By Chua Mui Hoong
June 29, 2007
The Straits Times

IT HAS become part of political folklore that any suggestion to raise the withdrawal age for Central Provident Fund savings will unleash a political backlash. After all, the 1984 report on ageing issues from the Howe Yoon Chong-led committee drew protest when it made the controversial proposal to raise the CPF withdrawal age from 55 to 60. Indeed, the 12.6 per cent swing against the People's Action Party in the 1984 election was laid partly at its door.

In response, the Government cleverly side-stepped the issue by introducing a 'minimum sum', which allows workers to withdraw their CPF funds at 55, but leaves a certain minimum sum which can be drawn out only at retirement, which is now 62. Over the years, this sum to be locked up till age 62 has increased, to $99,600 from July 1. This amount gives a payout of $790 for about 20 years.

The minimum sum scheme represented a compromise between workers' desire to have access to CPF savings earlier, and the reality that longer life expectancy and rising health-care costs are exerting pressure to delay recourse to retirement savings.

Conventional wisdom is that any proposal to raise the CPF withdrawal age is a political hot potato as much today as it was in 1984.

So it was somewhat surprising to hear the minister in charge of ageing issues, Mr Lim Boon Heng, suggest that the withdrawal age for the minimum sum be raised from the current 62, to 65. He did specify some conditions: among them, that it should be done only when laws and mindset change are in place to allow older workers to stay employed.

He did not slay the 'withdraw-at-55' sacred cow.

Response to Mr Lim's minimum-sum proposal has been quite muted. Maybe it's early days yet. Maybe, even as I write, there are groups out there organising their responses and planning to lobby the Government to have a rethink.

But I think there has been a sea change in the socio-political landscape since the Howe report, and that people nowadays are less resistant to suggestions to lock up their CPF savings for a longer period.

The biggest change is that there is more access to CPF funds today.

The Howe report was made in an era when CPF funds could be used to buy homes and Singapore Bus Service shares - and not much else.

The Medisave scheme started in April 1984, and was piloted only in 1985. CPF funds were freed up for investment only from 1986. Access to CPF funds for tertiary education began in 1989 and was expanded to foreign universities in 1993.

In other words, in 1984, workers' CPF funds were almost literally locked up till workers turned 55. So it was understandable that Singaporeans then felt outraged at the suggestion to delay access to the funds for five more years.

Today, many Singaporeans routinely use their CPF funds for a wide range of investments, to meet healthcare needs and even for their children's education. The real impact of delayed access to CPF savings is much more limited.

Younger Singaporeans especially may not feel so keenly the sting of suggestions to delay the CPF withdrawal age, since they know that in practice, they already have access to CPF savings for a variety of purposes.

In fact, Mr Lim's proposal to raise the withdrawal age of the minimum sum is actually a pretty mild one. He could have gone further to suggest raising CPF withdrawal age to the retirement age of 62.

Pension experts point to a looming worldwide crisis in retirement financing. This is because people are living longer and spending more on medical needs in their old age. At the same time, a slowing fertility rate means there are fewer young people to help support retirees.

The consensus is that today's workers have to work longer and save more for their old age.

In Singapore, there is an additional factor: Cost pressures have led to falling CPF contribution rates. From the high of 50 per cent in the 1980s to 40 per cent throughout part of the 1990s, workers now get about 33 per cent or less of their monthly pay packet in the CPF.

According to one analyst, those earning above $6,000 a month stand to end up with $300,000 less in their CPF savings over 20 years as a result of the lower contribution rates and lower cap (CPF is paid only for salaries up to $6,000).

Today's generation of workers will end up with less in their CPF than those who worked through the 1980s - but are expected to live longer and face rising medical costs.

Tough-minded policymakers know what the solutions to this triple whammy of rising life expectancy, lower CPF rates and an ageing population are: work longer, save more, and delay access to CPF or pension funds.

Singapore leaders have said much about the first two options: work longer, save more. If politics did not enter the picture, the last option would be as widely discussed.

After all, there are few good reasons why retirement savings should be freed up at age 55, if the retirement age is 62.

The fact that a proposal backfired in 1984 is no reason not to raise it today - if it is the right policy prescription.

Circumstances today are different from those in 1984. Apart from access to the CPF, the Singaporean workforce today is also different.

For one, Singaporeans may be prepared to work longer. An HSBC survey this year of 21,000 people in 21 countries - including 1,004 Singaporeans aged 40 to 79 - found that six in 10 Singaporeans said they want to work for as long as they can, so they don't run out of retirement savings.

With jobs becoming more knowledge- and service-intensive and less labour-intensive, age becomes less of a barrier to continued employment.

The third factor to consider is that middle- to high-income earners are not solely dependent on their CPF savings for retirement, so may not react so adversely to a delay in withdrawing their CPF.

For this group, the key consideration is whether CPF funds are earning a reasonable return. (Personally, I think too little action is being taken to boost CPF rates of return - but that's a topic for another occasion.)

Provided rates of return are reasonable, this middle- to high-income group would not be averse to leaving their CPF funds to grow into a golden nest-egg till retirement age, rather than take them out at age 55.

Those most likely to protest loudest at any delay in CPF withdrawal age are probably low- to median-income workers who look to their CPF savings to fund their retirement dreams. This, ironically, is the very group that needs to save more for retirement, not draw down on retirement savings earlier.

Any suggestion to slaughter the 'CPF-at-55' sacred cow will still cause unhappiness. But maybe the reaction won't be as severe as in 1984. More important is to think if slaying that sacred cow will improve Singaporeans' retirement security.

TIME TO SLAUGHTER IT?

Any suggestion to slaughter the 'CPF-at-55' sacred cow will still cause unhappiness. But maybe the reaction won't be as severe as in 1984. More important is to think if slaying that sacred cow will improve Singaporeans' retirement security.

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