Friday, 6 Mar 2015
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CPF sustainable as it adopts the best from other systems: DPM
Published on Mar 6, 2015 2:16 AM
The CPF system is progressive and sustainable as transfers are from the Budget and not through generations , said Mr Tharman Shanmugaratnam. -- ST FILE PHOTO
By Lim Yan Liang
SINGAPORE'S Central Provident Fund system is sustainable and progressive as it takes the best ideas from both collective pension schemes and individual retirement accounts, while avoiding the disadvantages inherent in either scheme, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
At the same time, the Government has become more progressive in enhancing the CPF scheme, and will continue to find ways to help Singaporeans get by as they near retirement, he said at the end of the debate on the Budget statement.
To illustrate the hybrid nature of the CPF scheme, he compared the pros and cons of both collective pensions and individual retirement accounts.
Collective pensions, he said, promise individuals regular payouts through their retirement without requiring them to bear investment risks. Such a scheme therefore gives retirees peace of mind, and tends to be more progressive because of government redistributions to the lower-income group.
But they also transfer the cost of benefits to the next generation and have become unsustainable and inequitable in places like Britain. "Countries are now making major reforms, one after another, to cut back on the future benefits of today's working population because of unsustainable benefits that have been promised previously," he said. "So people who start work today have to contribute more but will receive less benefits compared to current retirees."
While individual retirement accounts, such as in the United States and Australia, are more sustainable as they are premised on each person saving responsibly, they are not without problems. Without resource pooling, individuals have to bear the investment risk, and such accounts tend to underperform the market.
How much savings a person has also depends on whether he is lucky enough to retire when the market is healthy, he said.
By using individuals' savings as the foundation while ensuring there is "a strong element of collective responsibility" by pooling risks - such as through CPF Life - the CPF scheme avoids the major disadvantages of either system, said Mr Tharman.
"The reason why the CPF system is both progressive and sustainable... is that the transfers that take place in the CPF are from the government Budget. Not through generations, from one generation to the next, or promises made to the current generation which eventually have to be funded by the next generation.
"It is transfers that are achieved through the government Budget, (from) a government that has a triple A rating. That is the strength of the CPF system."
Such transfers have increased since 2007 to become more progressive: through housing grants, Medisave top-ups that are permanent for the pioneer generation, and the extra interest on smaller balances in CPF accounts.
These transfers mean that a young worker today whose income is at the 10th percentile would have received $200,000 in CPF support by the time he retires at 65, said Mr Tharman.
Allowing members to withdraw up to 20 per cent of their retirement savings at age 65 also gives members some flexibility, he said.
While turning down a Workers' Party's proposal for an option for CPF payouts to begin at age 60, he acknowledged the need to help Singaporeans in their 50s and 60s who cannot yet access their CPF savings.
These include helping elderly home owners unlock equity in their homes, said Mr Tharman, who noted that 80 per cent of elderly households in the bottom quartile here own homes, compared with 20 per cent in Germany and Denmark.
While the Government already allows those unable to work owing to illness to withdraw their CPF savings early, it will also give "maximum support" for those who wish to work beyond 65.
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