The Government will help decisively by introducing the following:

I. Institute Re-employment Legislation

By 2012, we will require employers to offer re-employment to workers reaching 62, up to age 65, and eventually to 67. This change will precede the raising of the Draw Down Age (DDA). By 2012, employers will be required to offer re-employment up to age 65 but the DDA to 65 will only be effected in 2018 – a significant time lag to help workers and employers adjust.

II. Increase Workfare Income Supplement (WIS) for Older Workers

Higher WIS payout will be given for those aged above 55 and above 60 as an added incentive for these groups to continue working:

        a. The payout will be up to twice the current maximum.

        b. Thus, a worker aged 62 earning $1,000 a month who now gets $100 a month from WIS will now get $200 a month.

The higher WIS for older workers will cost the Government an additional $83million a year bringing the total WIS budget to $432million.

The CPF changes in July this year, the new WIS Scheme and re-employment legislation will make older workers more employable and encourage them to stay employed, or re-join the workforce.

I am confident that we can succeed for a few reasons. Most important is we have tripartite consensus. Unions have told me that workers are willing to be flexible on wages and job scope for re-employment - not necessary to be re-employed on the same job or pay. Employers have told me that the market is on the worker's side. They need workers. Government will also step up its schemes. 

Basically, we have to help older workers remain productive even as they grow older. We cannot approach this as a primarily social mission but as an economic one - to help older workers remain economically productive. We should aim to have age-neutral workplaces i.e. where productivity can be the same regardless of age of the worker. If we can succeed in doing this, all employers will want to keep older workers. We must use technology and processes to achieve this. For instance, for those who are long sighted, use TV screens and, increase automation to make up for loss of physical strength.

We have committed $30million to the ADVANTAGE scheme to incentivise. We will spend more if need be to transform the workplace. Just as it is WDA's mission to help transform and upgrade our workforce, we also need to work with employers and unions to transform and develop our workplaces to make them age-neutral and friendly for older workers. We must help older workers play to their strengths. Businesses have noticed this too – e.g. at check-out counters. Customers have given feedback that older workers make it a more pleasant experience because they are more personable. The tripartite partners have their work cut out for them in the next few years to make legislation work.

Second major change will make sure older workers have enough CPF savings to last their life expectancy

III. Improve the returns on CPF savings

To help workers save more, the Government will modify the CPF interest rates framework where the Government will still bear most of the risk but pay higher than current rates.

        a. 1% additional bonus interest will be paid on the first $60,000 in a CPF member's combined accounts, with not more than $20,000 from the OA accounts. This will enhance CPF's existing risk-free framework.

        b. We will also re-peg the SMRA rates to an appropriate long term bond rate. This will be pegged to market and so fluctuations would be expected – but not as volatile as equities. The new SMRA rate will be a little lower at the beginning, but over time should do better than 4%.

        c. The changes to the CPF interest rates will be effective in 2008. This increase will cost the Government $700 million a year initially.

        d. The HDB loan rate formula of 0.1% above OA rate remains unchanged.

IV. Make savings last life expectancy

While our employment rates are among the highest in the world, our residents are also among the longest living. The present DDA of 62 years is hence too early and results in the majority of members prematurely depleting their savings. Thus, we will do the following:

        a. progressively raise draw down age

        b. study and introduce longevity protection schemes

There are no changes to CPF withdrawal rules at age 55.

V. Study Annuities For Younger CPF Members

Even after changes to DDA, there will be those who live longer than 85. We want to ensure that they have a stream of income for life.

The Government will therefore be looking at making annuities compulsory for members to protect them against outliving their retirement savings.

We will consult widely, but it would be useful to set out parameters now. Only part of the Minimum Sum (MS) will be put into compulsory annuities. The major portion of the MS can still be drawn down by members at the DDA. The basic idea is to insure members who live longer than expected. The least costly option is to insure members only for this tail end, i.e. after 85 years (or later if life expectancy further increases). The member pays a basic premium of X dollars which goes into the pool that starts paying after age 85 years to support you for the rest of your life. However, if you live less than 85 years, then $X goes towards supporting others in the pool who are still alive. When we start, we do not want to insure for large payouts after 85 years because this will mean much smaller payouts from DDA. We aim for subsistence payout first.

Some members do not like the idea of their premium going to others. A more costly option is to allow some or all of the unused premium to be returned to a CPF member's family instead if the member has a shorter life than expected, and not to the pool. But this means higher premiums for the same payout after 85 years.

Many CPF members may be concerned and are unsure what annuities mean. We have some time to introduce this for those aged 50 and below today. I would like to reassure members that we will take the time to educate and inform members, and to take in their feedback when devising schemes that meet the needs of members.

Impact of the changes

The combined effects of higher WIS, working longer, later DDA and higher CPF returns will make a big difference on young workers because of the many years of extra interest. But it will also help older workers now. Together with annuitisation, this will ensure that CPF members have more to spend in their retirement years, and will not outlive their savings.

Conclusion

These changes will help Singaporeans work longer, save more and give them peace of mind for their golden years. It will significantly strengthen our economic and social systems to better address the challenges of an ageing population.

¹ If the sums are at the maximum of $20,000 in OA and $40,000 in SMRA, then the increase is 29%. An account consisting with OA up to $20,000 and no money in SMRA will experience an increase of up to 40% whereas an account consisting of up to $40,000 in SMRA with no money in the OA will experience an increase of up to 25%.

² The increase in interest is calculated by comparing a lump sum of $20,000 in OA and $40,000 in SMRA under the new and current interest rates, over 10 and 20 years respectively.

³ 40^th percentile wage of all residents aged 55 and above.

Source: www.mom.gov.sg Press Release 21 Aug 2007