According to the May 2022 CPF Trends, median CPF retirement payouts have been increasing with each successive cohort, with the data comparing those turning 65 years old in 2021 to those in 2019.
Here’s a look at the latest CPF Trends and why Singaporeans might be holding on to their CPF funds longer.
Median Payouts Increased by 25% From 2019 to 2021
Source: CPF Trends
According to the CPF Trends report, the median retirement payouts has increased by around 25% in 2021 compared to 2019. In dollar terms, this represents an increase of $120 per month for the cohort turning age 65 in 2021, compared to the 2019 cohort.
The increasing payouts over the past three years are also reflected when CPF members choose to defer their retirement payout to age 70. In fact, the CPF members in the 2021 cohort could receive an additional 30%, or $180 more in monthly payouts, by deferring their payout by five years.
More CPF Members Are Choosing To Defer Their Payouts
The proportion of CPF Life members choosing to defer their payouts in 2021 has increased by 11% compared to 2019. This represents more than half of CPF members choosing to defer their payouts in 2021.
CPF Life members can choose to receive their monthly CPF retirement payouts from age 65 to 70. However, if CPF members wish to receive their monthly payouts at age 65, which is the Payout Eligibility Age (PEA), they must notify the CPF Board of their choice on the CPF Life Plan and when they wish to start their payout (ie; at age 65 or later). Otherwise, CPF members will be placed under CPF Life Standard Plan with payouts starting at age 70.
By choosing to defer their retirement payouts from age 65 to 70, CPF Life members will continue to earn a risk-free interest of up to 6% per annum on their savings. This will allow them to accumulate more in their savings and receive a higher payout from age 70.
7 In 10 Members Made CPF Lum Sum Withdrawals Before Starting Their Payouts
Source: CPF Trends
Roughly 70% of all CPF members who turned 65 years old made lump sum withdrawals prior to starting their retirement payouts in 2021. This is similar to over the past three years, from 2019 to 2021.
These numbers represent members who withdrew any sums (eg: an unconditonal withdrawal of $5,000 or excess of the required sums) at anytime from age 55 to 1-month prior to their 65th birth month.
Overall, the trends show that the median retirement payout is increasing and that more CPF members are holding onto their savings before turning 65 years of age. The following three possible reasons could explain this phenomenon.
#1 Higher Retirement And Re-Employment Age
According to the report on the Burden of Disease in Singapore, 1990–2017, the life expectancy at birth in Singapore is 84.8 years. With longer life expectancy, more Singaporeans might be choosing to stay in the workforce longer to save more for their retirement.
To support older workers who wish to work longer, the government will raise the Retirement and Re-Employment ages to 65 and 70, respectively, by 2030. From 1 July 2022, the Retirement age will be gradually raised from the current 62 to 63 and the Re-Employment age from 67 to 68.
This change would enable more older workers to be gainfully employed in their late 60s, potentially reducing their reliance on CPF retirement payouts to fund their basic living expenses. Therefore, it may not be surprising if more CPF members choose to defer their payouts in the future, as more Singaporeans could work longer and keep their monies in their CPF accounts till they turn 70 years of age.
#2 Low Interest Rate Environment Makes CPF Funds A Safer Option
In recent years, the bank fixed deposit rates in Singapore have stayed consistently lower than the minimum 2.5% interest rates offered on CPF funds. This may have incentivised CPF members to hold their excess cash (above the required Basic and Full Retirement Sums) in their CPF accounts as opposed to holding it in fixed deposits.
Furthermore, in the uncertain economic environment caused by the pandemic, CPF members may have viewed CPF as a safe haven option.
More CPF members could have held onto their CPF savings in their CPF accounts as a risk-free way to accumulate and ride the market volatility in the last couple of years.
#3 More Awareness And Education On The Merits Of CPF
There has been greater promotion and awareness over the last few years on why CPF savings should be viewed as one of the first few safety nets when planning one’s retirement. This includes both official CPF-run campaigns and social media discussions.
Government policies have also encouraged more CPF members to retain or add to their CPF accounts to meet their retirement sums. One such policy is the matched retirement savings scheme. Eligible CPF members aged 55 to 70 with lower balances can receive a dollar-for-dollar matching grant of up to $600 for a year, starting in 2021 for five years.
Such awareness and policies could have encouraged more CPF members to save more and longer in their CPF accounts.
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