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The CPF Board turned 45 in July 2000. Since its inception, the CPF scheme has worked well for Singaporeans, providing for their retirement, housing and healthcare needs.
Indeed, many Singaporeans cannot imagine life without the CPF. Many have used their CPF savings to buy homes and today 92% of households in Singapore own their own homes. We are one of the highest home-ownership nations in the world.
Through the years, the CPF scheme has continually been reviewed and refined to remain relevant to the needs of its members. Already, the new millennium has seen significant changes to the CPF scheme to meet this growing challenge. This has been largely spurred by the recommendations of the Inter-Ministerial Committee on the Ageing Population made in November 1999.
Singapore’s population will age rapidly over the next 30 years. The figures are starkly revealing. About 7 percent of the population in 2000 was above 65, and this will increase to 19 percent by 2030. In the same period, the median age will increase from 34 years to 41. The old age dependency ratio, which is the ratio of those above 65 to those aged 15-64, will rise from 10 per hundred to over 30 per hundred.
The latest changes to the CPF scheme, which came into effect on 1 January 2001, are timely measures to fine-tune our old age savings scheme so that members can face their retirement lives with more confidence.
The new target contribution allocation rates will help older members save more for retirement and healthcare and avoid the "asset rich, cash poor" situation which could arise when members commit too large a portion of retirement savings into property. When CPF is fully restored, a member above 45 to 55 years, for example, will save 8 and 9 percentage points into his Special and Medisave Accounts respectively, up from the pre-CPF cut rates of 4 and 8 percentage points. However, this will not affect younger first-time buyers of public housing, for whom it will remain affordable as the allocations will remain largely unchanged for those in the younger age group.
Major changes were also made to the CPF Investment Scheme (CPFIS). The Minimum Sum requirement was waived under CPFIS. Special Account savings could now be withdrawn for investments under CPFIS-Special Account; and profit withdrawals from Ordinary Account savings investments will be gradually phased out.
To further encourage Singaporeans to save for retirement, the Minimum Sum Plus Scheme was introduced in January 2001. Under this scheme, members can opt to buy additional life annuities, beyond their Minimum Sum, with their CPF savings at age 55. Income from these annuities is accorded tax exemption. The government has also raised the tax exemption limit for CPF contributions by self-employed persons. In addition, the Supplementary Retirement Scheme was launched by the Government in April 2001 as a separate voluntary savings scheme with attractive tax benefits to encourage Singaporeans to further save beyond their CPF savings for their retirement.
The Singapore economy grew by 9.9% in 2000, the highest growth rate since 1994, and the average unemployment rate fell from 3.5% in 1999 to 3.1% in 2000. In recognition of the strong growth, the Government made good on its promise to restore the CPF cut as soon as practicable, by first restoring two percentage points in April 2000, and another four percentage points in January 2001 bringing the total employer CPF contribution rate to 16%. In addition, a Special $250 CPF Top-up amounting to $381 million was given to 1.5 million adult Singaporeans in March 2000 as a gesture of goodwill for sacrifices made during the 1997 economic crisis. Another total of $2 billion CPF top-up for Singaporeans for 2000/2001 was announced by the Government in August 2000.
Although the overall economic performance in 2000 was good, the economic outlook for 2001 is less certain and rosy because of the slowdown in US economy, the uncertain regional economic and political developments, and a downturn in the global electronic cycle. The Government will therefore be closely watching the performance of the economy in 2001 before deciding on further restoration of the employers’ CPF contribution.
The CPF scheme, being a fully funded defined contributions scheme, has managed to avoid the financial problems faced by countries that have adopted pension systems or defined benefits schemes as social security for workers. Under a "defined contributions" provident fund, every worker knows exactly how much he is saving for his own retirement needs. There is no uncertainty as to the quantum of savings. CPF, being a centrally administered fund, also enjoys the benefits of economies of scale, which keeps administration costs low, and allows for portability of members' retirement savings. The New Economy is likely to see higher worker mobility and more self-employed people where portability of retirement savings is essential.
One growing trend worldwide, however, is the desire on the part of investors to choose how and what to invest in. In line with this trend, the CPF social security model is gradually being shifted towards the tenet of "defined contributions, centrally administered, individually invested" compared to the earlier model of "defined contributions, centrally administered and invested". This means that CPF members are given greater opportunity to enhance their retirement nest egg through their own investing of their prescribed savings, if they so wish. Individuals are expected to take greater personal responsibility for their old-age financial security. Over the years, the Board has been liberalising the CPFIS to allow greater investment options for members to enhance their retirement savings.
Members should, however, be aware that just because a particular product has been included under the CPFIS, it does not mean that the Board guarantees that members will make a profit from it, or that such investments will be risk-free. Investors should be well informed and prudent in their investment decisions. They should take a long-term view of their investments for retirement and seek the advice of professionals if necessary.
As at 30 June this year, $23.9 billion of CPF savings have been invested. And while this figure may seem large, there could still be another $62 billion that can be potentially invested under CPFIS, although a portion of this amount would be held back by CPF members for future housing loan instalment payments or by those who prefer risk-free returns on their savings. Whilst CPF members can make investments to enhance and maximise their risk-adjusted rate of return, this must always be counterbalanced with prudence and responsibility.
While choices are desirable, in that younger members or those who have greater appetite or tolerance for risk could opt for more aggressive investments with better returns albeit with greater risk, they can also be overwhelming and bewildering to an ordinary man-in-the-street. Members must realise that all investments carry risk and they must know the risk they are taking for their investment decisions. Given the vagaries of financial markets, some could become innocent victims of nothing more improvident than unlucky or bad timing and see their retirement savings literally wiped out if a stock market slump strikes at a time when they need to realise their investments of their compulsory savings upon retirement.
Therefore, if a member is not investment savvy or prefers a guaranteed return without any investment risk, he can and should leave his savings with CPF Board to earn a risk-free return of at least 2.5% per annum for Ordinary Account savings and 4% per annum for Special Account savings.
It is CPF Board's desire to help its members get the best possible return on their compulsory savings. In this respect, the CPF Board will be launching a financial planning module in its website later this year. This is meant to help CPF members manage their CPF savings better. The Board would continue to provide members with more information to help them in their investment decisions. It would also work with other government agencies and the financial services industry to help people save, invest and provide financial security through the whole cycle of life.
Since mid-2000, the Board has formed a partnership with the Ministry of Community Development & Sports and the Financial Planning Association of Singapore, to raise public awareness of financial planning. Besides organising and supporting public seminars, and running a fortnightly newspaper column between March to September 2001 to answer questions on financial planning, a publication "Benefits of Financial Planning" will also be mailed to 980,000 households. We will continue to actively reinforce the importance of taking charge and planning early for retirement.
The past 45 years have seen the CPF evolving from a simple old-age savings scheme to a comprehensive social security savings scheme. In this new fast-changing millennium, we need to continually fine-tune policies to keep pace with changing expectations and demands.
More importantly, the Board has also increasingly positioned itself to actively influence how members view their CPF savings – that CPF savings must be managed prudently from the day one starts working, and that decisions made today on using CPF for housing, investments and healthcare will impact members’ retirement years tomorrow.
The Board has been actively striving to simplify its processes and improving its customer services over the counter, telephone and self-services channels. In January 2001, the CPF Woodlands Office started serving customers in the northern sector of Singapore. It features a 24-hour PAL self-service lobby, as well as more customer-friendly service counters.
My Board Members and I look forward to the challenging times ahead. We are confident that together with the Management and staff of the Board, we will be able to meet the challenges and continue to give excellent benefits and services to CPF members.
Ngiam Tong Dow
Chairman
Central Provident Fund Board
June 2001 |