Singapore plans shake-up of mandatory pension fund

20 August 2014   Category: News, Asia, Global, Singapore   By Daniel Shane

Singapore’s prime minister has proposed a raft of changes to the city state’s mandatory pension fund that could permit retirees to make larger lump sum withdrawals.

In a speech to mark Singapore’s National Day Rally, Lee Hsien Loong said that the government would widen the options for citizens to withdraw savings from the Central Provident Fund (CPF) sooner, as well as monetise state-subsidised accommodation.

Mr. Lee said that Singapore would set up an advisory panel to examine possible changes to the CPF, which could allow those aged 65 or older to withdraw up to 20% of their savings in one lump sum under special circumstances. These could include a family emergency, or pilgrimages, Mr. Lee explained.

Under current rules, Singaporean retirees are permitted to monetise some pension savings when they are 55, but at least S$155,000 (US$124,000) must be kept in their CPF account. Mr. Lee added that this threshold would increase to S$161,000 in 2015.

A study by Manulife published earlier this month indicated that only one-in-five Singapore citizens believe that their CPF savings will be sufficient to cover their retirement needs. Of those surveyed, 44% blamed inadequate returns under the pension scheme. Additionally, only one quarter of respondents said that they make voluntary contributions to their CPF, while 63% said they wanted greater flexibility in how funds could be withdrawn.

“Lee Hsien Loong’s proposed changes are inevitable, coming at a time when Singaporeans want flexibility to make their choices before and at retirement,” Debbie Ng, consulting actuary and director, benefits, at Towers Watson in Singapore, told Asia Asset Management.

“CPF is a multi-pronged platform that caters for diverse needs, including housing, medical and retirement. Additionally, with the ageing workforce, the dependency ratio has grown rapidly. It is understandable that the government is encouraging Singaporeans to use both their CPF and homes as their sources of retirement income,” Ms. Ng added.

Last month, deputy prime minister, Tharman Shanmugaratnam, said that there were currently no plans for funds under the CPF to be managed separately from Singapore’s sovereign wealth fund.

As things currently stand, pensions money contributed to the CPF is invested in Special Singapore Government Securities (SSGS); debt instruments whose proceeds are managed by the Government of Singapore Investment Corporation (GIC) and Monetary Authority of Singapore (MAS). As a result, retirement contributions are pooled with other government surpluses and managed collectively by the GIC, rather than as a separate pension fund.

The CPF was formed in 1955 as Singapore’s compulsory comprehensive savings plan for employees, with 3.5 million members as of the end of 2013. CPF interest rates are pegged to risk-free market instruments of comparable duration, and have a current floor of 2.5% for ordinary accounts and 4% for special, medical and retirement accounts.