Singapore’s retirement system is world-renowned. Of course, we are referring to the CPF. As our national retirement scheme, Singaporeans and PRs compulsorily contribute a portion our monthly salary to fund a range of needs, from healthcare and housing to longer-term needs like retirement.
Recently a global study of national pension schemes – the 2024 Mercer CFA Institute Global Pension Index – gave Singapore’s CPF system a scoring of 78.7 which translated into a “B+” rating. It was also an improvement over its score in the 2023 Index, where it scored 76.3.
This was good enough for the CPF system to earn the top spot in Asia and 5th spot in the global rankings, behind only the Netherlands, Iceland, Denmark, and Israel.
Here’s why Singapore’s CPF system is so highly ranked, but also the suggestions that are out there for it to improve.
CPF Ranked Highly Across Metrics
While Singapore’s CPF system did trail some of its European peers, it still falls under the higher end of a bracket of pensions systems that the Mercer CFA Institute Global Pension Index 2024 describes as “A system that has a sound structure, with many good features but has some areas for improvement that differentiate it from an A-grade system”.
Across the three different sub-metrics that the index looks at – Adequacy, Sustainability and Integrity – Singapore scores relatively well on all three fronts. Indeed the city state scored above a 70.0 in all three.
2024 Mercer CFA Institute Global Pension Index – Singapore global rank and scores
Source: 2024 Mercer CFA Institute Global Pension Index report
The highest score was in the Integrity sub-index, where Singapore scores 83.0. Ironically, it was also the sub-index where Singapore ranked the lowest. The next highest score was in Adequacy (79.8) and the lowest of the three being Sustainability (74.3). Again, despite scoring lowest in the Sustainability sub-index, Singapore accomplished the highest overall rank.
Clearly, the transparency that is associated with the CPF system is one of the retirement scheme’s best and most prized features. Citizens and PRs who are contributing to the scheme know that there are specific protections in place for them within the CPF.
The index describes the Integrity pillar of the study as a consideration of the “role of regulation and governance, the protection provided to plan members from a range of risks, and the level of communication provided to individuals”.
Unsurprisingly, we can understand why Singapore’s CPF system scored so highly on the Integrity metric of the index given the level of communication and engagement from the CPF Board to members.
Read Also: Guide To Understanding CPF LIFE, And Which CPF LIFE Plan Is Suitable For You
Areas For Improvement For Singapore’s CPF
While the CPF has many admirable qualities and has been a bedrock of the Singaporean way of life since being created in 1955, there are areas where it could be improved.
More specifically, the 2024 Mercer CFA Institute Global Pension Index report identified four key action points that could contribute to the CPF system scoring a higher overall index value:
- Reducing barriers to establishing tax-approved group corporate retirement plans
- Opening the CPF to non-residents, given they make up a significant part of the active labour force
- Increase the age at which CPF members can access their savings that are set aside for retirement
- Introducing a requirement to show income projections on members’ annual statements
While points 1 and 4 may be more easily to implement, it appears as though points 2 and 3 could face more obstacles. With Foreigners, the worry is that the CPF contributions may not be long-term and “sticky” given the footloose nature of the foreign labour force.
For point 1, corporates are contributing up to 17% of workers’ salary to the CPF system, while workers contribute the other up to 20%. It’s likely that the report is suggesting more can be done. For point 4, CPF’s Monthly Payout Estimator tool goes some way to making CPF LIFE monthly payout projections.
On point 2, if anything, Singapore has moved the other way – closing legacy CPF accounts of foreigners (i.e. non Singapore Citizens and non-Singapore PRs) earlier in 2024.
Any potential “alternative” CPF system for foreigners, whereby they could withdraw CPF funds earlier than the mandatory retirement age if they departed Singapore, would also be harder to implement in parallel with the current system.
In our minds anyway, but perhaps not taken into consideration in the report, the retirement scheme available to foreigner is the Supplementary Retirement Scheme (SRS).
As for point 3, that’s an issue that all governments worldwide face: no one wants to see their ability to withdraw retirement money be postponed to a later age. As a visible example of this, French workers protested earlier this year when their pension age was increased from 62 to 64.
It’s a distinct reality that Singaporeans and PRs will have to get accustomed in future to given the rapidly-ageing population.
Nevertheless, partially addressing this, we have the flexibility to wait till 70 to start making CPF LIFE withdrawals. The good thing for Singaporeans is that this is not mandatory. Perhaps, though, the reality of point 3 is that the withdrawal age may increase in future.
Read Also: Complete Guide To Supplementary Retirement Scheme (SRS) Account For Foreigners In Singapore
CPF: A Strong Overall Pension System
Despite the areas for improvement from the Index’s report, Singapore’s CPF system still ranks highly globally and is the only Asian country in the report that scores a B+ or above.
While there are suggestions for improvements to the current system, there are some that are perhaps easier to implement than others. As discussed above, some may already be partially implemented, while our other retirement savings scheme, the SRS, is also available to foreigners.
Overall, for Singapore citizens and PRs, they should take the report as a sign that the retirement system in Singapore is functioning relatively well and is being globally recognised in the process.
Cover Image credit: gov.sg
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