Social Security Policies and System in Singapore A Great Workforce A Great Workplace Social Security Policies and System in Singapore Chan Beng Seng Divisional Director, Income Security Policy Division 3 August 2010

Scope Social Security System CPF System Workfare and CPF LIFE

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare The Central Provident Fund (CPF) is the bedrock of our social security system © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare Objective: Enable Singaporeans to have at least a modest level of income in their old age How: Savings through the CPF, which are paid out in monthly payments after a CPF member reaches his draw-down age Lead Agency: MOM © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare Objective: Home ownership for retirement security and a rooted and cohesive society. How: Subsidised housing and purchase of property with CPF savings. Lead Agency: MND © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare Objective: Good and affordable healthcare are available to all Singaporeans How: Subsidised healthcare and the 3Ms financing framework – Medisave, Medishield and Medifund Lead Agency: MOH © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare Objective: Enable low-wage workers to participate in economic growth How: a) Workfare Income Supplement: Supplement income and CPF savings and encourage work; b) Workfare Training Support: Training grants and awards etc. to encourage upskilling for higher pay Lead Agency: MOM © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Key principles Self-reliance Personal responsibility Family support Community assistance Work ethic Dignity of work Work before handouts Rather teach a man to fish, than to give a man a fish © 2010 Government of Singapore

© 2010 Government of Singapore Social Security System Retirement Housing Healthcare Workfare The Central Provident Fund (CPF) is the bedrock of our social security system © 2010 Government of Singapore

© 2010 Government of Singapore Central Provident Fund Set up in 1955 Mandatory savings scheme Fully-funded, defined contribution scheme Benefits depend on individual contribution Each generation saves for itself; no inter-generational transfers Fiscally sustainable Avoids possible fiscal stress arising from “pay-as-you-go” systems Portable Administered by the CPF Board © 2010 Government of Singapore

© 2010 Government of Singapore Central Provident Fund Source of contributions Contributions by employees and employers Self-employed persons only contribute to Medisave account Contributions made into various CPF Accounts Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) Invested in risk-free special government bonds Interest rates are pegged to market Guaranteed minimum interest rate of 2.5% Interest is higher for SA, RA and MA (around 4%) Extra 1% interest rate for first $60,000 © 2010 Government of Singapore

Special Account (SA) / Retirement Account (RA) Central Provident Fund Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) Contributions allocated to: OA may be used to for to pay for property downpayment and loan repayments, subject to limits. Upon sale of property, monies used to purchase property are returned to the CPF. At age 55, available balances are transferred to the RA to make up the Minimum Sum (MS), or the MA to make up the Medisave Minimum Sum (MMS)*. Excess may be withdrawn as cash. Note: This quantum is the Medisave Required Sum before 2013. © 2010 Government of Singapore

Special Account (SA) / Retirement Account (RA) Central Provident Fund Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) Contributions allocated to: The SA is ringfenced for retirement needs. At age 55, the balances in the SA are transferred into the RA to make up the Minimum Sum (MS). Balances in excess of MS may be withdrawn as cash. Available balances in the OA may also be transferred if necessary to make up the MS. At the Draw-Down Age (DDA), CPF members begin to receive a monthly payout from their RA. © 2010 Government of Singapore

Special Account (SA) / Retirement Account (RA) Central Provident Fund Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) Contributions allocated to: MA may be used to meet out-of-pocket healthcare expenses for CPF member and his family, subject to caps. Types of expense include acute care, long-term care, chronic disease management, vaccinations, medical insurance premiums (Medishield and Eldershield), subject to certain usage restrictions. At age 55, Medisave Minimum Sum is retained. Excess may be withdrawn as cash. © 2010 Government of Singapore

© 2010 Government of Singapore Central Provident Fund Contribution rates Employee: 20% Employer: 14.5% Allocation rates Ordinary Account: 23% Medisave Account: 6.5% Special Account: 5% CPF Note: Rates above apply to employees aged below 35 and earning more than $1500 © 2010 Government of Singapore

Change to Contribution Rates Central Provident Fund Change to Contribution Rates As a person get older Allocation to SA and MA rises, while allocation to OA falls Employer contribution rate falls from age 50 onwards As income falls Employee contribution rate is reduced for income < $1500 per month. After age 35, employer contribution rate is also reduced for income < $1500 per month

© 2010 Government of Singapore Workfare Two components Workfare Income Supplement (WIS) Workfare Training Support (WTS) Targeted at older low-wage workers Bottom 20%, but benefits extended up to $1700/month Aged 45 years and above, but benefits extended down to those aged 35 and above Minimum work requirement Other criteria © 2010 Government of Singapore

© 2010 Government of Singapore Workfare WIS Employees Up to 25% of income Up to $2800 per year 2/7 in cash, 5/7 in CPF SEPs receive 2/3 of benefits paid into MA Varies with age and income level Annual budget of $400 million About 400,000 recipients each year WTS 3 components Employer Grants for course fees and absentee allowance of up to 95% Training Commitment Award of up to $400 a year Workfare-Skill Up programme for more structured training Budget of almost $200 million over 3 years 35,000 beneficiaries expected each year © 2010 Government of Singapore

Workfare 5/7 of WIS payment is made into the CPF Workfare strengthens the other social security pillars through the CPF system. 5/7 of WIS payment is made into the CPF Supplements CPF savings WIS encourages work WTS helps raise income Increases income from work and therefore CPF contributions © 2010 Government of Singapore

© 2010 Government of Singapore CPF LIFE Response to longer life expectancy and ageing population Source: World Population Prospectus, 2006 Revision, United Nations © 2010 Government of Singapore

CPF LIFE introduced: Provides an income for life Response Working Longer: Re-employment legislation More workfare for older workers Increase CPF Returns Extra Interest Long-term market-based SMRA rate Stretching payouts Later draw-down age Lifelong income scheme Original Scheme: Essentially a savings drawdown scheme to last 20 years CPF LIFE introduced: Provides an income for life © 2010 Government of Singapore

© 2010 Government of Singapore CPF LIFE CPF LIFE design Part of savings paid as premium into a common Lifelong Income Fund (LIFE fund) Monthly payments adjusted annually, to take into account interest rates and mortality experience Four LIFE plans to choose from Allows members to trade off between payment levels and bequests in the event they pass on early CPF LIFE implementation Currently opt-in Automatic for those turning age 55 from 2013 onwards with at least $40,000 in their RA, while others can opt in © 2010 Government of Singapore

Thank You