CPF (Amendment No. 2) Bill – Speech by Png Eng Huat

(Delivered in Parliament on 10 October 2016)

Madam Speaker, the Central Provident Fund (CPF) has to evolve to stay relevant with time.  Members are living longer, medical expenses are rising, and housing commitments and inflation are factors that may impact our retirement plans in more ways than one.

The latest amendments to the CPF Act is another work in progress to ensure retirement adequacy for members in a changing world.  I hope the CPF Review Panel will continue to make enhancements to the compulsory savings scheme to keep up with the times, the aspiration of our younger workers, and the retirement needs of our ageing society.

Madam, I have one clarification to seek in this amendment bill.

The new section, 18D of the CPF Act, is a short addition to the legislation but it carries a significant implication.  It allows the transfer of a member’s moneys standing in his Ordinary or Special account to the Medisave account of a related person.

The CPF Act, in its current form, already allows members to use their Medisave accounts to make payments for medical expenses incurred by other relevant individuals subject to terms and conditions imposed by the CPF Board.  That being the case, what is the main purpose of introducing section 18D of the Act to allow the topping up of a member’s Medisave accounts using the Ordinary or Special account of related members?

Is it to address a concern that the financial adequacy of Medisave accounts would deteriorate over time, if the same accounts are repeatedly being used to pay for the medical expenses of related persons?  Would members, who are unable to tap on their own Medisave accounts to help their loved ones for whatever reason, be asked to use their Ordinary or Special account instead, via a transfer made permissible under this new section?

There is not much details specified in the new section 18D of the Act, but as it stands, such a move will affect the retirement adequacy of members now that their Ordinary and Special accounts can also be used to top up the Medisave accounts of their loved ones.  I seek clarifications on the new section 18D of the CPF Act.
Madam Speaker, I support the bill but before I end my speech, I wish to ask the Minister to look into enhancing the lump sum withdrawal option of Retirement Account savings at the Payout Eligibility Age (PEA) in subsequent reviews of the CPF Act.

The CPF Review Panel, in its report in early 2015, said it recognizes that many members may have short-term cash flow needs in retirement, and came up with this flexibility to allow members to withdraw up to 20 per cent of their Retirement Account savings, but only at PEA.  The decision to delay such withdrawal till PEA was premised on a belief that members would be clearer at that point in time to understand the trade-off between a lump sum withdrawal of one’s retirement savings and lower monthly payouts.

The illustrative table provided in the same CPF Review Report shows that members who opt for a 20 per cent lump sum withdrawal at PEA will stand to receive $10 to $100 lesser in monthly payout depending on the amount standing in their Retirement Accounts.  For members with about $80,000 in their Retirement Accounts, it is just a toss between receiving $680 a month or $580 a month with a lump sum withdrawal of about $20,000.

Madam, members upon reaching age 55 do not need another decade to think about this trade-off, especially when financial emergencies can come knocking at any time.  And such lump sum withdrawal by members may not relate to financial emergencies as well.

The CPF Review Panel has made the right recommendation to allow members the flexibility to withdraw up to 20 per cent of their Retirement Account savings, but it has fallen short by restricting the option to exercise this flexibility only when members attain their PEA.  There should be an option for members to exercise such withdrawal after age 55 and prior to reaching PEA.

Madam, at age 55, members will have their CPF savings locked up in their Retirement Accounts.  For members who have set their minds on withdrawing 20 per cent of their Retirement Account savings, what difference does it make to have them withdraw a portion of their CPF savings at age 60, 65, or whatever the PEA may be in the future?  These members are already mentally prepared for a lower monthly retirement income to begin with, and the illustrative table provided by the CPF Review Report will give them a good gauge of the trade-off involved.  What these members will stand to lose, however, is the compounded interest on the portion of the retirement savings they wish to take out before attaining PEA, and that may not amount to anything significant depending on the amount withdrawn.

Life is unpredictable.  We can be walking today and bedridden the next.  So using some of our own CPF savings to perform the Haj or fulfill our bucket list of visiting our ancestral village while we are still able to walk is certainly not a luxury but a treat well deserved and a reward well-earned after age 55.

The official Retirement Age does not equate actual retirement age.  Likewise, the re-employment age does not guarantee employment.  These uncertainties must be reflected in the option to allow members to make partial lump sum withdrawal of their Retirement Account savings after age 55.