Skip to main content
About Us

Speech at Ee Peng Liang Memorial Fund Forum

BG (NS) Tan Chuan-Jin, Minister of State (Manpower and National Development), National University of Singapore

Employment practices
Professor Tan Eng Chye
Deputy President and Provost, NUS

Dr S Vasoo,
Chairman of the Ee Peng Liang Memorial Fund, and Associate Professorial Fellow, Department of Social Work, NUS

Mr Gerard Ee

Ladies and Gentlemen,

  1. Good afternoon. I am pleased to join you at the Ee Peng Liang Memorial Fund Forum today to share my thoughts on old-age income security.

    The Hard Truth about Increasing Longevity
  2. I would like to first start with the good news - we are now living much longer than before. The average life expectancy of Singaporeans at birth is now around 82 years old, as of 2010, compared to 61 years when CPF began in 1955. Today, if you are 65, you can expect to live another 20 years on average. 83 years for males and 86 for females, with half in this age group expected to live beyond this.
  3. Academics have researched why people tend to underestimate their life expectancy. They find that our perceptions and decisions tend to be shaped by information that we can easily recall, and how easily examples or events can be brought to mind. In behavioural economics, such phenomenon is known as "availability bias". So we think about our own parents, we hear stories about older people with health problems, we look at obituaries in the newspapers, and this forms our view on how long we will ourselves live. What we forget is that we belong to a younger cohort that enjoys better health and nutrition, and therefore would live longer than our parents and our grandparents. Availability bias is serious in the context of increasing longevity, because it causes people to systematically underestimate how long they will live, and consequently, how much they should save for retirement.
  4. While increasing longevity is a good thing, it can impose a burden on families and society should individuals undersave for retirement. Families of course should support their elderly. But as we have fewer children, it is also important to recognize that our old age dependency ratio, or the number of elderly aged 65 and above for every 100 residents aged 15-64, is set to increase from the current 12.2, to 19.0 in 2020. If there is no family, or the family is unable to provide, society would have to step in. While we aim to build a compassionate society, beyond a point, recklessly under-saving and then relying on the compassion of others in society is neither fair nor sustainable, especially for the younger generation who will need to carry this burden. Each of us should save and prepare for our own retirement. This has been the philosophy underpinning our Central Provident Fund (CPF) system since it started in 1955. For those who are poor and unable to save, the Government will step in to help. I will elaborate on this later.

    Singapore is not alone in this challenge
  5. Singapore is not alone in facing challenges arising from increasing longevity. Other developed countries face similar challenges. Pension systems worldwide, whether they are defined benefits, defined contributions or something in between, are under stress. No single system is immune and all will need to adapt to this long-term demographic reality.
  6. Many countries have responded by introducing changes to their pension systems. Just last year, France passed a law to raise the minimum retirement age from 60 to 62 years, and the age to qualify for a full state pension from 65 to 67 years. The Dutch, recognised by many for having one of the best pension systems in the world, will also increase their retirement age, from 65 to 66 in 2020. It is expected to increase to 67 from 2025. The Greeks, despite their current economic woes, also pushed through with pension reforms last year to raise the retirement age to 65 for both men and women. The Greeks will also have to work longer to enjoy full state pension benefits.

    Meeting the Challenges of Increasing Longevity
  7. Singapore is also moving in a similar direction. The draw-down age for CPF savings will be gradually increased from 62 to reach 65 in 2018. This will help to preserve the CPF savings for one's retirement needs and reduce the chances of one outliving his CPF savings.
  8. This is not the only thing we are doing. We are also pursuing better retirement adequacy for Singaporeans on other fronts. Let me touch on them briefly.
    • Helping Singaporeans Work Longer
  9. Firstly, we are helping Singaporeans to work longer, specifically, facilitating re-employment beyond the statutory retirement age of 62. The employment rate of older residents aged 55-64 has increased over the years, from 38.2% in 1991 to 59.0% in 2010. This is a positive sign, as it shows that our older workers are becoming more employable. We want to help older workers who are willing and able to continue working to do so beyond retirement, so they can be more financially secure in their old age. The Retirement and Re-employment Act passed earlier this year will provide more opportunities for older workers to do so. Under this legislation, from January 2012, employers will be required to re-employ older workers beyond the statutory minimum retirement age of 62, up to age 65, if they are eligible for re-employment. Re-employment need not be for the same job or on the same terms. The employer and the worker have the flexibility to make changes to the existing job arrangements to suit their needs. So, this is what we are doing on the re-employment front.
    • Making Savings Last for Life
  10. Secondly, we are enhancing the CPF system to make CPF savings last longer for members. In 2009, we introduced CPF LIFE, which will provide members with a monthly income in their retirement years for as long as they live. This means an income for life. CPF LIFE is an improvement over the existing CPF Minimum Sum scheme which provides monthly payouts but for a finite period of about 20 years. The implementation of CPF LIFE thus marks a significant milestone in our journey to enhance Singaporean's retirement adequacy. As at June 2011, more than 60,000 members have signed up voluntarily for CPF LIFE. From 2013 onwards, we will be making CPF LIFE mandatory for members turning 55 who have more than $40,000 in their Retirement Account thus enabling them to receive an income for life.
    • Helping Those in Need
  11. Thirdly, we are providing help to those who are in need. We recognise that there will be older low-wage workers who may not be able to save enough even if they work longer. Various initiatives have been introduced to help them. The Workfare Income Supplement, or WIS, is one of them. Through the WIS, the Government provides top-ups to the wages of older low-wage workers to encourage them to stay in employment and to help them increase their retirement savings. We also have the Workfare Training Support Scheme which provides more opportunities for older low-wage workers to train and upgrade their skills so that they stand a chance to earn higher wages. This year, the Government also provided a one-off Special Employment Credit to encourage employers to attract and retain their older low-wage workers. We are also in the midst of exploring more ways to help low-income workers.
  12. From time to time, the Government also tops up CPF savings, such as the Medisave top-up from this year's Budget. 1.3 million Singaporeans aged 45 and above each received top-ups of between $300 and $800 in their Medisave – this amounted to about half a billion dollars.
  13. The Government also pays an extra 1% interest on the first $60,000 of a member's combined balances, with up to $20,000 from the CPF Ordinary Account. Members with lower balances benefit more from the extra interest as they earn a higher effective interest.
    • Encouraging Family support
  14. Fourthly, but no less importantly, family support continues to play an important role in retirement adequacy. This is especially true for those who have not been economically active or those who had intermittent or irregular employment, for whom the CPF may not cover or cover adequately. A recent study1 by the International Longevity Centre Singapore (ILC-Singapore) revealed that the majority of our elderly today turn to their children for support. This is good and we encourage such family support. In addition, we have schemes such as the Minimum Sum Topping-Up Scheme, for members to voluntarily top up the CPF accounts of their family members, especially those who are not working or unable to work. I am heartened that about 17,600 MSTU top-ups, totalling around $110 million, were made for parents and grandparents in cash and CPF last year. I encourage Singaporeans to continue to make use of the MSTU Scheme to help their loved ones achieve a financially secure retirement.

    Uniquely Singaporean – Retirement Adequacy via Home Ownership
  15. Notwithstanding the above considerations, there is one unique aspect of our pension system that plays a very significant role in retirement adequacy. Unlike the pension systems in other countries, the CPF system also helps Singaporeans save up for housing needs. Through CPF savings, nearly 90% of Singaporeans are able to own their homes - one of the highest home-ownership rates in the world. Our home is an asset. It is a store of value that can be unlocked if the need arises. It is also often regarded as a reasonable hedge against inflation.
  16. Our experience shows that Singapore's elderly tend not to monetise their housing assets to finance retirement needs. The same observation was made in the study by ILC-Singapore. There are a variety reasons for this. Some do not feel comfortable about moving to an unfamiliar place or renting out their apartment to unfamiliar people. Others wish to leave behind something valuable for their children or grandchildren.
  17. The fact that our elderly do not monetise their homes is probably a good sign, telling us that they have sufficient savings for their retirement. Nevertheless, it is important for our elderly to be aware that the option to monetise is there and can be exercised when the need arises. Instead of just cash, their CPF savings have therefore been stored in a property, which has provided a roof over their heads over the years. Avenues such as the Lease Buyback Scheme (LBS) launched by the Government in 2009 are available to help elderly households unlock part of the value of their housing to finance retirement needs if required. Other options include buying a smaller unit and sub-letting rooms for rental income.

    Conclusion
  18. No country has the perfect solution to the challenges of increasing longevity. There is just no simple answer or a one-size-fits-all solution, given the unique demographic, social and economic circumstances that each country faces. The key is to find the right balance between adequacy and sustainability. We believe that Singapore is moving in the right direction, through the CPF and other initiatives that have been introduced over the years, supplemented with strong family support and high home ownership rates. We will continue to build on this strong foundation to help Singaporeans achieve retirement adequacy.
  19. I look forward to an engaging discussion this afternoon. Thank you.
1  The name of study is "Profile of Older Men and Women in Singapore 2011".