E. ASSURANCE IN RETIREMENT
E.1. Let me now move on to a key plank of this year’s Budget, which aims to provide Singaporeans with greater assurance in retirement.
E.2. We have been systematically strengthening our social security system. Together, the four pillars of the system – home ownership, CPF, healthcare assurance and Workfare – are significantly enhanced compared to a decade ago.
E.3. The first pillar, home ownership. The first strength of our social security system is that the vast majority of Singaporean households are homeowners. And over 80% of our lower-income households (those in the bottom 20% of incomes) own their homes. However, many are asset-rich and cash-poor in retirement, which is a problem if their children are not supporting them. We want to help them get cash out of their homes, and have strengthened our schemes for this purpose.
E.4. But high home ownership in Singapore is a major advantage compared to many other countries, where lower-income retirees often struggle to pay their rents. Even in the US, which has one of the highest home ownership rates amongst the advanced countries, less than 40% of households in the lower-income group (bottom 20%) today own their homes. That’s less than half of what we see in Singapore.
E.5. We have enhanced this housing pillar in the last few years. We have increased housing grants to ensure that middle- and lower-income couples can afford their first homes.
E.6. Second pillar, the CPF system. In its early days, when most Singaporeans did not own homes and wages were low, the CPF worked more like a savings scheme for home ownership. From the 1980s, we began rebalancing the CPF system towards retirement and healthcare needs. In recent years, we raised interest rates on the Special and Retirement Accounts, and introduced an extra 1% interest to benefit the lower- and middle-income groups. With growing life expectancy, we introduced CPF LIFE to provide assurance of life-long payouts.
E.7. Third pillar, healthcare assurance. Affordable, quality healthcare is critical as we grow older. Our Pioneers now get added lifelong assurance. We have also increased subsidies significantly at our public healthcare institutions for all lower- and middle-income Singaporeans, besides our Pioneers. MediShield Life will now give all Singaporeans protection against large medical bills, and here too we have introduced substantial Government support. We are also allowing greater flexibility in how Medisave can be used, to reduce out-of-pocket costs.
E.8. The fourth pillar, Workfare. We introduced it in 2007 to supplement the income and savings of low-wage workers, and hence mitigate inequality. We have enhanced it twice since. Through Workfare, an older low-income worker can receive up to 3.5 months of additional income annually, in his CPF and in cash.
E.9. Each of these four pillars of our social security system seeks to preserve an ethic of work, personal effort and responsibility for the family. We should take care, in all our social policies, not to erode this Singaporean ethic.
E.10. But the four pillars also reflect collective responsibility. We have strengthened the Government’s redistributive role within each pillar in recent years, to benefit lower- and middle-income Singaporeans.
a. Let me give you an example of the CPF pillar. With our current Workfare and housing grant schemes, and the extra 1% interest on the first $60,000 of CPF balances, the Government is effectively contributing to a significant accumulation of savings for the low-income worker.
We are also sharing risks directly as fellow citizens, not just through Government redistribution. Through MediShield Life and CPF LIFE, we are pooling risks to support one another in the face of life’s uncertainties.
E.11. Besides the four pillars of social security, we have enhanced the safety nets that help Singaporeans who fall on hard times. Through ComCare, we are providing families with greater assistance on the ground, on a discretionary basis, and through Medifund we are helping poorer Singaporeans when they are unable to pay their bills even after subsidies. We are providing substantially greater support through ComCare and Medifund than we did even five years ago.
Strengthening Retirement Adequacy
E.12. We will now take additional steps to strengthen our social security system.
E.13. The Government has accepted the CPF Advisory Panel’s recent recommendations to provide CPF members with more flexibility and certainty.16 The Minister for Manpower will elaborate on these changes at the COS.
E.14. Budget 2015 will introduce further measures to strengthen savings and income in retirement. There are essentially two sets of measures. First, we will enhance the CPF system. We will increase CPF contributions during the working years. In addition, we will make the CPF system more progressive, by increasing the Extra Interest feature for smaller CPF balances for older Singaporeans.
E.15. Second, we will introduce the Silver Support scheme. It will help Singaporeans who end up with much less resources than others in their retirement years. It will supplement their incomes, just as Workfare provides systematic top-ups to the incomes of the bottom 20% to 30% of Singaporeans when they are working. Silver Support will complement Workfare as part of the fourth pillar of our social security system. They will supplement incomes, and help mitigate inequalities throughout life.
Enhancing CPF Savings
Higher CPF Salary Ceiling and Supplementary Retirement Scheme Contribution Cap
E.16. Both the NTUC and CPF Advisory Panel have proposed that the Government raise the CPF salary ceiling.
E.17. We will increase the CPF salary ceiling from $5,000 to $6,000. Middle-income Singaporeans will be able to accumulate more CPF savings during their working years. The increase will benefit at least 544,000 CPF members.
E.18. Based on the new salary ceiling, a 45 year-old worker who earns $6,000 or more today will save an additional $60,00017 by the time he reaches 65.
E.19. In line with the higher CPF salary ceiling, we will raise the contribution cap within the Supplementary Retirement Scheme (SRS), which offers tax incentives to encourage voluntary retirement savings to complement the CPF. (Refer to Annex B-1.)
E.20. Both changes will take effect from 1 January 2016.
Raising CPF Contribution Rates for Older Workers
E.21. In recent years, we have seen significantly improved employment of our older workers.18 Schemes such as the Special Employment Credit (SEC) and Workfare Training Support (WTS) have encouraged employers to hire them, and invest in training them.
E.22. We increased CPF contribution rates for older workers in the last few years. I will take the final step to restore the contribution rates for workers aged 50 to 55 to the same level as those for younger workers, as called for by the NTUC. The contribution rate for these workers will go up by 2 percentage points in 2016 – 1 percentage point from the employer, and 1 percentage point from the employee.
E.23. For workers aged 55 to 60, I will increase the contribution rate by 1 percentage point from employers. For workers aged 60 to 65, the contribution rate will go up by 0.5 percentage points from employers. (Refer to Annex B-1.)
E.24. The changes will take effect from 1 January 2016. The increase in employer contributions will go to the Special Account. The increase in employee contribution will go to the Ordinary Account, and can be used to help them service housing mortgages.
E.25. I had earlier announced the Temporary Employment Credit (TEC) for employers, for 2016 and 2017. The TEC will help to offset the impact of these CPF changes for employers.
Encouraging Re-employment beyond 65
E.26. The Special Employment Credit (SEC) provides employers with a wage offset for workers above the age of 50.
E.27. To promote voluntary re-employment of older workers, we will provide employers with an additional SEC of up to 3% of wages for workers aged 65 and above in 2015. This is on top of the 8.5% wage offset that employers will receive in 2015.19 The law already requires employers to re-employ eligible workers up to age 65. This measure will encourage employers to continue employing them beyond that age. The measure will cost about $50 million.
E.28. I will also provide a $500 million top-up to the SEC Fund, to meet the broader funding needs of the SEC, which caters to workers aged above 50 until the scheme expires in 2016. The Minister for Manpower will elaborate on our measures to help older workers stay employable at the COS.
Enhancing Progressivity through Extra CPF Interest
E.29. We will make the CPF system more progressive, by paying an additional 1% Extra Interest on the first $30,000 of CPF balances from the age of 55. This will take effect from 1 January 2016.
E.30. It builds on top of the existing 1% Extra Interest provided on the first $60,000 of balances. Hence, given the 4% interest rate on Retirement Account balances, members with lower balances can earn 6% interest. (See Table 1.)
E.31. Around 60% of today’s CPF members aged 55 and older would earn 6% on their retirement savings. And around 80% will earn at least 5%. It will encourage Singaporeans to retain savings in their CPF accounts, and make top-ups to the CPF accounts of family members. (Refer to Annex B-1.)
E.32. For a lower-balance21 member, the additional 1% EI amounts to about a 20% increase in his monthly payout, or about $40 more each month, for the rest of his life. For a member who sets aside the Basic Retirement Sum of $80,500 in 2016, his monthly payout will increase by about 6%.
Silver Support Scheme
E.33. The Silver Support Scheme will be a new feature in our social security system. It is a permanent scheme for both today’s seniors and those in the future. This is unlike the Pioneer Generation Package, which provided special recognition to a unique generation in today’s elderly Singaporeans.
E.34. Just as Workfare tops up wages of lower-income Singaporeans during the working years, Silver Support will add to incomes in retirement. Together, both constitute the fourth pillar of social security, as I mentioned earlier. They will help mitigate life’s inequalities.
E.35. Silver Support will aim to support the bottom 20% of Singaporeans aged 65 and above, with a smaller degree of support extended to cover up to 30% of seniors. This is similar to how Workfare supports the bottom 20% to 30% of Singaporean wage-earners.
E.36. Silver Support is hence not only for the neediest of our elderly. For the truly needy, who have no other source of support, we have the safety net of Public Assistance (PA). If a retired couple qualifies for PA, they can get $790 per month, plus free medical care.
E.37. As Silver Support is for Singaporeans above age 65, many of whom may have retired, we cannot solely look at their wages today, to determine if they qualify for Silver Support. (This is unlike Workfare which is based on the wages you earn.)To ensure that assistance goes to those with lesser means, we will therefore look at three factors in combination – their lifetime wages, the level of household support they have today, and the type of housing they live in:
a. Lifetime wages – How much they earned during their working lives, as reflected in their total CPF contributions over the years. We will consider Singaporeans with lower total CPF contributions before they reached 55.
b. Household support – Silver Support is aimed at those seniors in households which have lower incomes.
c. Housing type – We will extend Silver Support to those who are staying in 5-room HDB flats and smaller, but with more support for those in smaller flats.
E.38. We cannot look at any one of these factors on its own. For example, it would not be fair to look only at housing type to determine eligibility for Silver Support. Some seniors who live in larger flats had low wages for most of their lives and hence limited savings, and may be living with children who themselves do not earn much. We should not rule them out of Silver Support.
E.39. We expect that the majority of those living in 1- and 2-room flats will receive Silver Support, with a smaller proportion of those living in larger HDB flats qualifying. Those who have been homemakers for a good part of their lives and hence earned little will qualify, if their families are not well off.
E.40. Silver Support will be paid quarterly, similar to Workfare. It will provide a supplement of $300 to $750 every quarter for eligible seniors. The average recipient will get $600 per quarter. Silver Support recipients who live in smaller flats will receive more than those in larger flats. All the seniors who qualify for Silver Support will receive these supplements for life, as long as they remain eligible.
E.41. Let me give two examples of Singaporeans who should benefit. The first is a retired couple living in a 2-room flat. The husband started out in the 1970s earning a fairly low wage of about $200. With consistent work and wage increases over the course of his working life, he could have contributed a total of about $50,000 to his CPF. (His current CPF balance would be lower, as he has probably tapped on his CPF to buy their flat.) His wife was a homemaker for much of her life, and has little CPF. They should be able to receive up to $750 per person per quarter, or $1,500 for the two of them together. That’s equivalent to $500 each month for the couple.
E.42. Another example is a lower-income retired couple who live in a 4-room flat. While 4-room flats are worth more, they may be staying with their children and grandchildren, and the household income per member may be low. They may each be able to receive $450 every quarter, or $900 for the couple together. That is the same as $300 each month for the couple.
E.43. Overall, we expect about 150,000 of today’s elderly to receive these Silver Support top-ups.
Fairness in Retirement: A New Compact
E.44. Silver Support reflects the values we must preserve as an inclusive society.
E.45. It is the fair thing to do: helping fellow citizens who end up with much less than others in their retirement years. Many would have contributed in their own way during their prime years, whether at work or at home raising the family. Silver Support also complements the other schemes we have introduced to help the elderly, particularly in healthcare assurance, as well as the array of voluntary and community initiatives that make us a caring and tightly knit community.
E.46. What Silver Support aims to do is to supplement incomes in a modest but meaningful way. It should not substitute for other sources of income. Many retirees get support from their children – and strong and caring family ties should remain part of our social ethic. Many can also choose to get cash by unlocking the value in their homes, such as by using the enhanced Lease Buyback Scheme or the Silver Housing Bonus, or by renting out a room or the whole flat. Often, the family quite reasonably prefers to keep the home, with the children choosing to support the parents instead.
E.47. Silver Support is estimated to cost about $350 million in the first full year. Together with Workfare, the Government will be spending about $1 billion a year on this system of progressive social support. The costs will however rise in the next decade as more Singaporeans turn 65, while many below 65 remain in the workforce and hence qualify for Workfare. In other words, the cost of Silver Support will rise, but it will be a while yet before the cost of Workfare comes down.
E.48. We cannot rush the implementation of Silver Support. It is a major scheme for the long term, and involves a large number of Singaporeans. We have to properly identify those who are eligible and develop the necessary systems to implement the scheme. What I described are the basic parameters and I have given you the examples. The assessment for Silver Support will however be done automatically, so there is no need for any application. MOM will be ready to implement Silver Support around the first quarter of 2016. MOM will provide the final details closer to implementation.
E.49. In the interim, however, we will introduce an extra GSTV – Seniors’ Bonus in 2015, for seniors aged 65 and above and who stay in HDB flats, which I will describe later.
Last updated on 24 Feb 2015