From young millennials on Facebook to baby boomers on WhatsApp, Singaporeans of all ages are getting riled up by a photo of a letter sent by CPF Board to a Singaporean who is turning 65 in May. If you’re not aware, here is the letter:
Source: Various Sources Online
Why Are Singaporeans Are Up In Arms?
We can safely put aside the outrage regarding the relatively low monthly payout amount ($250) and duration (8 years), since no one is privy to the particular individual’s circumstances and state of his/her CPF account.
What is clear is that this individual is on the CPF Retirement Sum Scheme, and is born in 1954 or after, thus having a Payout Eligibility Age of 65. Under the Retirement Sum Scheme, CPF members can voluntarily defer the start of their payouts up to a maximum of age 70.
By deferring payouts, monies in their CPF Retirement Account (RA) can continue to grow at 4%, plus 1% of Extra Interest (EI) on the first $60,000 in their RA, and 1% Additional Extra Interest (AEI) on the first $30,000 of RA savings from the age of 55.
Source: CPF Board
With the facts out of the way, the statement that caught most Singaporeans’ eye (and ire) is:
“No action is required if you wish to start your payouts at age 70.”
Many have felt like this was a “bait and switch” tactic by the CPF Board, because it seemed like CPF Board has made the “default” action a deferred payout until the age of 70, with members having to apply if they wish to receive their payouts “earlier”, from their Payout Eligibility Age of 65.
Has CPF “Quietly” Changed Their Payout Policy?
The definitive answer is: No.
What we have always understood about the Retirement Sum Scheme still holds true.
The Payout Eligibility Age is the earliest date you can commence your monthly payouts, and if you defer your payouts, you can apply at any time and start receiving payouts as soon as following month (if you submit before that month’s cut-off date). At the age of 70 (the latest you can defer your payout start date), you will automatically start receiving your monthly payouts.
The above is still accurate, and nothing in the letter contradicts this longstanding CPF Retirement Sum Scheme payout policy. Do note that whatever we highlighted about the Retirement Sum Scheme likewise applies to CPF LIFE, which is what the majority of Singaporeans will fall under. There are subtle differences between the two schemes.
It’s also interesting to note that in the past, CPF members also had to apply in order to commence their CPF Retirement Sum Scheme payout. That’s because under the old Retirement Sum Scheme, CPF members can delay their payout indefinitely – since there was no mandatory requirement to say that payout must commence by age 70.
This has now changed, since mandatory CPF monthly payout has to be made by age 70, whether you are under CPF LIFE or the CPF Retirement Sum Scheme.
Perhaps the confusion stems from how this policy is carried out, which actually has sound logic, though perhaps more could be done to communicate the reasons for doing so in this manner – which is why we decided to write this article.
Financial advisers and those working with financial products will be well aware, even when you purchase private annuity plans, you will need to specify the age when you wish to begin receive your payouts, and once this is set, you can’t simply change it. For example, Aviva’s MyRetirement Plus annuity plan has a choice of ages 50, 55, 60, 65, or 70 to commence payments.
We all understand the power of “opt in”, compared to “opt out”, since most people would lean towards inaction, and thus go with the “default” choice.
Implications Of Automatic Payouts At Age 65
Rather than see the “default” payout age of 70 as a conspiracy by CPF Board to delay giving our Singapore seniors their hard-earned CPF monies, let’s consider the implications of setting the “default” as commencing payouts at age 65.
Seniors who are aware of the implications and benefits of deferring their payout start date would need to apply to the CPF Board to delay their payout date. If they are not sure when exactly they would like to receive their payouts, they will likely apply to delay till 70, and then need to apply again if they happen to need their monies earlier.
Another group of seniors who forgot or didn’t realise they could defer, would start receiving payouts automatically at the age of 65, even if they were working or didn’t need the money yet and wanted to continue compounding for higher interest. They would then need to manually defer their payouts.
That doesn’t seem like a good outcome for anyone.
Automatic Payouts At Age 70 Is Practical, But Communication Can Be Better
The current way the CPF Board is executing the payouts does make sense. They notify members 6 months in advance about their coming Payout Eligibility Age, and then let members know that they can apply at any time to commence their payouts.
Members who wish to defer payouts till age 70 do not need to take any action.
Members who wish to receive payouts immediately at age 65 or any time between 65 to 70, just need to apply once and begin receiving their monies the following month. There is almost no waiting period.
(In case you’re wondering, you can apply online by logging into the CPF website and making the application under My Requests.)
This also prevents Singaporeans from accidentally being ineligible for payout deferment by default (inaction).
Operationally, the process is logical and practical, but perhaps the CPF Board could do better to explain and rationale for their processes.
For the rest of us, let’s not add to the noise and confusion, and instead, do our part to help assure our parents, grandparents, and fellow Singaporeans gain a proper understanding of their retirement options.