Singapore s Central Provident Fund

Brief History Formed in 1955 to help workers save for their retirement. Self-funded savings plan with compulsory monthly contributions from employees and employers Has evolved over the years into a socio-economic tool with education, health and housing as additional objectives.

CPF in its Current Form Three basic savings accounts: Ordinary Account (OA) education, housing, investments Medisave Account (MA) hospitalization and medical insurance Special Account (SA) retirement and retirementrelated investments Retirement Account (RA) CPF retirement annuity (CPF LIFE)

Contribution Rates (employees below 35) Employee: 20% of employee s salary Employer: 17% of employee s salary Total: 37% Income ceiling of $6,000 per month for regular salary and $30,000 (5 x $6,000) for bonuses.

CPF Account Allocations (% of Salary)

CPF Allocations (% of Total Contributions) Age OA MA + SA 35 & below 0.62 0.38 Above 35-45 0.57 0.43 Above 45-50 0.51 0.49 Above 50-55 0.41 0.59 Above 55-60 0.46 0.54 Above 60-65 0.21 0.79

Overall Contribution Rates

Historical CPF Interest Rates

CPF Interest Rates Note: with effect from Jan 1, 2016, an additional 1% interest will be paid to members who are 55 and above on the first $30,000 of their combined CPF balances. This is on top of the above extra interest rates.

Guaranteed Returns

GIC s Investment Performance Annualized Rolling 20-Year Real Returns since 2001

A Fair Return? Average Interest Rate on OA, MA and SA Accounts Age OA MA + SA Avg Interest Rate 35 & below 0.62 0.38 0.031 Above 35-45 0.57 0.43 0.031 Above 45-50 0.51 0.49 0.032 Above 50-55 0.41 0.59 0.034 Above 55-60 0.46 0.54 0.033 Above 60-65 0.21 0.79 0.037

Yield on 20 Year Singapore Government Securities Source: MAS

Becoming a CPF Millionaire Estimated OA + SA Balance at 55. Assumptions: employee (25) earning $3500 pm, annual salary increase of 5% till 45 and 3% thereafter. CPF interest rates: 2.5% for OA and 4% for SA.

CPF Withdrawals for Housing

CPF Balances by Age Group

Have CPF balances less than $150,000 The percentage is 70% among members in the 55-60 age group

The Minimum Sum Scheme was started in 2009 to provide CPF members with a basic standard of living in retirement

The MSS is now renamed as the Retirement Sum Scheme

Example Henry expects to have the following CPF balances when he reaches 55 in July 2017. The Full Retirement Sum (FRS) is for 2017 is $166,000, how much can Henry withdraw from 55 after setting aside the FRS?

Withdrawable CPF Savings $166,000 Henry can withdraw the balance of $134,000 $100,000 $200,000 $34,000 $43,500

Choice of 2 CPF Life Annuity Plans

Option to defer drawdown date to 70 Retirement Account Choose payout age between 65 and 70 Set up RA account At 55

Escalating Payout Option (introduced in 2016)

Determinants of Monthly CPF Life Payouts Amount set aside in RA Level of bequest Starting date of payout Fixed vs escalating payouts

Note that Escalating Plan Lower Initial Payouts

Perspective Retirement Funding without Paternalism

The State of American Retirement Source: Aon Consulting

The State of American Retirement Source: Economics Policy Institute http://www.epi.org/publication/retirement-in-america/

The State of American Retirement

CPF: A Gen Y Perspective

2017 Future of retirement Survey

CPF as a Source of Retirement Funding: Case Studies

Case 1 Key Assumptions: Married couple (aged 25), planning to retire at 65. Upon retirement, they will own their HDB flat (cost: $190,000 in today s dollars, direct purchase from HDB at age 30). Starting salary: $2,000 per person Annual salary increase of 2%. No career leaps. The couple will have two children who will attend governmentsubsidized schools up to junior college. School fees are negligible so only university costs need to be borne by the couple.

The first (second) child will enter university when the couple is 50 and 52 respectively. University cost (in today s dollars) is $40,000 per child and inflation rate for university education is 3%. These expenses will be funded by the couple s CPF OA savings. The couple will not be using their CPF for any investments other than their BTO flat and their children s education. Other Assumptions (per person): Life expectancy: 85 years. Retirement budget: $1,300 per month in today s dollars. Current bank balance: $5,000 Monthly savings rate: 20% of gross salary Current CPF balance: $10,000 Basic Retirement Sum (BRS) at 55

Spreadsheet Inputs Key numbers Inflation rate Increase in retirement sum 2.00% Historical headline inflation rate of 1.9% for the past 20 years; used to discount future values 3.00% Based on the increase of 3% in minimum sum from 2003 to 2015 and the projected increase per year till 2020 Age Current age 25 Creation of Retirement Account 55 Expected retirement age 65 Number of years in retirement 20 Income Per Person Current average monthly salary $ 2,000 Starting salary per person (see "DOS HH Income") Expected increase in salary per year 2.00% Assuming that increment only accounts for inflation CPF Per Person Current CPF balance (Total) 10000 Estimated OA Balance 2300 Balances are estimated based on the contributions to Estimated SA Balance 600 each account for those under 35 Estimated MA Balance 800

Personal Savings and Investment Per Person Initial wealth $ 5,000 Savings and investment rate 20% Proportion of wealth in: Risky assets 0% Bonds 0% Investment Risky Assets Expected return 0.00% Bond Expected return 0.00% Bank deposits Bank deposit rate 1.00% Retirement budget Per Person Groceries $ 300 Utilities $ 200 Healthcare and medical expenses $ 300 Holiday expenses $ 400 Clothes and other misc expenses $ 100 Projected retirement budget $ 1,300 Projected retirement budget (in future dollars) $ 2,870

CPF key numbers Interest rates (Below 55) OA First $20000 3.50% OA 2.50% SA/MA First $20000 5% SA/MA 4% Interest rates (Age 55 and above) SA/RA/MA First $30000 6% SA/RA/MA Next $30000 5% SA/RA/MA Above $60000 4% CPF contribution rates Employee contribution rate 20% Employer contribution rate See "Additional Information" CPF salary ceiling 6000 Instead of simply taking 2.5%, we include the additional 1% as this measure is intended to aid lower Payout (in future dollars) Basic Payout $ 1,578 Full Payout $ 3,155 Enhanced payout $ 4,733 The payouts are assumed to grow at the same rate as the minimum sum; basic payout is taken to be half of the full payout, enhanced payout is assumed to be 1.5 times of full payout

Income Replacement Ratios Income Replacement Ratio from CPF Life Per Person CPF LIFE payout per month @ 55 $ 1,578 Last drawn income @ 65 $ 4,416 Income replacement rate 36% Percentage of projected retirement budget 55% Balance of CPF and Personal savings (at retirement) Balance of CPF OA and SA $214,317 Private savings $366,774 Total $581,091 Assuming liquidation of all assets, Monthly drawdown $2,672 Total income replacement rate 96%

Case 2 Key Assumptions: Married couple (aged 25), planning to retire at 65. Starting salary of $3,500 per person Annual salary increase: 5% to age 45, 3% thereafter. Housing: executive condo in 5 years. Price today: $800,000. Annual property price increase of 3%. Down payment funded by 10% using cash and 10% using CPFOA savings. The couple will have two children who will attend governmentsubsidized schools up to junior college. School fees are negligible so only university costs need to be borne by the couple.

The first (second) child will enter university when the couple is 50 and 52 respectively. University cost (in today s dollars) is $40,000 per child and inflation rate for university education is 3%. These expenses will be funded by the couple s CPFOA savings. The couple will not be using their CPF for any investments other than their BTO flat and their children s education. Other Assumptions (per person): Life expectancy: 85 years. Retirement budget of $2800 per month in today s dollars. Current bank balance: $30,000 Monthly savings rate: 20% of gross salary. Current CPF balance: $10,000 Full Retirement Sum (FRS) at 55

Spreadsheet Inputs Key numbers Inflation rate Increase in minimum sum 2.00% Based on historical headline inflation rate of 1.9% for the past 20 years; used to discount future values 3.00% Based on the increase of 3% in minimum sum from 2003 to 2015 and the projected increase per year till 2020 Age Current age 25 Creation of Retirement Account 55 Expected retirement age 65 Number of years in retirement 20 Income Current average monthly salary $ 3,500 Estimated salary of high income group Expected increase in salary per year (Now to 45) 5.00% Expected increase in salary per year (45 to retirement) 3.00% CPF Current CPF balance (Total) $ 10,000 Estimated OA Balance $ 2,300 Estimated SA Balance $ 600 Estimated MA Balance $ 800 Balances are estimated based on the contributions to each account for those under 35

Personal Savings and Investment Initial wealth $ 30,000 Savings and investment rate 20% Proportion of wealth in: Risky assets 0% Bonds 0% Investment Risky Assets Expected return 0.00% Bond Expected return 0.00% Bank deposits Bank deposit rate 1.00% Retirement budget Groceries $ 500 Utilities $ 500 Healthcare and medical expenses $ 600 Holiday expenses $ 800 Clothes and other misc expenses $ 400 Projected retirement budget $ 2,800 Projected retirement budget (in future dollars) $ 6,183

Income Replacement Ratios Income Replacement Ratio from CPF Life CPF LIFE payout per month @ 55 $ 3,155 Last drawn income @ 65 $ 16,453 Income replacement rate 19% Percentage of projected retirement budget 51% Balance of CPF and Personal savings (at retirement) Balance of CPF OA and SA $ 286,874 Total personal wealth less CPF $ 1,053,168 Total $ 1,340,042 Assuming liquidation of all assets, Monthly drawdown $5,050.71 Total income replacement rate 50%