IV - Retirement Income Changes in Singapore

Summary

Introduction

As part of the 1986 policies aimed at restoring economic growth to Singapore, the employer contribution to the Central Provident Fund (CPF) of Singapore was reduced from 25 per cent of wages with a $19,500 annual maximum, to 10 per cent of wages with a $7,800 ceiling. The employee contribution remained at 25 per cent of wages with a $19,500 annual maximum. The initial announcement spoke of a two-year suspension of the incremental 15 per cent employer contribution. A subsequent official statement expressed hope of a slow gradual restoration over an unspecified time period. This chapter provides a range of estimates for the resulting shortfall in retirement incomes of Singapore employees, as compared to continuation of the full 25 per cent employer contribution.

Methods

First we present the percentage declines in the remaining CPF accumulations of employees who have 5, or 10, or 15, or 20, or 25 or 30 or 35 more years of contribution to make until terminal valuation at age 55. We consider seven alternative time-paths: the norm of 25 per cent, the status quo of 10 per cent, as well as five scenarios over time of return to the full 25 per cent employer contribution. Because percentages alone do not tell the full story, in the latter parts of this chapter we show projected dollar values for the 14 simulated cases.

In each case, we use the total CPF accumulation valued at age 55 as a proxy for retirement income, since it is potentially convertible into a life annuity. Whether or not a significant portion of CPF savers elect to exercise that particular option, is not critical to our findings.

In each case, the employee contribution to the CPF remains at 25 per cent, thus the variations occur in the employer share.

Time-path (1), our benchmark, has the 25 per cent employer share, continuing throughout the 35-year period.