10 ideas to increase in-flow into CPF savings


“Having enough savings for retirement is an important priority for everyone. CPF savings is one key source of retirement savings. In Parliament today, I discussed various ways to increase CPF savings through the combined efforts of the individual, employer and the Government.” – Heng Chee How

The Deputy Secretary General of the NTUC made 10 suggestions in Parliament on how to increase the flow of money into a worker’s CPF savings.

1.      Increasing base pay. As CPF is a percentage of base pay, an increase in base pay will increase CPF savings. The Progressive Wage Model (mooted by the NTUC, now supported by the Government) will help enable sustainable improvements in wages through skills, productivity and career enhancements. This would improve CPF savings on a long-term basis.

2.      Reducing duration of unemployment. No income, no CPF. This is the reason why skills, and a tight employment market is important.

3.      More working years. If we can lengthen the working runway for our older workers, there will be additional years of salary to increase overall savings. Not only that, but this additional salary will also earn CPF savings.

This would also improve the working years to retirement years ratio and also the reason why Heng is pushing hard to raise the re-employment age ceiling from 65 to 67.

4.      MediShieldLife, Employer health insurance, Medisave contribution. Many employers provide some form of health insurance for their employees and pay a premium for that. MediShieldLife will be a national, universal health insurance programme for all citizens. It even covers pre-existing illnesses. More importantly, the savings so derived must go as additional Medisave contributions for workers, thereby helping to strengthen this part of a worker’s CPF savings.

5.      CPF contribution rates. Of course, higher rates will mean more CPF savings for the worker. But at the same time, it would mean a higher unit manpower cost to employers. A win-win sustainable set of rates would have to be determined from time to time. The current structure of rates was set in 2003. The rates have either been reached or surpassed – and therefore needs updating.

6.      CPF contribution ceiling. The current ceiling is $5000 per month, up from the previous $4500 per month since September 2011. The review of the ceiling periodically will help those earning just above the current ceiling save more in their CPF. This would particularly help PMEs.

7.      Ad hoc top ups. The Government grants top ups to individual CPF accounts from time to time from Budget surpluses, and for the low wage workers through the Workfare Income Supplement payouts. We should continue to encourage this, especially by the Government for lower income workers and by the more financially able for family members who are not working.

8.      Interest rates on CPF savings. The current Ordinary Account interest rate is 2.5%pa. The interest rate for the Special Account is 4%pa. Both are significantly higher than what CPF account holders will get if the money is placed in low-risk bank fixed deposits. There is an additional 1% interest paid on the first $60,000 saved. The Government has maintained these rates against a very low interest rate environment. These preferential interest rates and the compounding effect of interest rates will help boost CPF savings over time. Government should keep a keen eye on these rates, and ensure that the best possible preferential rates are used to aid retirement adequacy.

9.      Payout rates for CPFLife annuities. If the payouts from CPFLife can be enhanced in sustainable ways, then the retired persons would have more funds each month at their disposal. One suggestion is for Government to consider future CPF top-ups and increases in contribution rates to prioritise the Special Account. Increased flow into and extra-preferential interest rates for Special Account savings will best enable the compounded growth of such savings.

10.      Allocation among the different sub-accounts of the CPF. There are the Ordinary Account, Special Account, Medisave sub-accounts. Savings in the Special Account will eventually become the core Retirement Account savings for CPFLife. The current CPF rate structure already has differentiation by age bands. Periodic review to determine the optimal allocation among these sub-accounts, taking into factors like life stage, will also help build more retirement savings.

With an ageing population, retirement adequacy is an important matter to take care of. Adequate retirement is certainly contingent upon the money being found for it.

This does not happen on its own.

Accumulating and growing the CPF part of that retirement nest egg requires the clear-headed and determined joint efforts of workers, employers and Government. We must make every effort and seize every opportunity to do so.


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