Minister's Opening Remarks at Institute of Policy Studies’ Forum On CPF And Retirement Adequacy

Mr Tan Chuan-Jin, Minister for Manpower, The Shangri-La Hotel, Island Ballroom

1. Good afternoon, ladies and gentlemen.
2. What I’ll do today is to talk about a few points.
   
   How long will we live?
3. The first thing I’d like to talk about is longevity. Last week, I was at the A*STAR scholarship presentation, and before every student’s presentation there was a quote articulating the student’s aspirations. After many slides, I got a bit worried. If they actually succeeded in all the things they want to do, I don’t know if we’ll live forever, but we might end up living quite a long time. And that got me to thinking about the impact on our CPF system if indeed we were to live forever.
4. Does it change our thinking about retirement age? Does it change our thinking about how you are going to sustain yourself for the long term?
5. A quote that many of you would be familiar with – Aubrey de Grey is a researcher on ageing, and he said that the first person to live to 150 has already been born.
6. We could argue whether we believe that’s true, but life expectancy is increasing. In Singapore, when the CPF system was introduced in 1955, retirement age was 55 years old, life expectancy at that stage was about 60 to 62 years ago.
7. For those turning 65 today, one in two will live beyond 85.One in three will live beyond 90. What happens if you were that one in two, or three?
8. So when we talk about shifting goalposts, I would say that it’s not about shifting goalposts, I would say the game has changed. The pension system game has changed. The single most important factor that shapes any pension system is really longevity.
9. So questions that I would urge you to think about are:
10. What’s the impact on retirement adequacy, when we begin to live longer, when we have another 20, 30, 40 years to go after we stop working?
11. How do we ensure that we have enough? How do we ensure that it’s sustainable?
12. I know that many of us say it’s our money and the government should let us use it, but what happens when we run out? Some say that I’m not going to live that long, but what happens if you do? Who will be there to support and sustain you for that X number of years that might go on after?
13. These are questions that we ought to think about when we deal with longevity.
    
    Do we save enough? Do we need a system?
14. The second question is, do we save enough? Some of the earlier presentations were about how we grapple with present desires and wants versus future needs. How do we balance these? Do you think that we save enough so that we can have a nest-egg that can last us a long time? Some may feel that we don’t need this system, but studies have shown that people predominantly don’t plan adequately for the long term. There are present biases and preferences that we have to contend with.
15. The key question to ask is, should we have a system to intervene? Should the government play a part to ensure that at least to some degree a basic level of savings is enforced?
16. That’s a question that we need to contend with. Do we need this system, or leave it to the individual?
17. Many of the countries in the world have such a system. Most of these countries have systems that are not like our system, which is a “defined contributions” system, where you contribute on a regular basis. Most countries would stream out a payment upon retirement.
    
    Should we worry about sustainability?
18. Another point that I’d like to raise for us to think about is, should we worry about sustainability?
19. As we build the system, we need to make sure that, whatever we commit to today can be sustained for the future. We understand the demographics that we are facing; we are going to have a smaller pool of the younger generation – our children’s generation – sustaining this larger pool of us who are ageing and living longer. As we demand for more assurance today, that has to be provided for – every percentage point extra that we commit to paying, would have to be paid for at some point, and that burden would go to our children’s generation.
20. So the question I put to you is, how far should we burden the next generation to sustain us in our retirement years? This is an issue which many countries are grappling with.
    
    Designing the system – how the CPF works
21. Let me end by showing a slide (see annex).
22. On the left-hand side is your accumulation phase. What are the parameters here?
23. Work. When we work, we accumulate. The more often we work, constancy of work, frequency of work, the more we are able to accumulate.
24. Wages. How do we augment wages? That will have a bearing on how much we accumulate.
25. Contribution rates. Your individual contribution rates, your employer contribution rates – which is an important part of the CPF system. Top-ups provided by the Government, Workfare top-ups for those who are lower-income – all these add up to the nest egg.
26. The rate of return is another one. Obviously, the higher the rate of return, the more we can accumulate.
27. But there is another important component that we need to look at, which is withdrawal. Some argue for more flexibility. Some argue that we have deviated from the core purpose of providing for retirement, and there should be less flexibility. As you consume more and you withdraw for other purposes, you will correspondingly have a smaller nest egg.
28. There are steps being put in place to see how we can strengthen accumulation. For us, as a whole, generating opportunities so that there is employment plays a great part, so that individuals do have opportunities to find good jobs.
29. If you look at the right-hand side, that’s the decumulation phase. At some point, we will stop working. We will stop drawing on that regular monthly income, and that’s when we will draw on our nest egg.
30. So when that retirement age is, has a bearing. The longer we defer it, it allows you to accumulate more and to draw it out on a more sustainable basis.
31. The Draw-Down Age matters. When I was in Sweden, trying to understand its pension system, young civil servants were telling us that they expect to retire in their seventies. This is because they are beginning to peg their retirement age – which is their Draw-Down Age – to life expectancy. The longer you live, the later you retire. Otherwise, they are not able to sustain that payout for the long term.
32. Payout quantum. The more you pay out, the shorter the period that you can sustain it for. In our case, for CPF LIFE, your payout will last your entire life.
33. Payout period. For CPF LIFE, it’s an annuity system and will basically last you until you move on.
34. Some have asked for more flexibility at this point where we draw out the cash, to take out a lot more from our nest egg. What happens then is, the nest egg becomes a lot smaller. And again, as we live longer, the more you decumulate as a lump sum, that has a serious impact on how you can extend the payout in the long term.
    
    Conclusion
35. I will end with a couple of statements.
36. I would say that most of us understand that we do need some sort of a system in place. It is not going to be a complete system that provides for everything – but at least the basic level of assurance is provided.
37. The CPF is a safe and secure system that provides a level of assurance in our retirement years. The CPF is a system that also helps facilitate home ownership, as well as meeting our healthcare needs. And these, together with our retirement adequacy needs, form the key pillars that we think are important for all Singaporeans.
38. We will continue to strengthen the CPF, as we have done over the years. Parameters change – one of the biggest changes we have encountered in the last half century is that life expectancy has gone up. The game has changed, so we have to adjust to make sure that we better provide for our people.
39. Lastly, it’s important for us to keep whatever system we put in place sustainable, so that our children’s generation will not be unduly burdened.
40. Thank you very much.