Social Security Policies and System in Singapore Chan

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

Scope • Social Security System • CPF System • Workfare and CPF LIFE

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

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

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

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 8 © 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

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-yougo” systems • Portable • Administered by the CPF Board 10 © 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 11 © 2010 Government of Singapore

Central Provident Fund Contributions allocated to: Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) 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. 12 © 2010 Government of Singapore

Central Provident Fund Contributions allocated to: Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) 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. 13 © 2010 Government of Singapore

Central Provident Fund Contributions allocated to: Ordinary Account (OA) Special Account (SA) / Retirement Account (RA) Medisave Account (MA) 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. 14 © 2010 Government of Singapore

Central Provident Fund Contribution rates Allocation rates Ordinary Account: 23% Employee: 20% Employer: 14. 5% CPF Note: Rates above apply to employees aged below 35 and earning more than $1500 Medisave Account: 6. 5% Special Account: 5% 15 © 2010 Government of Singapore

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 16

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

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 18 © 2010 Government of Singapore

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 19 © 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 • Response – Working Longer: • Re-employment legislation • More workfare for older workers – Increase CPF Returns Original Scheme: Essentially a savings drawdown scheme to last 20 years • Extra Interest • Long-term market-based SMRA rate – Stretching payouts • Later draw-down age • Lifelong income scheme CPF LIFE introduced: Provides an income for life 21 © 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 22 © 2010 Government of Singapore

Thank You