Debated in Parliament on 5 Aug 2014.
Ms Foo Mee Har asked the Minister for Manpower how CPF LIFE can offer options for Singaporeans who wish to set aside larger sums than the Minimum Sum of S$155,000 in their CPF in order to secure higher monthly payouts of more than S$1,200 for retirement incomes that meet their respective needs.
Mdm Speaker, CPF members aged 55 today who set aside their cohort Minimum Sum of $155,000 will receive about $1,200 in monthly payouts in 10 years' time when they reach the age of 65.
Members who would like to enjoy higher payouts have the option to top up their Retirement Account to the prevailing Minimum Sum subsequently, through the Minimum Sum Topping-Up Scheme. For example, for those who turned 55 years old previously, their Minimum Sum was lower. But the present-day cohort's Minimum Sum is $155,000. So, those who turned 55 previously can make a top-up to the higher amount, even though their particular cohort's Minimum Sum may actually be lower. And members will receive tax relief for the top-up amount of up to $7,000.
Members can also save for their retirement through the Supplementary Retirement Scheme (SRS) and enjoy tax benefits. They can use their SRS savings to purchase annuities in the private market to boost their retirement income.
I thank the Minister for his reply. I have three supplementary questions for the Minister. Given that the Government has acknowledged the current Minimum Sum only provides monthly payouts to cover basic living expenses, I would like to ask the Minister why there is a need to set a cap on the sum of money that CPF members wish to set aside in CPF LIFE, even though they have the option of top-up but still capped at the prevailing Minimum Sum. Can CPF members be given the option to set aside more than the Minimum Sum to join CPF LIFE so as to ensure higher monthly payouts that can pay for a higher level of expenses?
The second supplementary question is, I would like to ask the Minister to explain the mechanism and the funding structure behind CPF LIFE where it can guarantee lifelong monthly payouts, regardless of how long we live – maybe 100, 120 years – even well after the savings used to join CPF LIFE have been fully paid out, and yet when the savings are not
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fully paid out upon a CPF member's death, his nominated beneficiaries stand to receive the balance of the CPF savings. So, what is the structure and the mechanism behind that?
And my last question is, if you were to open the scheme for people to put in more money, what additional costs and risks, if any, would the Government need to bear to expand the CPF LIFE coverage beyond the prevailing Minimum Sum?
Mdm Speaker, if I may ask the Member to repeat her last question?
I assume that there is a cap imposed because there must be some risks or additional costs the Government must bear to provide this assurance for a lifelong payout. So, I am asking if the Government is to open CPF LIFE for people to put in more money if they want to get payout beyond the $1,200 per month. What are the additional costs and risks?
Mdm Speaker, with regard to the Member's first question, which is also sort of related to the last question, the CPF LIFE system is designed to help Singaporeans meet their basic needs in retirement. The returns earned on CPF LIFE balances are higher than what most private commercial entities are able to provide. As far as we know today, what CPF LIFE provides, there are very few, if any, private commercial entities which are able to provide an equivalent amount for the same premium. Our priority is in designing this system to help ensure that those with retirement savings of up to the Minimum Sum have sufficient payouts in retirement that are able to last them for life. It is important, particularly with life expectancy going up quite significantly.
For middle and higher income Singaporeans with retirement savings in excess of the Minimum Sum, they do have the flexibility to use other investment options outside the CPF system to meet their retirement needs. We believe that this is a more progressive and flexible approach that will allow us to target our resources on those Singaporeans who need it most. So, it is sort of related to the last question of whether we should open up. I guess that is something that could be possible, but we believe that for those who do earn a lot more and who have CPF account balances higher than the Minimum Sum, they have other options that they could explore. And we would like to focus the system to have better provisions for those at the lower income level.
With regards the second question on the mechanism, the reason why CPF LIFE is able to ensure that CPF payouts do not run out for those who live very long is because the CPF LIFE is essentially a longevity insurance scheme. It operates on the principle of risk pooling. Under CPF LIFE, a portion of a member's RA savings is used to purchase the premium on an annuity. It is the interest earned on the life annuity premium that is pooled and shared
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amongst surviving participants and allows the CPF Board to continue to make monthly payouts to members even if they live to 90 or 120 years, as the Member highlighted. While the interest earned is pooled, the premium itself is not. Therefore, upon a member's death, the life annuity premium committed minus any monthly payouts that an individual has received, the whole amount will still belong to the member and this amount will be refunded to the member's CPF account and will go to his or her beneficiaries. The default setting is that it will go in cash, although members can choose to put it into their CPF accounts as well.
We believe that CPF LIFE is an important scheme, especially in view of the fact that life expectancy is increasing significantly. This, I think, would go a long way in providing assurance. I know that many Singaporeans may not feel that they will live that long, but the reality is that many Singaporeans are beginning to live a long life. And I think CPF LIFE will, in time, be shown to provide actually a good degree of assurance for people, so they know that even if their accumulated premiums have depleted, the payments will continue.
I thank the Minister for the answer. I would just like to add that given that there is no such annuity plan that exists in Singapore for CPF members who would like to have higher payouts, as Government repeatedly says – $1,200 payout per month – and with one breadwinner in the family, it may not be sufficient. I hope the Government would explore opening up CPF LIFE to provide annuity plans for people who would be willing to save more under the CPF annuity scheme.
Mdm Speaker, we would be happy to continue to look at the scheme. CPF LIFE is a relatively new scheme. It has been in operation for about four years now. We will continue to look at it and see how best to improve it. Certainly, we are looking at measures to strengthen the system as a whole. What we do know is that going forward as well, the present calculation for the quantum that we catered for, in terms of the Minimum Sum, really deals with a slightly lower middle income and it caters to couples. What we do know, going forward, is that increasingly, more women are also working, so there are dual-income families. Be that as it may, I think with increasing wages over time, you will find that more families are able to provide for themselves in a much more comfortable manner. But I think CPF LIFE will provide at least a basic level of assurance for people going forward as well.
Thank you, Mdm Speaker. The Minister has mentioned that the Supplementary Retirement Scheme (SRS) is another additional option for people to save. I agree with that. My question is that while the SRS is not taxable, the annuity payout from the SRS is taxable. Why is that so? Can we improve it so that we can encourage more people to save into SRS and then also to boost their retirement income
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through annuity?
Mdm Speaker, the SRS is a voluntary scheme to encourage individuals to save for retirement over and above their CPF savings. Members can contribute any amount to the SRS account, subject to a cap. In general, members can enjoy tax deferment on their SRS contributions where every dollar of their SRS contributions will reduce their taxable income. Members also enjoy a 50% tax concession where only 50% of the accumulated SRS savings will be taxed upon withdrawal after reaching the statutory retirement age. With regard to the annuity purchase by the SRS, I think that is something that we can look at. But, as a whole, the SRS system, as it is, will strengthen individuals' provision for their own retirement. Apart from the CPF system, we will look at other areas to improve as well as to strengthen the SRS system. I think that is something that we will also look at over time.
Madam, I have one supplementary question. In view of the SRS and with regard to the increase in inflation rates from time to time, will the Minister consider increasing the cap of the SRS?
Mdm Speaker, as mentioned, we are open to suggestions. We will take the Member's suggestion on board.
Ms Mary Liew, the next Question.
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