Pricy peace of mind: MoM chief defends hiked CPF minimum sum

Retirement is costly in an aging country.

Longer life spans and higher living costs spell trouble for the rising number of Singaporean retirees. 

In a lengthy statement posted on the Ministry of Manpower blog Sunday, Manpower Minister Tan Chuan-Jin dispelled rumors and misconceptions on rising minimum sum contributions.

According to Tan, people tend to forget that the Minimum Sum has been gradually rising since 2003. Increases have been made even more gradual because of higher inflation rates.

He also stressed that today’s life expectancy is pegged at 82 years old.

This is a full two decades longer from the life expectancy in 1955, the year the CPF fund scheme was first established.

Higher living standards also mean that basic commodities are costlier at present.

Here’s more from Tan’s statement:

Unlike most other systems, our CPF does more than just give us a monthly pension. We use it to help own our homes and pay for healthcare. 

In countries where a significant proportion of retirees do not own their homes or are still servicing their mortgages, pension payments have to be used for these costs.

As the vast majority of Singaporeans including lower income retirees own our homes, paid for out of our CPF, and have fully paid our loans, we do not need to use our CPF LIFE payouts to pay for rentals.

Many of us are already using our CPF monies to fund expenses that would otherwise have come from our disposable income.

In Singapore, we have the CPF. Rather than pool all our monies together, every individual saves for his own retirement via his personal individual CPF account.

We contribute monthly into the account. Our employers contribute too.

The Government also contributes into the accounts for those who need more, through Workfare and other schemes such as Pioneer Generation Package.

We then make sure this CPF account grows at a reasonable interest rate without risk.

In fact, your CPF monies are backed by the full faith and credit of the Singapore Government – only one of a few countries in the world with a triple A credit rating from all of the world’s major credit rating agencies.

The current Minimum Sum for someone turning 55 from July 2014 is $155,000, after adjustment for inflation.

This sum will provide about $1,200 per month, for life, through CPF LIFE.

This is estimated to be what a lower-middle income retiree household requires to meet their basic daily needs.

This is far more than the $230 per month that we would have received if the Minimum Sum had remained at the original $30,000, which was the Minimum Sum in 1987 when we first started the scheme.