How CPF Has Evolved To Keep Up With The Times
As Singapore progresses economically, so does the aspirations of its people. Today, Singaporeans are enjoying higher living standards, living longer and are also more likely to stay in their own homes. In tandem with this, there is a need for the Central Provident Fund (‘CPF’) to evolve and keep up with the changing times. That is especially important as CPF plays a significant role in major aspects of our lives – whether in retirement, home ownership or healthcare protection.
1. CPF LIFE Provides Income for Retirement Needs
As we enjoy higher living standards, the often-asked question is how much do we really need for retirement? In a study done by National University of Singapore’s Lee Kuan Yew School of Public Policy, the number came up to be $1,379 a month, for a senior citizen aged 65 and above. For couples aged 65 and older, the study states that they need $2,351 a month since there are some savings derived from economies of scale. With this in mind, let us study how CPF helps meet the retirement income that Singaporeans and Singapore Permanent Residents (‘SPR’) need for their living expenses in old age.
CPF introduced the CPF Lifelong Income For the Elderly (LIFE) scheme in 2009 to ensure monthly retirement payouts from CPF for life. As Singaporeans are living longer, this ensures that Singaporeans will not run out of savings during their retirement years. If a person sets aside the Full Retirement Sum* in his or her Retirement Account (‘RA’) when he or she turns 55 years old, the monthly payout that he or she can get from age 65 under the CPF LIFE Standard Plan would be between $1,350 to $1,450*. Therefore, it is reassuring to know that a retiree can at least depend on CPF LIFE for as long as he or she lives.
*Note that the Full Retirement Sum is $176,000 for members who turn age 55 in Year 2019. The amount is fixed when members turn age 55 and will not change thereafter. Payouts are estimates under the CPF LIFE Standard Plan and computed as of 2019. Payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual.
2. Updating Use of CPF Funds for Housing
In 2018, nearly 1 million Singaporeans used CPF to pay for their housing needs (Source: CPF Annual Report 2018). Indeed, the ability to afford and own homes has been made easier with the use of funds set aside in our CPF Ordinary Accounts. While CPF has greatly supported access to home ownership, it is important to safeguard the housing needs of Singaporeans and SPRs in old age.
In a pre-emptive measure, there are now new rulings on the amount of CPF savings that can be used for a house with remaining lease that cannot cover the youngest buyer until at least the age of 95. Here is a summary of the key changes that became effective after 10 May 2019.
In benchmarking the leasehold coverage to age 95 of the youngest buyer, the government is guarding against the risk of home-owners outliving the leases of their properties. Statistically, since Singaporeans are now living longer than before, this measure of prudence will be appreciated in the long run. For those without a lease that will cover them until age 95, this would help ensure that they set aside some CPF savings for their housing needs in old age. Overall, the improvement in this policy will also benefit older home-owners who wish to purchase properties with shorter remaining leases.
3. MediSave Expands to Provide More Coverage for our Healthcare needs
As revealed by Prime Minister Lee Hsien Loong during the 2017 National Day Rally, Singaporeans spend an average of 8 years in ill health. This has far-ranging effects beyond the affected individuals. For instance, caregivers and family members would be emotionally burdened. Most importantly, patients will incur more medical expenses and MediSave will be critical in defraying some of these medical expenses.
MediSave helps Singaporeans set aside part of their working income to pay for their healthcare insurance premiums and medical expenses. The Ministry of Health has constantly tweaked the uses of MediSave to expand on its coverage, such as the following:
- Since June 2018, the MediSave withdrawal limit for chronic diseases increased from $400 to $500. It now covers more chronic conditions such as ischaemic heart disease and diabetes-related consumables under the Chronic Disease Management Programme
- The minimum age to use Flexi-MediSave was lowered from 65 to 60 in 2018. This means more people can now use their MediSave for outpatient medical treatments at Specialist Outpatient clinics and polyclinics in the public sector and general practitioner clinics under the Community Health Assist Scheme
- Additional support for long-term care needs – cash withdrawal of up to $200 per month for those with severe disability, in addition to approved uses at community hospitals, day rehab centres, day hospices and home palliative care
In keeping up with changing needs, CPF members can have more confidence in meeting their healthcare needs even as they live longer.
Times have indeed changed, and so will our retirement needs. To ensure that we do not run out of savings during our retirement, it is important to start planning and saving today. To find out if you are making the most of your CPF savings, take this short, interactive quiz and find out how to be better prepared for your future.
Disclaimer: This article is written in collaboration with CPF but the views expressed here are entirely from Heartland Boy.