Singapore’s Prime Minister Lee Hsien Loong announced in his annual National Day Rally speech in August that retirement age will be gradually raised to 65 from 62. The re-employment age, where employers must offer work in the same organization, will rise to 70 from 67.
To extend support for older workers in the aging island nation, ‘retirement’ has been a key focus area for the government for a while now. The government believes that higher retirement age will encourage workers and employers to invest in upgrading skills and adapting jobs for older workers. Raising the re-employment age enables to give companies more flexibility to reset work terms such as salary and job scope to deal with business uncertainties.
Now, to further throw more light on government's plan on empowering the aging workforce, Josephine Teo, Minister for Manpower has given more clarity to PQ on its plan for retirement adequacy. She has shared what is the state of retirement adequacy for current and future cohorts of retirees of different income profiles. And what are the projected average monthly entral Provident Fund (CPF) Life payouts which each of these income groups are expected to receive when reach payout eligibility age.
In her answers to PQ on retirement adequacy, Teo highlights:
Funding the retirement
All the members are likely to have a combination of means to fund their retirement, of which Central Provident Fund (CPF) is also a component. The others include private savings, housing monetization through the Lease Buyback Scheme, as well as support from their family.
Teo wrote, “Nonetheless, with the Basic Retirement Sum (BRS) designed to provide members with monthly payouts in retirement that cover their basic living expenses, the BRS attainment is one indicator for retirement adequacy.”
In her note Teo shared that over the last decade, the proportion of active CPF members attaining their cohort BRS at age 55 has improved from about 2 in 5 to more than 3 in 5.
Retirement adequacy to continue to improve
In Teo’s answer to PQ a positive sentiment regarding retirement adequacy for younger cohorts was highlighted.
“We are optimistic that retirement adequacy will continue to improve for younger cohorts,” the note read.
Sighting insights from a recent study by the Ministry of Finance (MOF), Teo mentioned that the median real income of younger Singaporeans born in the 1970s was double compared to those born in the 1950s when both were in their 40s.
With the younger generation having a labour force participation rate 10 percentage points higher, the median real Ordinary and Special Account CPF balances of them was three times higher than the older generation, with balances at the 20th percentile more than seven times higher.
Teo feels the higher CPF balances that have increased with better incomes and labour force participation could translate to higher CPF monthly payouts in retirement.
With its progressive retirement policies, Singapore has been able to make it to the top list among 44 countries in the area of retirement finances, according to an annual retirement security index released in September.
Professor Paulin Straughan of Singapore Management University at that time had said that the Central Provident Fund (CPF), the social security system where Singaporeans set aside funds for retirement, is a reason the Republic does very well in ensuring retirement adequacy. In 2017, Singapore was already the oldest society among ASEAN's 10 member nations with the median age of its resident population as 40.5 years old. A lot higher to the projected median age for ASEAN in 2020 as 29.8 years.
In fact, based on projections from the United Nations (UN), 47 percent of Singapore’s total population will be aged 65 years or older in 2050. This puts Singapore on the cusp of an extreme demographic shift and puts immense pressure on the government to come out with strategies and policies to support both the companies and the workforce. How elements like retirement adequacy and decisions like increasing the retirement age help Singapore deal with a shrinking workforce and support an ageing population will be interesting to follow.
Image source: Women's wing