CPF: Fact versus belief, but which will prevail?

The same day (15 Jan 2019) that Manpower Minister Josephine Teo reiterated to Parliament that the CPF payout eligibility age is 65, a Facebook post by Leslie Terh screamed

“Retirement Payout age moved to 70 years quietly…”

adding,

“…if we want to have payout to start at 65, we MUST OPT OUT.”

CPF stands for Central Provident Fund. Singaporeans pay into their personal CPF accounts through their working lives. The savings can be used to purchase public housing flats or for medical care, but what remains after these, the account-holder can use for retirement.

The question that Teo was answering in Parliament was whether her ministry would consider lowering the payout eligibility age.

The minimum age to receive monthly payouts from Central Provident Fund (CPF) savings will not be lowered for now as it was raised to 65 only last year, Manpower Minister Josephine Teo said yesterday. [snip] She was replying to Ms Lee Bee Wah (Nee Soon GRC), who said retirees have approached her asking for an earlier CPF payout, as they lack money but are healthy and cannot appeal on medical grounds. — Straits Times, 16 Jan 2018, CPF Life payouts: Minimum age for withdrawal stays at 65. Link

So there we have an MP looking to have a lower payout age; a minister asserting that it is 65 and that’s that; and a Leslie Terh saying that in fact the government had secretly raised it to 70. Josephine Teo was stating a fact, but Leslie Terh was riding a meme, and the point of this article is to delve into how that meme had power. It went viral immediately.

What are the facts?

The CPF has had a series of policy and program changes over the last 15 years or so. It made them to cope with a rapidly aging population, but also in recognition that most people nowadays work beyond age 55. For a long time, the CPF withdrawal age was 55, and account-holders could pull all their money out. Then in 1987 a minimum retirement sum was laid down. You must leave a stipulated sum behind even as you withdrew the excess.

How would that minimum retirement sum be paid out? It could be anytime you wished so long as you had passed the payout eligibility age. It would be paid out in monthly amounts.

If I am not wrong, the payout eligibility age was set at 62 in 2007, and gradually raised (it was 63 in 2014 and 64 in 2015) till it became 65 in 2018.

Note: at no time was payout, whether lumpsum at age 55 or later, ever automatic. You had to make an application to get your money released. This was the same even when the minimum retirement sum rule came into force. You could choose when your monthly payments should begin, and you had to apply to CPF to get them started.

What I describe above is what CPF calls the “Retirement Sum Scheme”. From the bits of information I could find in a websearch, it applies to those born between 1949 and 1957. (I’m not too sure about 1949).

There is a new scheme called “CPF Life”, which is really an annuity plan. Instead of paying out portions of your minimum retirement sum monthly until the account is exhausted, CPF Life in effect uses the minimum retirement sum to purchase an annuity for you. That way, you get a monthly payout for as long as you live. For those born in 1958 or later, CPF Life is mandatory. Those born in 1954 to 1957 can opt to join CPF Life, defecting from the Retirement Sum Scheme.

Leslie Terh’s example

But don’t worry, from this point on, I will restrict myself to the Retirement Sum Scheme because the example that Leslie Terh used for his Facebook post was from someone who was on that scheme.

That person, who apparently had just turned 65, was informed in a letter from CPF that his — I use ‘his’ for convenience, the person could be female –payout plan was $250 a month over eight years. After that, we can deduce that the account would be empty. That the payout wasn’t for life tells us that the person wasn’t on CPF Life. The letter also said that the payouts would begin at age 70, unless an earlier start date was applied for — which he was eligible to do since he had reached 65.

Terh’s point was that many less educated folks would have a hard time understanding the conditional nature of an earlier payout. For them, the practical effect would be payouts starting at 70; thus his point that the government had “quietly” moved the goalpost.

While his assessment about the practical impact is valid, it misses the point that payouts had never been automatic. Whether in the days of yore or more recently, people had to apply to CPF to get their money out. Josephine Teo is correct to say that “The CPF Payout Eligibility Age is currently at 65” (Answer to Lee Bee Wah in Parliament on 20 Nov 2018).

But already you can see the beginnings of trouble. What do these big words mean? “Pay.out… e.li.gi.bility… age”? Do people think “eligibility” means “start”?

So why an automatic payout?

There were people well into their seventies who did not apply to CPF for monthly payouts. Maybe they were well-off and didn’t need the money. Or maybe they had no clue that they had to apply to CPF for pay-outs to begin. I think it’s more the former than the latter.

The CPF Advisory Panel (2013?) proposed that there should be a final date when payouts must begin even if no application is made. And that’s where the “automatic payout age” came from. It is a recent innovation.

When Terh’s post went viral, the CPF had to respond. As reported in the Straits Times,

The payout eligibility age for the Retirement Sum Scheme is 65 for those born from 1954 onwards and this has not changed since it was announced in 2007, it [CPF’s statement] added. [snip] If CPF members do not take any action, Retirement Sum Scheme payouts will automatically start at the age of 70. The spokesman said the CPF Act was amended in 2016 to allow for this automatic payout arrangement, which took effect in Jan 2018. The CPF Board said that before this, some members did not start their monthly payouts even after age 70, as they did not apply to start their Retirement Sum Scheme payments. The automatic starting of payouts at age 70 “helps to simplify the activation process for members so they can start to enjoy a retirement income from their CPF savings,” said the spokesman. — Straits Times, 19 Jan 2019, CPF Board clarifies online message suggesting ‘retirement payout age’ was shifted from 65 to 70 is wrong, Link.

The reasoning is quite good, but their communication sucks. “Helps to simplify the activation process…”? The public is going to read this sentence as CPF bureaucrats doing things just for their own convenience.

It has been suggested by others that the automatic payout age need not be 70 but could have been set at 65, with those preferring a later age having to opt in. This is worth considering, but I won’t get into a debate about that here as it is rather tangential to the main point.

Belief can have lots of traction

Terh’s post flashed though social media on the back of a common belief that the government is always finding ways to keep citizens’ CPF money. This is often bundled with rumours about CPF being short of cash, because — and here’s another popular notion — our sovereign wealth fund Temasek Holdings is regularly losing money in its investments.

That “the government is always finding ways to keep citizens’ CPF money” can be seen, many people will say, from the abandonment of the old policy of allowing people to take all their money out at age 55, and the many subsequent changes aggressively pushing up the eligibility age. Furthermore, the minimum retirement sum increases every year. The fiendishly complicated CPF schemes are just smokescreens to hide even more perfidious plans, others will say. What they have are facts — CPF’s many policy changes — that feed speculation about dishonourable intent. With so much wind behind it, this suspicion will have staying power.

That “Temasek Holdings is regularly losing money” is another example where once again the belief is supported by periodic news stories from very reputable sources about this investment or that investment performing poorly. It is not helped by the opacity so loved by Temasek Holdings or the other sovereign wealth fund GIC (Government of Singapore Investment Corporation). Alarmist conjecture is never best fought with silence. (Which is another way of saying I actually don’t know where the truth lies.)

Newsiness is not a symmetrical attribute. “CPF is bankrupt” will always get more eyeballs than “CPF is solvent”. For that reason alone, the belief that the government is restricting citizens’ access to their savings will be hard to vanquish.

I should also add that there is the factor which has now acquired the unhelpful name “poverty porn”. It comes out here in the way we infantilise the poor, and discount their own agency or initiative. This, incidentally, boosts the ego of the middle class, seeing themselves as saviours of those less fortunate. While it is commendable that we have a conscience and regard for those who may need assistance, we should not at the same time forget that they often do know how to help themselves too.

Consider this: automatic payout as a backstop is a very recent change. In decades past, everybody had to apply to CPF to get their money out. Please don’t tell me that all of the sudden the less educated are so baffled they can’t do this anymore or ask someone to help them do it.