What would you rather have? A big payout at 55 or a steady stream of income deep into your golden years?
Minister for Manpower Tan Chuan-Jin stripped down the logic behind the Central Provident Fund (CPF) Minimum Sum to its basics, to explain why it was an effective way to provide Singaporeans security in their old age.
The Minimum Sum is the amount CPF members must set aside in their CPF Ordinary and Special accounts for their retirement needs on turning 55 years old.
It has been a hot-button topic since May, when an increase from $148,000 to $155,000 was announced.
Mr Tan explained how the Government arrived at that golden figure. "That is the amount you need to get a monthly payout of about $1,200 in 10 years' time when you reach age 65," he said.
He harked back to the time when members were allowed to withdraw their CPF money in a lump sum when they hit the age of 55. He said this was based on the fact that, in those days, many had just six or seven more years to live after that.
Now, life expectancy has risen and people live for at least 30 more years.
"Allowing a full withdrawal from CPF at age 55 will put us at real risk of outliving our savings in old age," he said.
That was why members had to set aside a basic amount - or Minimum Sum - which could be streamed out to meet living expenses later. The rest of the CPF savings could be withdrawn in a lump sum.
He also pointed to some in-built flexibility.
If someone had property to pledge, they needed to set aside only half the Minimum Sum, or $77,500, in cash. That would translate to a payout of just $600 per month later. This may be sufficient for those who had their property to live in. If they didn't have a property, they would have to pay rent and probably need the bigger payout.
He said that flexibility is an issue of meeting present-day wants versus future needs.
"The more flexibility we allow, the more we deplete the CPF account. What it means is that the monthly stream-out for the individuals would be reduced," he said.
He said that many members voluntarily left CPF savings in their accounts, even though they had CPF funds in excess of the Minimum Sum. That is because they earned risk-free returns, superior to what banks offered.
Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam also took pains to explain how CPF monies are invested.
Explaining what it meant for CPF members, he said: "Their monies are safe, and the returns they have been promised are guaranteed...The risk is wholly borne by the Government, on its own balance sheet."
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