Prime Minister Lee Hsien Loong announced during his National Day Rally Speech on 18 August 2019 that the statutory retirement age in Singapore will be increased from 62 to 65 by 2030. In addition, the re-employment age will also be increased from 67 to 70.
This increase will be done gradually, starting in 2022 where the retirement age will increase to 63 and the re-employment age will increase to 68. By 2030, the full increase to 65 (retirement age) and 70 (re-employment age) will be completed.
Raising the official retirement age across the country is a major decision. Not only does it impact workers and companies in Singapore, but also the total output of our economy. With all things being equal, raising the retirement (and re-employment) age expands the pool of available workers that we have in Singapore.
Increase In Retirement Is Not About Working Longer, But Being Able To Work Longer…If You Want To
The first (and most important) thing to remember is that the increase in retirement age has no bearing on how long you have to work. This is because Singapore doesn’t have a traditional pension system, where retirees are paid their pensions by their former employers if they work till the retirement age. Rather, our CPF system is tagged to us as individuals, and not to the companies that we work for.
It also means that the increase in the retirement age has no bearing to how long you have to work – because you can always quit at any time that you want as long as you have alternative source of income.
Rather the increase in the retirement age means that you can work till the age of 65, if you want to, and that your employer cannot ask you to retire before that age.
When you think about the retirement age, there are two key data points which are worth looking at. 1)Life Expectancy and 2) Health Adjusted Life Expectancy.
Increase In Life Expectancy
The first is life expectancy. This is a number which tells you how long people are expected to live till. As of 2018, life expectancy at birth for people in Singapore is 83.2. Assuming retirement at 65 (the new retirement age), this means that the average Singaporean can expect to spend about 18 years in retirement.
In 1999, our life expectancy was 77.6. The retirement age then was 62, which means that people spend an average of 15 years in retirement then.
The simple logic here is that since we are living longer lives these days, it makes sense that we should be able to work for a longer period of time as well, in order to earn the extra savings that we will need for the longer years that we will have in retirement.
Increase In Health Adjusted Life Expectancy
Just wanting to work till an older age because our life expectancy is increasing isn’t good enough. For the plan to be feasible, we also need to have good health in our old age.
This is where the Health Adjusted Life Expectancy (HALE) plays a part. HALE is an internationally adopted indicator to reflect the number of years a person can expect to live in full health, taking into account mortality and disability.
The good news here is that Singaporeans are not only living longer lives, but are also enjoying a longer HALE. In 2005, HALE at birth was 71.5. As of 2016, this has increased to 73.6.
In other words, the average Singaporean can expect to live in full health for two years longer than we once did. This translates to more Singaporeans enjoying good health at an older age, and being able to continue working, should they choose to do so.
Aligning The Commencement Of CPF LIFE Payouts To Retirement & Re-employment Age
From a retirement planning standpoint, having the retirement age at 62 while the CPF LIFE Payout Eligibility Age (PEA) is at 65 was something that always struck us as odd. The logic here is that if people are retiring at age 62 (the retirement age) – and assuming that they don’t intend to seek for re-employment, they would need to wait for three years before they are able to start receiving their monthly CPF LIFE payouts.
With the retirement age set to increase to 65, this gap will no longer be there. A worker who works till the retirement age (65) and decides to retire after that can receive his/her CPF LIFE payouts immediately.
As an added bonus, with the re-employment age also increasing to 70, this would now be aligned to the latest age that CPF members can defer their CPF LIFE payouts to. For example, if a worker continues working until age 70, he/she can defer their CPF LIFE payouts till 70 as well.
Companies are the ones that would be impacted the most by the increase in the retirement age. That’s because they now have to ensure that they can redesign jobs at an organisation-wide level, in order to cater to the needs of their older workers.
This would include incorporating more technology, automation and improving processes in order to reduce the physical work which may not be ideal for older workers.
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