CPF's central philosophy of self-reliance remains as pertinent as ever: SM Lee

Straits Times

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Senior Minister Lee Hsien Loong delivering a speech at the launch of the CPF 70th Anniversary Commemorative Book on July 5.
SINGAPORE - The Central Provident Fund's (CPF) central philosophy of self-reliance remains as pertinent as ever, with an emphasis on each generation funding its own retirement needs based on individual savings.
With this approach, Singapore avoids burdening younger generations with older generations' retirement needs, said Senior Minister Lee Hsien Loong on July 5 at the launch of the CPF 70th anniversary commemorative book.
'The ethos of fairness and personal responsibility fosters the right attitudes towards work, retirement and active ageing.
'This is in sharp contrast to the countries which have adopted tax-based 'Pay-As-You-Go' (PAYG) pension systems,' said SM Lee at the event held Our Tampines Hub, which Minister for Manpower, Dr Tan See Leng attended.
In the PAYG systems, people have no incentive to retire later. SM Lee said it is politically very difficult even to broach the topic of pension reform.
'Because in these systems, retirement benefits are entitlements, paid for not by themselves, but by the next generation of taxpayers,' he added.
SM Lee said while self-reliance works well for the majority of the population, Singapore recognises its limits for lower-income workers and those who have not been in the workforce, such as housewives.
He said the Government complements members' own savings with targeted state support to those who need it more.
'We have built this into structural components of our social safety nets, such as the Workfare Income Supplement scheme, the Silver Support Scheme, and tax incentives to encourage voluntary CPF contributions from family members,' he said.
SM Lee added that the Government also provides additional support through packages for the Pioneer, Merdeka and Majulah generations, as well as periodic CPF top-ups in the annual Budgets whenever the economy does well.
'This ensures a certain degree of intergenerational equity, so that the older generations too share the fruits of the nation's progress, which was only possible because of their earlier hard work and sacrifices.
'But the basic principle remains: you must try your best to provide for your own future needs. If that is still not enough, the Government will be there to help you,' he added.
In his speech, SM Lee recounted how he had once met the late Lord Paul Myners, a British financial expert and the UK City Minister, who said with people living longer, there were only three ways for them to still have enough for retirement: save more while working, spend less every month, or work longer and retire later.
SM Lee said: 'There is no other painless way out... All countries are confronted with this trilemma, and neither can Singapore escape these choices.'
While it is possible to make balanced, practical and politically workable arrangements to ensure Singapore's retirement adequacy, SM Lee said each decision and change to the CPF system must be carefully thought through as it affects the lives and plans of millions of people.
He said the schemes must be patiently and clearly explained to win support.
'In the end, for the whole CPF system to function and to endure, Singaporeans must have faith that the system is sound, and that the rules ultimately serve their best interests,' added SM Lee.
Noting that public trust in the CPF is very high, SM Lee said many members voluntarily top up their own and their family members' CPF accounts with cash.
'Last year, (CPF) members made 875,000 such tops-ups, totalling nearly $5 billion. Even when members reach 65, a significant minority do not make any withdrawals.
'They just leave the money in the CPF's good hands,' he said.
'They are confident that their money is safe, and they know that they are getting more than a fair deal,' he said, adding that this trust took a long time to build and must never be taken for granted.
He said while the CPF is in a generally good state now, the savings scheme will have to be adapted and updated to keep it fit-for-purpose for new generations of Singaporeans.
This calls for some very tough choices, said Mr Lee.
SM Lee, who was first elected as MP in 1984, said the CPF contribution rate had risen from 10 per cent, when the scheme was introduced in 1955 - five per cent each from the employee and employer - to 50 per cent by 1985.
When Singapore was hit by the global recession in 1985, the first since independence, the Government decided to cut employer's contribution rates by 15 percentage points, which meant a pay cut for workers.
Despite it being a painful decision, SM Lee said it was the only quick way to revive the economy.
This process was repeated twice: in the Asian Financial Crisis in 1997 to 1998, and again in the early 2000s after the September 11 terrorist attacks.
Currently, the CPF contribution rate stands at 37 per cent, which SM Lee said is about the right level for the long term.
Changes were also made to the withdrawal age, he noted.
At first, CPF members could withdraw all their savings once they reached 55. SM Lee said this was not unreasonable for an era when life expectancy was only around 60.
But as life expectancies lengthened into 70s and 80s, those who did not carefully steward their retirement sum could easily exhaust their savings early.
The Government proposed a Minimum Sum to be kept in members' CPF, which would spread out monthly payments over a period of years. Members could withdraw only the balance beyond this sum.
The Minimum Sum is now known as the Retirement Sum. It has been raised regularly to keep pace with rising incomes and cost of living, noted SM Lee.
Another major improvement to the CPF scheme is the Lifelong Income for the Elderly (CPF LIFE), which converted members' CPF savings into annuities.
Turning to the retirement age, SM Lee said the Government encountered pushback over delayed CPF payouts when they moved for people to work longer.
Currently, the bulk of CPF payouts start from 65, to align with the re-employment age.
As retirement and re-employment ages continued to rise, the Government decided not to correspondingly delay the payouts further.
The Basic, Full and Enhanced Retirement Sums, as well as the CPF LIFE scheme ensured a baseline of retirement adequacy for everyone, said SM Lee.
'It is a great triumph of our CPF system, and the way we have designed the schemes and the incentives – that as Singaporeans live longer, they want to work longer, and to accumulate more CPF savings for themselves, for as long as they can,' he added.
SM Lee said the CPF story is, at its heart, a Singapore story - one of self-reliance, ingenuity, and constant adaptation.
He added: 'Singapore is internationally recognised as having one of the best national retirement systems in the world. So we can be justly proud of the CPF scheme.'