Second Reading Speech by Minister for Manpower on Retirement and Re-Employment and CPF Amendment Bill

Dr Tan See Leng, Minister for Manpower, Parliament

Second Reading Speech By Minister for Manpower Dr Tan See Leng on the Retirement and Re-employment (Amendment) Bill & CPF (Amendment) Bill 2021

Introduction

1. Mr Speaker, I beg to move, "That the Bill be now read a Second time."

2. Mr Speaker, the Retirement and Re-employment (Amendment) Bill is linked to the next Bill on the Order Paper, the Central Provident Fund (Amendment) Bill 2021. Both the Bills support our senior workers. With your permission, Mr Speaker, I would like to propose that the substantive debate on both Bills take place together. This will allow a more holistic debate. We will still have the formal Second Reading of the CPF (Amendment) Bill to ensure that procedural requirements are dealt with.

Flexibility to work longer

3. Singapore’s labour market is adapting to an older workforce, in tandem with demographic trends. With the support of the tripartite partners, between 2010 and 2019, we have made necessary adjustments to our employment and retirement policies, so that senior workers can continue to work beyond 65 if they wish. We started promoting the concept of re-employment in 2007, and after extensive outreach, established the re-employment age to be 65 in 2012. We then raised the re-employment age to 67 in 2017. 

4. These innovations in our labour market have helped allow our seniors to remain economically active. By 2020, about a quarter of our resident labour force was aged 55 and above, up from 16.5% a decade ago. This has helped more of our senior workers earn more and save more. With CPF LIFE, they have added assurance of a perpetual monthly income in their retirement years.

5. In 2018, the National Trades Union Congress (NTUC) called for a fresh effort to prepare Singapore’s ageing workforce for the future. In response, we formed the Tripartite Workgroup on Older Workers (“the Workgroup”) to:

i. review the longer-term relevance of the retirement age and re-employment age and consider our next moves;
ii. examine the CPF contribution rates for senior workers and their impact on retirement adequacy; and
iii. promote an inclusive workforce and progressive workplaces that value senior workers.

6. The Workgroup consulted extensively and presented its recommendations to the Government in 2019.

7. One of its key recommendations was to retain the statutory retirement and re-employment age framework. Under this framework, employers cannot terminate an employee on grounds of age before the statutory retirement age. Workers have the assurance of continued employment up till the statutory re-employment age if they are able and wish to do so. At the same time, businesses have sufficient flexibility to adjust re-employment terms, enabling them to continue providing employment opportunities to our senior workers while remaining competitive. It was also observed from other countries’ experiences that doing away with the statutory ages does not necessarily lead to higher employment rates.

8.The Workgroup went on to recommend increasing both the retirement age and re-employment age by three years to 65 and 70, respectively, by the end of the decade. The Workgroup had assessed this to be a realistic goal, considering improvements in health and life expectancy, the better-educated and higher-skilled workers today, as well as enhanced organisational capabilities and capacity to manage senior workers well. Achieving this by the end of the decade also provides time for employers to adjust.   

9. Another key recommendation of the Workgroup was to raise the CPF contribution rates for workers aged above 55 to 70 over the next decade, to boost retirement adequacy for our seniors, even as we provide them with the flexibility to continue working for longer. The increases are to be phased in gradually, taking into account prevailing economic conditions. When completely implemented, the full CPF contributions rates will apply to senior workers up to age 60, compared to 55 today. The rates will step down gradually for workers above age 60.

10. In addition, the Workgroup recommended that employers undertake complementary changes to their policies, processes and practices. Employers should engage mature and senior workers in structured career planning sessions at certain age milestones to plan their future career trajectories and training requirements. To encourage more age-friendly workplaces, employers should also embark on job-redesign, as well as provide more part-time re-employment opportunities.  

11.The Government has accepted all the recommendations.

12. The Bill today amends the Retirement and Re-employment Act to establish the maximum possible statutory retirement and re-employment ages at 65 and 70 respectively. This reflects the recommendations of the Tripartite Workgroup. The prevailing retirement and re-employment ages will continue to be prescribed by notification in the Gazette. In line with the consensus of the tripartite partners, the Government will prescribe the statutory retirement age and re-employment age to be 63 and 68 respectively, effective from 1 Jul 2022 (i.e., next year).

13. Naturally, employers who wish to move faster are free to do so. In fact, the public sector has already taken the lead, by implementing a retirement age of 63 and a re-employment age of 68 one year earlier, on 1 Jul this year.

14. Other recommendations of the Workgroup are also being implemented. In particular, the first increase in senior workers’ CPF contribution rate will take effect from 1 Jan 2022.  Employees aged above 55 to 70 will see an increase in total CPF contribution rates of up to 2 percentage points. This increase was deferred by a year from the original announced timeline of 1 Jan 2021 as a nimble move to help employers manage costs amid the COVID-19 pandemic. The deferment was also supported by the labour movement who viewed this as a balanced approach to help senior workers keep their jobs. Our ability to shift gears and jointly focus on tackling the immediate challenge at hand while not losing sight of our longer-term vision is a true reflection of the strength of Singapore’s tripartism model. We will continue to engage our tripartite partners at each phase of rate increases over this decade.

15. The Government is also doing our part to help employers adjust to these changes. We introduced the $1.5 billion Senior Worker Support Package in 2020, and through this package, we provide offsets for senior workers’ wages and the additional employer CPF contributions. There are also grants to encourage employers to go one step further and raise their internal retirement and re-employment ages above the statutory ages, and to provide more part-time work options for senior workers.  

16. Let me assure Members that raising the retirement and re-employment ages provides the flexibility for older workers to work longer, but does not compel them to do so. Those who do not wish to continue working need not do so, and can enjoy their retirement.

17. To be clear, these changes will not affect existing CPF withdrawal policies and ages. At age 55, you can still withdraw at least $5,000, and you can still start your CPF payouts from age 65.

Simplifying CPF  

18. Mr Speaker, if I may now move on to the CPF (Amendment) Bill. The Bill makes various amendments to simplify the CPF system for members.

A. Easier for members to receive retirement payouts

19. First, we will make it easier for members to receive retirement payouts.

i. For members who receive payouts through the Retirement Sum Scheme, some have fully drawn down their Retirement Account but still have funds in their Ordinary or Special Account. We will automatically draw down from these accounts to continue providing them a monthly payout.
ii. For members who receive payouts through CPF LIFE, some have subsequent inflows into their Retirement Account. We will convert them into higher CPF LIFE payouts
iii. For members turning 65 from 2023, we will give them greater flexibility to decide on when their Ordinary or Special Account savings will be transferred into their Retirement Account.

20. Allow me to elaborate.

21. There are over 250,000 members currently receiving payouts under the Retirement Sum Scheme. These are members who had not opted into CPF LIFE.

22. Under the Retirement Sum Scheme, members stop receiving payouts once their Retirement Account is depleted. However, many members still have funds in their Ordinary or Special Account (what we refer to as OSA), because they continue to receive CPF inflows such as contributions from employment. Some members are not aware they can transfer these funds into their Retirement Account, and continue to receive a monthly payout.

23. With this amendment, we will make it easier for them. To minimise the disruption to payouts, we will automatically stream out the Ordinary and Special Account savings of these members. This change will take effect by the first quarter of next year and will benefit around 83,000 members.

24. Let me illustrate with an example.

a. John has been receiving monthly Retirement Sum Scheme payouts of $700. He has now depleted his Retirement Account, but still has $2,500 in his Ordinary and Special Account. Under current rules, this $2,500 will remain in his Ordinary and Special Account unless he comes forward to withdraw it or apply to transfer it to his Retirement Account.

b.With the amendment, John will continue to receive his monthly payout of $700 automatically, drawing from his Ordinary and Special Account savings. After $2,100 has been paid out in three tranches, the remaining $400 in John’s Ordinary and Special Account will be disbursed to him as the final payout. If John is still working, the continued contributions to his Ordinary and Special Account will allow him to receive payouts for longer and fuss-free. John will receive the payouts when his CPF savings have accumulated to at least $250, or at least once a year if less than $250. John can also approach CPFB or visit the CPF website to check how he can withdraw the remaining amount. 

25. About 75,000 members are currently receiving CPF LIFE payouts. For subsequent inflows to their Retirement Account, members currently need to apply to add these inflows to their LIFE payouts. Again, we will automate this process by this month, making it easier for members to enjoy the higher payouts for life.

26. These changes will make it easier for members to tap on their CPF savings. It is worth mentioning that besides CPF, many of our seniors have access to other assets such as housing, private savings and investments. For seniors who had low incomes during their working years and now have less in retirement, the Silver Support Scheme was recently enhanced to broaden the eligibility criteria and increase quarterly cash payouts by 20%. As a result, almost 250,000 seniors aged 65 and above will benefit from Silver Support payouts in 2021, up from 150,000 previously.

27. Finally, we will give members greater flexibility to decide on when their Ordinary or Special Account savings are to be transferred to their Retirement Account. Today, members already have some flexibility over when they start receiving payouts. Members who choose to defer the start of payouts can benefit from payouts that are up to 7% higher for each year deferred.

28. For members turning 65 from 2023, we have announced previously that we will transfer their Ordinary and Special Account savings to their Retirement Account, up to their cohort Full Retirement Sum, when they are eligible to start payouts. To provide greater flexibility to members, we will make this transfer when they choose to start receiving payouts instead. This will also be the point when we automatically include eligible members in CPF LIFE. Members who are not automatically included can still opt-in to join CPF LIFE. Members can still voluntarily transfer Ordinary and Special Account savings to their Retirement Account up to the current Enhanced Retirement Sum at any time.

29. Let me also reassure all members that there are no changes to the rules for lump sum withdrawals of CPF savings. Members can continue to withdraw based on current rules.

B. Making it easier for members to build up their retirement nest egg

30. Next, we will also make it easier for members to build up their retirement nest egg.

31. The CPF Board has several schemes which members can tap on to grow their CPF savings. We accept Voluntary Contributions to MediSave. We also allow CPF members to make cash top-ups or CPF transfers to their Special Account or Retirement Account. They can also do so for their loved ones.

32. 2020 saw a record amount of top-ups via the Retirement Sum Topping-Up scheme – about $3 billion across 140,000 members. To make it easier for members to build up their CPF savings through these schemes, we will refine the relevant tax relief and top-up limit rules.

33. Let me elaborate. Currently, members can enjoy tax relief when topping up via these schemes, but the rules in place are different. To align the rules for both schemes, tax relief for Voluntary Contributions to MediSave Account for employees will be provided to the giver, instead of the recipient. From 1 January 2022, givers can also look forward to an annual tax relief cap of $8,000 when they make cash top-ups to their own CPF accounts and another $8,000 when they do so for their loved ones, up from $7,000. This cap will be shared between the Retirement Sum Topping-Up scheme and Voluntary Contributions to MediSave Account for employees.

34. To facilitate planning for members, we will also simplify the top-up limit for Voluntary Contributions to MediSave Account. Today, the limit for employees depends on two sets of figures – the Basic Healthcare Sum and the CPF Annual Limit, which is the maximum amount of mandatory and voluntary contributions a member can receive in a calendar year. As members can only know whether they have reached the Annual Limit at the end of each year, this creates some uncertainty for members. Therefore, going forward, the top-up limit for employees will be simplified to depend only on the Basic Healthcare Sum.

35. Let me illustrate.

36. The Basic Healthcare Sum in 2021 is $63,000, while the Annual Limit is $37,740. If you assume that Jane currently has $50,000 in her MediSave Account. Assume also that her total mandatory contributions for 2021 will amount to $35,000, and that she makes no voluntary contributions. Based on the new rule, she instantly knows that she can contribute up to $13,000 – this is the $63,000 minus the  $50,000 in her MediSave Account – this is the headroom between the Basic Healthcare Sum and her current MediSave Account balance. Under the current rules, however, she also needs to consider the Annual Limit. This means that only at the end of the year will she know that she can contribute up to $2,740 – derived from $37,740 minus $35,000 – this is the headroom between the Annual Limit and her contributions for the year.

C. Streamlining administration of CPF schemes

37. The Bill also makes various amendments to streamline the administration of CPF schemes, thereby increasing efficiency for members. These are mainly technical changes to refine existing policies – please allow me to give three examples.

38. First, the CPF Act will be amended to refine how beneficiaries receive CPF assets, both un-nominated and nominated, upon members’ passing. This is in line with ongoing efforts to disburse such assets more quickly.

39. Let me elaborate. Depending on whether such CPF assets are nominated or not, they are disbursed via different routes.

40. Un-nominated CPF monies are transferred to the Public Trustee’s Office for disbursement. The Public Trustee’s Office then has to trace and verify each and every rightful beneficiary to disburse the monies to. The Public Trustee’s Office will streamline this process, to enable an eligible beneficiary to receive un-nominated CPF monies as a Beneficiary Representative on behalf of all other beneficiaries with their consent, for amounts not exceeding $10,000. With this change, the application and verification processes will be simpler for eligible cases – beneficiaries can expect to receive their monies sooner. The process will remain unchanged for amounts that exceed $10,000.

41. Nominated CPF monies are disbursed by the CPF Board. Since 2011, the Board has made automatic disbursements to qualifying nominees without requiring them to make an application. Over the years, CPFB has continuously relaxed the qualifying criteria to allow more nominees to receive their bequeathed monies without application, which can be particularly helpful for those who need to tap on bequests to defray post-mortem expenses. As of this year, there is no longer any threshold for the amount of nominated monies that can be automatically disbursed.

42. We want to extend this automatic disbursement to nominees with bequeathed discounted Singtel shares, purchased under the Special Discounted Shares scheme. Currently, such nominees are unable to benefit from this convenience as the CPF Board has to wait for nominees to instruct whether they wish to have these shares transferred to their own CDP accounts, or liquidated. If the shares remain unclaimed after 7 years, CPF Board will liquidate them. With the CPF Act amendments, unless otherwise instructed, such shares will be liquidated 6 weeks after the Board is notified of a member’s death. CPFB will exercise discretion for cases where more time is required to trace beneficiaries. The sale proceeds will then be automatically disbursed, together with other nominated CPF monies, to the nominees. I would like to point out that today, when claiming bequests, most nominees already choose to liquidate these shares, rather than have them transferred to their own CDP accounts.

43. With the improvements in automatic disbursement arrangements, about 93% of deceased members have their nominated CPF monies fully disbursed within 6 months of death. With the shortening of the holding duration for discounted Singtel shares I have just mentioned, this percentage is expected to increase further as more can benefit from automatic disbursement. This leaves behind a very small group of nominees who have chosen to delay the disbursement of bequests, which could result in the deceased member’s CPF monies remaining in his CPF accounts for up to 7 years today.

44. Given these developments and the convenience of automatic disbursement, there is no longer a need to allow for the retention of unclaimed CPF monies over such a long period. We will therefore shorten this duration from 7 years, to 6 months after the Board is notified of the member’s death. This timeframe should be more than sufficient for beneficiaries to make arrangements to claim nominated monies from the CPF Board. Should a nominee choose not to make claims within 6 months, the monies will be transferred out of the deceased member’s CPF accounts, and no interest will be payable from then. However, nominees continue to have the right to claim the nominated monies at any time. 

45. We will similarly adjust the disbursement process for assets in dormant CPF accounts, which form the minority and likely belong to deceased members. Specifically, once a member’s account is deemed dormant, we will liquidate the member’s discounted Singtel shares and stop retaining the monies, including accrued interest, in the account.

46. I want to reassure all members that if the CPF Board subsequently learns that a dormant member is alive, the Board will restore the monies to the member’s original accounts with interest.

47. The new durations will apply from 1 Apr 2022, to give some transition time.  Again, let me reiterate that there is no change to CPF beneficiaries’ right to make claims at any time.

48. We recognise that a small percentage of monies remain unclaimed, despite CPF Board’s efforts to reach out to the beneficiaries. In fact, over the last 5 years, about 98% of CPF monies have been distributed to beneficiaries. Nonetheless, the CPF Board will continue its efforts to reduce incidence of unclaimed monies, via a multi-pronged approach. This includes regularly reminding nominees to make claims if they have not done so via letters, email, SMS and WhatsApp, educating and reminding members to make nominations, and making the nomination process as easy as possible.

49. Second, amendments will be made to streamline how the Government recovers grants from members.

50. Specifically, the amendment is a technical update to cater for grants automatically issued to eligible members, but who subsequently choose not to meet continuing eligibility conditions. This is to be fair to the majority of other members who maintain their eligibility. 

51. To be clear, this amendment is not about allowing the Government to recover grants provided erroneously to ineligible individuals. That can already be done.

52. Let me give an example. The Matched Retirement Savings Scheme (MRSS) was launched in 2021 to encourage top-ups to eligible seniors with lower balances, by providing one-for-one Government matching for eligible top-ups, up to $600 per year. The continuing condition here is that members do not reverse the top-ups that had qualified them for the matching grant.  However, a minority of members may choose to appeal for such reversals, despite knowing that the accompanying grant will also be reversed. This amendment allows the CPF Board to recover the accompanying grant, should such appeals be approved on a case-by-case basis.

53. Finally, I would like to mention that we are simplifying the CPF Act itself. Members of the House may find that the CPF Act can be quite complicated. In particular, Section 15 on withdrawal from the Fund has 43 subsections. We have simplified this section for better readability, while continuing to provide flexibility to cater to members’ evolving needs. Let me reassure all that this does not change any existing withdrawal policies.

54. This sums up the key amendments under the CPF (Amendment) Bill.

Conclusion

55. Allow me to conclude.  

56. The Retirement and Re-employment Amendment Bill supports seniors in working longer, if they wish to.

57. The CPF Amendment Bill simplifies the CPF system. The various amendments will help members to build up their retirement nest eggs and receive retirement payouts smoothly, while streamlining administration of CPF schemes.

58. Together, these Bills will support Singaporeans to earn more and save more, as we continue to enhance our employment and CPF policies.

59. Mr Speaker, I beg to move.

60. Thank you.