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Source:
www.gov.sg |
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SPEECH BY MR LEE HSIEN LOONG, PRIME
MINISTER, AT THE CPF BOARD DINNER & DANCE, 25 SEPTEMBER 2005 |
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An Excerpt |
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Going forward, we will have to evolve the
CPF to adapt to the twin challenges of longer lifespans and smaller
families, resulting in an ageing society and workforce. |
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By 2030, one in five Singaporeans will be at
least 60 years old. With families getting smaller, we will have fewer
children around to support us in our old age. |
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Part of the answer is to get workers to work
longer and retire later. But another part is to ensure that Singaporeans
have enough savings to continue enjoying financial security and good
medical care throughout our lives. |
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Let me highlight two improvements to the CPF
system to meet these challenges. |
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First, we must help CPF members to earn
better long term returns on their savings. Over the years, we have
opened up the CPF Investment Scheme (CPFIS) and given members
considerable latitude to invest their CPF savings as they judge best. |
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However, this has not always worked out as
well as we hoped, because the options available to the members are not
well tailored to their needs, and it is difficult to educate members
adequately on how to plan for their long term needs. |
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Almost three-quarters of the members who
invested under CPFIS from 1993 to 2004 would have been better off
leaving their savings with the Board. In particular, those who invested
in unit trusts and investment-linked products (ILPs) have generally
received mediocre returns. |
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One important reason why CPFIS returns have
been mediocre is the high cost of investing. For example, the annual
cost to investors in a retail unit trust in Singapore is typically
double that of the US. This is because the market is fragmented, many of
the unit trusts and ILPs are small, and the overheads and fees are high. |
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The CPF Board will therefore tighten the
requirements of the CPFIS to lower cost ratios, enhance transparency to
help members make informed choices, and encourage consolidation among
the funds to achieve greater economies of scale. |
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Beyond fine-tuning the CPFIS scheme, the CPF
Board needs to find a simple and convenient means to allow members to
aggregate their CPF savings, and invest them in a portfolio which
achieves better returns over the long term, and suits their life needs
better. This means that the CPF Board has to play a more active role to
guide members in their investment choices. |
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But members still have to make the ultimate
decisions themselves, because higher returns come with higher risks, and
members have to understand this tradeoff to make the right choice for
themselves. |
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One option which we had considered was to
make available privately-managed pension plans or PPPs, in which members
can participate on a voluntary, opt-in basis. |
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But after extensive consultation with
industry players, we concluded that an opt-in scheme would not work. It
would lack sufficient scale, resulting again in high investment costs
and poor returns. Hence we decided to defer this proposal and reconsider
the issue more fundamentally. |
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A bolder but more promising approach is to
design an opt-out scheme ¨C to offer a default pension plan which members
will go onto unless they opt for something different. |
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The default plan should be optimised for the
needs of a typical member, while the alternatives offered should include
a range of plans, some offering better returns at higher risk, and
others lower returns but less risk. |
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We are still studying this. It is not just a
matter of designing the right scheme, but also educating people to
understand the choices, and accept responsibility for the outcomes. |
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Second, we need to do more to help
Singaporeans stretch their Minimum Sum to ensure financial security
through their lives. |
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Presently, members at 62 can either leave
their Minimum Sum with the CPF Board and receive payments for a fixed
period of 20 years (which is the default option), or use their Minimum
Sum to purchase an annuity which will make payments for the rest of the
members¡¯ life. |
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But most Singaporeans do not understand
annuities, and in practice nearly all CPF members leave their monies
with the Board in return for payments over a fixed period. For those who
live longer than average, which a significant proportion will do, their
savings may run out, leaving them with nothing to fall back on in old
age. |
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The solution is for members to purchase life
annuities, which provide a guaranteed income for life. |
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The CPF Board is developing programmes to
teach CPF members about annuities, and encourage more members to take
them up. |
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One way is to change the default option to
annuities for all members upon retirement, unless the member
specifically decides to opt out. |
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These ideas are being studied carefully,
because they are issues for the longer term, with major implications for
many members. We are mindful that any change to the CPF system must be
made gradually, so as not to destabilise the system or disrupt the plans
of Singaporeans approaching retirement. |
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This is why when we raised the Minimum Sum
in 2003, we phased in the increase over 10 years. Similarly, when we are
ready to update the CPF scheme, we will give ample lead time for
Singaporeans to adjust. |
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The improvements to the CPF scheme will
benefit all CPF members, which includes a large majority of
Singaporeans. In particular, they will help the average worker who is
not financially sophisticated, is saving about enough to meet his basic
retirement needs, and will in old age depend on the CPF as a major
source of support. |
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Full Text of Speech |
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Source:
www.gov.sg Media Release 25 Sep 2005 |
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CPF - Future Directions
