 6% a year, which is well above the interest rates they would get in the market. This 6% includes the extra interest of 1% for the first $60,000 and additional extra interest of 1% for the first $30,000. For members on CPF LIFE, for every year deferred, the payouts go up by up to 7%. For five years of deferral, that is up to 35% more.

Members may therefore prefer to start their CPF retirement payouts later. This is especially so if they have other savings to draw on that are earning low interest or if they are still working. But if the payouts automatically start at 65, such members will also automatically not get the benefits of deferral.

At the end of 2017, six in 10 members on the RSS who had reached their PEA that year did not start their payouts. Even by the time RSS members reach 70, about half have not come forward to start their retirement payouts.

Some among them may have consciously decided to keep their savings in CPF because they had no need of the payouts and also because they wanted to earn the higher interest. Others may not have known they could have started their payouts earlier and thus did not instruct CPF Board.

The right thing to do, therefore, is to reach out to those members who may not have a good understanding and give them clear and simple information to help them make their decisions. With the benefit of knowledge, those who wish to can still start their payouts any time after 65.

The fifth question, which Ms Foo Mee Har, Miss Cheryl Chan and Mr Liang Eng Hwa have asked, is whether the CPF Board can improve its communications with members. The answer is yes.

While CPF Board has stepped up outreach efforts, there is much room for improvement in the way it communicates key issues such as starting payouts. For example, we will review the letters sent to members who are approaching their PEA, so as to avoid misunderstandings which confuse members unnecessarily.

The Board has also started to invite all members reaching PEA to attend and benefit from a CPF Retirement Planning Service from the start of this year. This is a face-to-face service in which a CPF Board officer provides personalised guidance.

In addition, we will work with other agencies to reach out to CPF members. For example, where appropriate, staff at the Social Service Offices (SSOs) will ask members who approach the SSOs for financial help whether they have activated their CPF payouts and assist them to do so if they wish. We will also collaborate with the Silver Generation Office to communicate this issue to elderly members.

Mr Speaker, I would also like to take this opportunity to clarify the position for CPF LIFE, which is a relatively new scheme.

Members who joined CPF LIFE prior to July 2015 may have been confused whether they too have to come forward to activate their payouts when they reach PEA. Some pointed out that the Latest Payout Start Age of 70 was not mentioned in previous communications with them.

Let me assure these members that nothing has changed for them. They joined CPF LIFE before July 2015. Back then, there was no flexibility to defer CPF LIFE payouts and the policy letter has already stated that the payouts would start from their PEA. For such members, CPF Board will indeed start payouts at PEA, unless otherwise instructed. In fact, by the end of 2018, about 35,000 of such members had already started to receive their payouts upon reaching their PEA, which is what they expected.

Members who joined CPF LIFE after July 2015 will be like members on the RSS. They can start their payouts any time between their PEA and 70, by instructing CPF Board.

Mr Speaker, allow me to conclude. All members can start their payouts any time after PEA by issuing a simple instruction to CPF Board. This has not changed.

However, the exact payout application process and letters sent to members may vary, depending on each member’s particular circumstances, such as whether they are on RSS or when they joined CPF LIFE. Hence, CPF members should not rely on letters sent to others. They should instead contact CPF Board if they are in doubt about any letter sent to them.

With your permission, Mr Speaker, may I ask the Clerk to distribute handouts summarising the key points of my reply?

Thank you. Mr Speaker, for brevity, I have circulated the English version of this handout. But I want to assure Members that we are producing it in all four official languages, and they will be made available to you to disseminate to your residents, whoever may feel that this is useful. We will also be happy to collaborate with Members to share relevant information with their residents through talks and seminars. This offer will hold at any point in time that Members wish to activate it.

I thank the Minister for clarifying that the Payout Eligibility Age (PEA) has not shifted from age 65 to 70. I think this is very important and very re-assuring for CPF members. But I am concerned that about 60% of CPF members do not come forward to withdraw their CPF when they reach 65 years old. The Minister said that about half of CPF members do not come forward to withdraw their CPF even when they have reached 70 years of age.

This is an area of concern because this is not a small number of people. Could it be that a large number of these CPF members may not do anything about it because they do not know the procedure? Or could it be that they have forgotten about the need to apply to withdraw their CPF savings? It is a big number. If we are saying just a small percentage, then I can understand that, well, perhaps they do not read their mail or that they forgot about it. But it is quite a large number, and I am concerned.

The Minister had said that the CPF Board starts their payout automatically for a member when the member reaches 70 years of age. If CPF Board can do so at age 70, why not make the payout automatic at the age of 65? Just credit to their account automatically, unless the member opts out and chooses to fill in an application to say that they do not want to do so. I think the point is that we need to assure every member that CPF Board will be able to honour any request to withdraw their CPF savings when these are due for payment. And really, this is about preserving the good faith and trust in CPF Board.

So, I urge the Minister to try to dispel any doubts that the CPF Board is deliberately withholding members' CPF monies, even though they have reached the PEA. I just wanted to add that I appreciate the benefit of higher interest rates. In fact, when I reached 55, I made a conscious decision to leave my monies with CPF Board, simply because the interest paid on the CPF savings is much better and as the Government has re-assured us repeatedly, it is risk-free. So, thank you, Minister.

Mr Speaker, the Member Mr Lim has asked a very important question. The points he has raised are not trivial at all. I must share with Members that I gave serious thought to the possibility of shifting the automatic start date to 65. But there are several concerns, and I should share them with you.

There may be a group of members who are aware of the benefits of payout deferral. But they forget to come forward to instruct CPF Board to defer their payouts. There will be such individuals. Mr Lim may become one of them.

Another group may not be aware but actually they do not need the payouts just yet, even after they have reached their PEA. It is entirely possible that this group will grow over time. After all, between the age of 65 and 69 today, our employment rate is about 40%. With good health, we can expect more people to want to work longer. If, indeed, they are still receiving incomes, they may find that the CPF payout is somewhat unnecessary at that point in time.

Both groups may not be so happy that CPF Board made an assumption to start their payouts that deprived them of the benefits, if we were to have such a mechanical approach.

Also, there is another concern that weighs heavily. I am quite wary of making yet another sudden change. We have, for years, told CPF members that their payouts start when they instruct CPF Board – this has been the long-standing instruction. Tomorrow, if we decide otherwise, how can we be sure everyone gets the message? That is the central lesson we have learnt. Every time there is a change, it actually takes a long while for people to get used to it. Each time we make another change – we say that people on the previous system get to keep that previous approach, and from then onwards, this group has a different treatment. Those kinds of changes actually risk confusing people even more.

On balance, I suggest that we focus on improving the communications for the policy as it currently stands. With the benefit of knowledge, CPF members can still start their retirement payouts any time after 65. If we keep to this consistent line, there is less risk of further confusion.

Mr Speaker, I wholeheartedly support what Mr Liang has suggested. We definitely can improve the way we communicate with CPF members. Today, CPF Board engages with members through a variety of means. Letters are just one of them. CPF Board administers quite a wide range of Government schemes – MediShield Life, MediSave disbursements, Silver Support, and Workfare Income Supplement. If you put together all the letters that CPF Board sends out, there are about 220 types. Obviously, some of them have the risk of not being entirely clear. We will definitely put effort into improving them.

There is also an avenue which we want to encourage CPF members to use. There are five CPF Service Centres islandwide. Each of these CPF Service Centres is staffed by officers who are conversant in all the major languages, especially, of course, our four official languages. Even if a member was unable to understand the letter that has been sent to them, we hope, by the very fact that they saw the CPF logo, that they will know that they can always approach the Service Centre. The staff will be happy to take them through in a language they are comfortable with. That is something we will make as a commitment.

In fact, CPF Board has already started inviting members to come forward. At the age of 55, the invitation is extended to every member. From this year onwards, once they reach their PEA, which is 65, we will equally invite the member to come again, so that CPF Board can provide personalised guidance, face-to-face. Any question that is not clear, any doubts that members have on the spot, make the explanation available to them and reassure them.

I just have a supplementary question for the Minister. Did MOM reach out to those people who did not activate their payout at PEA, or even beyond 70, to find out why? Perhaps do a survey to this group of people, since we know who they are?

There are two parts to that question. Do we reach out to them? The answer is yes, because everyone gets the Yearly Statement of Account. CPF records will show whether the member has reached the PEA but has not activated payouts, in which case CPF Board will remind the individual that "You have reached the PEA. You are eligible to start your payouts. Here is the form, activate it any time you want".

The second part of it is, do we ask them why they have not started or activated their payouts? Here is where, I think, we have to be a little bit careful. People have a right to their privacy. CPF Board must be quite mindful that not everyone wants to tell the Board the reasons for their actions. Therefore, if we want to establish, amongst those who have not started their payouts, who actually is aware and made a conscious decision not to start it, who is not aware and did not come forward to instruct the Board, this would be quite a major exercise. We think there is some value in doing so but we will have to find a way that the member does not feel very intruded upon.

I thank the Minister for her comprehensive reply. I have three supplementary questions.

First, I think some of the public unhappiness is, perhaps, due to the gap between the retirement age at 62 and the PEA at 65. Some are concerned that they have difficulty making ends meet between retirement and the start of the payouts. Would the Ministry consider aligning the retirement age with the PEA in the future, to allow for a seamless transition between work income and CPF income?

Second, regarding the default "out" at the moment, I think it is a good move because it improves retirement adequacy. But, at the same time, members may want assurance, as other House Members have said, of knowing that their payouts will commence and that the mechanism for paying out is sound. Could we consider starting with, perhaps, a lower payout at first at the PEA and then scaling up to the full payout at 70 or on application of the member?

The last question is, what is known right now about the use of payouts at the earlier PEAs, that is, are the payouts used for expenses or do they sit largely in zero percent or close to zero percent savings accounts? It seems that studying this and publicising it may allow the public to understand why we have this policy and how it helps them.

Mr Speaker, I thank the Member for his supplementary questions. Let me deal with the first one on retirement age.

In Singapore, together with Japan, besides the retirement age, there is actually the re-employment age. We are, to the best of our knowledge, the only two countries in the world that have the provision for re-employment. In the Singapore context, the re-employment age, when it was first implemented, was to age 65. This was in 2012. Then, in July 2017, we raised the re-employment age to 67. So, in fact, Singaporeans have the assurance of employment beyond the retirement age of 62, all the way up to 67. In any case, both the retirement age and the re-employment age are being reviewed. A tripartite workgroup was set up last year and is making good progress. I hope to be able to update Members during the Committee of Supply (COS) debate.

Let me turn to the second question. I believe the Member had suggested, if you are concerned about starting the payouts at 65, why not start with a smaller payout? I think it can be looked into, but I suppose the question the members will also have is: how do you decide what is a "small" payout? If you are going to start with a small payout, why not just start with the whole payout?

The third, I am very glad that the Member asked this question. What is the typical use of the payout? We do not have very clear indications about what happens to the payouts once they start being streamed out on a monthly basis. There is good reason to also not be too precise about the use of those monthly payouts because they will be co-mingled with contributions from other family members and perhaps, personal savings. It will be very hard to tease apart what part of that money can be attributed to CPF payouts or what part is attributed to children's allowances.

But what people do with their withdrawals at age 55 is instructive. Our survey suggests that slightly over half of the members, after taking the withdrawals from their CPF accounts at the age of 55, just put it in a bank account, earning much poorer interest rates. That actually is a very useful reminder that people are not always so savvy about what is the best deal that they can get on their savings. There is some merit to the current practice of automatically deferring it for them, because they get to earn a much better interest rate. When they want to start their payouts, it is still available to them anytime.

I thank the Minister for her very comprehensive response. I would like to refer to a recent exchange on the Forum Pages of Lianhe Zaobao on the CPF Retirement Sum Scheme. A CPF member had complained that CPF Board would stretch his payouts over 28 years until he is 93, when he thought it should be 20 years, on the assumption if the tenure was shorter, he would get more over these 20 years.

So, I would like to ask the Minister for Manpower the basis by which payouts for CPF RSS are calculated. So, how do you calculate? Why do you decide it is 28 and not 20? Can CPF members have the flexibility to choose the tenure of the payout period within the prescribed limits? And why do we still have the CPF Board maintain this CPF RSS and only apply to people with lower CPF balances, and not include everyone on the CPF LIFE Scheme, which I believe is a superior scheme?

Mr Speaker, may I have a second supplementary question which relates to this discussion about the important decision of starting at 65? The question the Minister could answer is whether a CPF member who has chosen payouts to begin at 65 – later found out it is a better deal to delay and want to stop the payout and ask to defer to 70, can this be done? If this request is made, how do you then calculate the payouts for the remaining period? Let us say this person has enjoyed it for a year and then ask at 66, "I want to defer to 70", what happens? And that would inform the decision some of the Members are asking for automatic trigger at age 65. What happens?

Mr Speaker, Singapore has one of the highest life expectancies in the world. In 2017, more than half, one in two Singapore residents aged 65 was expected to live beyond 85. One in five of them was expected to live to about 95 or above. When designing the RSS payouts, initially, they were meant to last 20 years, taking into account the base interest rate on the Retirement Account, which is now 4%. So, consider the fact that they will earn 4%, consider the fact that RSS payouts should last 20 years, then you work out what the payout will be.

A current RSS member reaching his PEA of 65 will get a base payout that will last till approximately 85. What this means, however, is that more than half of the members still alive at 85 will have no CPF payouts at all. This will be a major cause for concern. The better solution for the member to managing this longevity risk is CPF LIFE, which provides lifelong payouts. However, because CPF LIFE is mandatory only for those turning age 65 in 2023, with $60,000 in Retirement Account balance, most of our elderly will still not be on CPF LIFE but remain on the RSS.

With this concern in mind, the Government introduced the CPF extra interest about 10 years ago and the additional extra interest in 2016. This bonus interest, provided by the Government, is used to extend the RSS payouts beyond 20 years. In this way, the members will enjoy payouts for longer and there is less risk that their savings will run out. But we also put in a cap, so that the payouts do not extend past 95 years old. This will already cover about four in five elderlies. About 80% of them will be covered by this duration extension.

To the question of whether members can request for shorter payout duration under RSS. In general, the extra interest and the additional extra interest provided by the Government is used to extend the duration of the RSS payouts and reduce the risk of members outliving their savings. In some cases, the CPF Board allows flexibility for members to request for a shorter payout duration. For example, members may have topped up beyond the full Retirement Sum and would have their payout duration extended. They can come forward and discuss with the CPF Board how to get it shortened for higher payouts.

RSS members can also consider joining CPF LIFE. Because of risk-pooling, not only will they enjoy lifelong payouts, but they may also enjoy higher payouts. In fact, I am happy to share with the Member that about 92,500 RSS members have taken up CPF LIFE voluntarily. They were not mandated to do so, but they probably either did their own sums or visited a Service Centre, were shown what the payouts will look like under CPF LIFE and then decided on their own accord to sign up. The question is, why keep the RSS, why not make everybody come onboard? This is one of the challenges for CPF LIFE and indeed many Government schemes. When we introduce changes or new schemes, we have to be very careful to whom it applies. The RSS members were told that they were on RSS. We do not just decide on their behalf that they will henceforth be on CPF LIFE.

For newer cohorts, when CPF LIFE was introduced, it was made mandatory. That is because they have the benefit of advanced understanding and knowledge. But for those who were already on the prior scheme, we are very careful about changing things for them. The solution really is to reach out to them, show them how it works for them and let them decide.

To the Member's final question, on whether an individual, having started his payouts, can decide to stop and defer to 70. Here, I want to be very careful about not making a generalised statement. As I explained, the circumstance may differ for every individual. So, I would urge the member to come forward, we would look at his particular circumstances and if it serves his interest, it is helpful to him, we will see how to support him.

I thank the Minister. It is very important to encourage those with lower CPF balances to defer their withdrawal till 70 years old so that they can get a higher payout down the road. That is one of the key objectives of this scheme. Could the CPF Board consider providing even more incentive to encourage this group, such as those with less than basic Retirement Sum in their CPF balance an even higher tiered interest rate for their balances so as to give them more incentive to defer their withdrawal?

The incentives are already very generous. For every year of payouts deferred, those on CPF LIFE stand to get higher payouts of up to 7% more. If they defer it for all five years, they get up to 35% more. However, not everyone has hoisted this on-board. I am aware that the former Minister for Manpower, Mr Lim Swee Say, for example, has conducted multiple engagement sessions in his constituency, helping his residents understand the benefits of deferring their payouts. I would very much like to encourage all Members to do likewise. CPF Board will be very happy to support you in this endeavour. The incentives are there, it is very much for the CPF members to take advantage of them.

I thank the Minister for the clarification, as I think there has been so much confusion. Having that discussion is important.

I would just like to ask a supplementary question with regards to the default age of the payouts. I understand that the rationale for putting the default at 70 is to allow for the additional benefits to the member. But at the point of the letter going out to the members, is it possible to just make it simple for them to confirm if they wish to withdraw? I know they can withdraw at the start of PEA. But it is a matter of emphasis. So, can they allow for the member to just confirm whether he wishes to have the payment, starting at 65? Because it gives the assurance that they can do it. Today, it seems that it is the other way round. It is just a matter of emphasis. And if they say no, then you can do the rest of the communications on the benefits, or if they say yes, just to confirm with them the benefits of keeping it there. It is just to give the members the assurance that they can start the payouts.

The short answer is yes. We will have to take a look at the letters. I think it is best to message-test. It is probably best to gather some members and ask them which letter is intuitively easier for them to understand. We will do so.

Just one more question for the Minister. For members who did not want to start their payout at PEA, will they be reminded again every year until age 70?

Absolutely. They are reminded year after year, through the Yearly Statement of Account.

I thank the Minister for explaining the payout at 65 and 70. I have a specific question with regards to a certain segment of the population. For example, if somebody is mentally incapacitated before 65, will it affect his trigger at 70 or 65, in the situation where he does not have a Lasting Power of Attorney (LPA) at 65? How will the CPF Board handle this situation at the point when the person reaches 65 years of age? What I mean is that, if somebody is mentally incapacitated at 65 and he does not have an LPA, does he have to wait until it is triggered at 70? Or is there a specific situation in such circumstances?

I would not want to speculate. The specific circumstances may differ. But in principle, the same rules apply to this individual. If by 70, there has been no instruction received, the CPF Board will also stream out the payments. The challenge, of course, is whether you have the right details, such as bank account details. If he does not have the LPA, it would be very hard to see how the CPF Board could be instructed to start the payouts even before 70. But we will have to look at the specific instance, so I think best not to speculate.

I just wanted to clarify my earlier supplementary question. First, I think, the Minister mentioned CPF LIFE only applies to CPF members with minimum $60,000 balance. Why is that so? Why can we not let everybody enjoy CPF LIFE?

Everyone can enjoy CPF LIFE. But there are certain members whose balances are not very high. They might find a lifelong payout at those levels not very meaningful. Again, we do not presume to decide on their behalf. We say that if your balances are below a certain amount, it is better for you to decide and let us know. Quite a number have decided that they will come on-board. They are part of the 92,500 that I shared. Members not on CPF LIFE can still come on board. We will not deny them the opportunity to do so. It is just that we do not decide on their behalf.