MOM Study Reveals Young S’poreans Will Save Up Until Retirement
Singaporeans in the workforce today will have sufficient savings in their Central Provident Fund (CPF) upon retirement. This was according to a recent study conducted by Singapore Ministry of Manpower (MOM).
This was revealed by Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam during the opening of the Singapore Human Capital Summit held recently at Resorts World Sentosa, Singapore.
The CPF is a compulsory comprehensive savings plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare and housing needs. It is designed to assist Singaporeans in saving up for their retirement years.
“Our CPF system has been geared to help Singaporeans save enough for their retirement years. Compared to other social security schemes, the CPF has some unique features. In particular, the CPF has helped Singaporeans own their homes and contributed to making home ownership a key pillar of our social security system,” Mr Shanmugaratnam said.
However, Mr Shanmugaratnam emphasized that the challenge is in ensuring that CPF savings are able to deliver pay-outs that are adequate for each individual’s retirement needs. This is especially a priority for those who are in the lower-end of the income spectrum, who are unlikely to have private savings apart from their homes.
A recent study using the Income Replacement Rate or IRR indicates that Singaporeans are adequately covered.
Economists measure retirement adequacy of social security systems by using the Income Replacement Rate or IRR. The IRR is defined as a ratio of retirement income to pre-retirement earnings.
The study aimed to estimate the IRR using all CPF savings accumulated by a member up to age 65, including savings above the Minimum Sum which the member has the option to withdraw.
The study found that the median male earner entering the workforce today will be able to achieve an IRR of over seventy percent (70%) through his CPF savings. For a female median earner, the IRR is sixty-three percent (63%).
These IRRs are within the recommended range by the World Bank, which is between fifty-three percent (53%) and seventy-eight percent (78%). They are also comparable to those seen in pension systems in many developed countries. However, the IRR is even higher in Singapore because most Singaporeans would own homes that are fully-paid for by the time they retire. By not having to pay for rent, cash is freed up for other living expenses in their old age. Further, if a member so chooses, he could also monetise the value of his home by smaller to a smaller home. The IRR then rises to well above the seventy-five percent (75%) figure that reflects only his savings accumulated in CPF.
For lower-income workers, the IRR is higher at about eighty-one percent. With Workfare, which supplements the wages of low-income workers, the IRR is even higher at ninety-three percent (93%).
Mr Tharman said the changes made in the CPF scheme over the years will have positive results for the future but employers and employees also have to play significant roles in ensuring financial stability. “No matter how well designed the CPF system is, retirement adequacy is still premised on individuals taking responsibility to work and save, and employers taking the responsibility to provide good jobs, share productivity gains fairly and keep older workers employed,” he added.