Singapore’s CPF secures 7th global rank on Global Pension Index, maintains top spot in Asia

SINGAPORE: Singapore’s retirement income system has made significant progress, climbing two spots to secure the 7th position out of 47 systems reviewed in the 15th annual Mercer CFA Institute Global Pension Index (MCGPI).

It continues to dominate the rankings in Asia, solidifying its place among the top 10 systems globally.

On Tuesday (17 Oct), Mercer and the CFA Institute unveiled the 15th annual Mercer CFA Institute Global Pension Index (MCGPI).

The Netherlands’ retirement income system has reclaimed the top spot in the list, with Iceland and Denmark following closely in second and third place, respectively.

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

The report highlighted that Singapore’s overall index value improved this year to 76.3, from 74.1 last year, resulting in the system’s first-ever ‘B+’ grade. This progress was attributed to the increased pension coverage, according to the findings from the OECD.

The report emphasized the flexible withdrawal options under the Central Provident Fund (CPF) for specific housing and medical expenses while ensuring a portion remains reserved for retirement.

A prescribed minimum amount is required to be drawn down at retirement age in the form of a lifetime income stream through CPF Life.

Nevertheless, the report recommended several measures to enhance the Singaporean system’s overall index value:

• Reducing the barriers to establishing tax-approved group corporate retirement plans
• Opening the CPF to nonresidents (who make up a significant percentage of the labor force)
• Increasing the age at which CPF members can access their savings that are set aside for retirement as life expectancies rise
• Improving the level of communication provided to CPF members

Southeast Asian pension systems witness improvement, the report highlighted

The report also highlighted Indonesia’s notable progress, achieving a higher grade of ‘C’ at 51.8, up from ‘D’ in 2022.

Among the Asian countries, the majority witnessed improvements in their pension systems. Most notably, Southeast Asian countries like Thailand (46.4) and the Philippines (45.2) demonstrated significant increases.

Other countries such as Mainland China (55.3), Japan (56.3), South Korea (51.2), Taiwan (53.6), and India (45.9) also showed improvement compared to the previous year.

Hong Kong SAR (64) and Malaysia (56) were the only systems to experience a decline in their index values. Malaysia was downgraded from ‘C+’ to ‘C’ primarily due to a substantial reduction in the net pension replacement rates.

Regarding these findings, Ms Adeline Tan, the wealth business leader and Mercer Asia’s spokesperson for MCGPI, stated, “While the world has moved on from the pandemic, global issues like inflation and geopolitical conflicts continue to impact the attention required to improve many retirement systems.”

“In Asia, we are seeing progress for most of the markets, but low birth rates and longevity issues continue to plague many societies. ”

“A lot more can be done to create better outcomes for the populations, and governments must prioritise pension system reviews and enhancements sooner rather than later.”

The MCGPI assesses the weighted average of the sub-indices of adequacy, sustainability, and integrity.

Notably, Singapore had the highest values in adequacy (79.8) and sustainability (71.6), while Hong Kong SAR scored highest in integrity (87.6) among Asian countries.

Conversely, South Korea scored the lowest inadequacy (39), Mainland China in sustainability (39), and the Philippines in integrity (25.7) across the sub-indices.

Over the last five years, various Asian systems, including Mainland China, Thailand, Singapore, and Japan, have undergone reforms aimed at enhancing their scores.

Only 50% of Singapore’s active CPF members met FRS in cash for 2022

While the Global Pension Index highlighted Singapore’s improvement in pension system compared to other countries, it is worth noting that during a recent Parliament session on 5 October, Dr Tan See Leng, Singapore’s Minister of Manpower, revealed that in 2022, approximately half of all active CPF members at age 55, totalling 19,700 individuals, successfully met the Full Retirement Sum (FRS) requirement by saving in cash.

In contrast, roughly three out of every ten members were unable to do so.

In comparison, seven in 10 active CPF members who turned age 55 last year set aside the CPF Basic Retirement Sum (BRS) or more.

The BRS for CPF members turning age 55 in 2022 is S$96,000, while the FRS is S$192,000, according to the factsheet provided by the Ministry of Manpower (MOM).

Only 65% of active CPF members aged 55 achieved the BRS and owned property

Notably, the report  “Minimum Income Standard 2023: Household Budgets in a Time of Rising Costs,” conducted by NTU and LKYSPP, highlighted that only 65% of active CPF members who turned 55 in 2021 have either saved enough for the CPF Basic Retirement Sum (BRS) and owned a property, or had saved the Full Retirement Sum.

The report noted that Within the Central Provident Fund (CPF), modest hikes to the BRS and FRS didn’t have a significant impact on the adequacy of retirement income.

When asked by MPs about the ministry’s measures to increase the awareness of adequate retirement planning amongst employees, especially older workers, Dr Tan stressed that ensuring basic retirement adequacy begins with maintaining a competitive economy that generates quality employment opportunities.

“We uplift lower-wage workers through Workfare and Progressive Wage moves. Singaporeans can be assured that they will be able to meet their basic retirement needs as long as they work and contribute consistently to CPF.”

Dr Tan also disclosed that approximately seven out of every ten active CPF members who turned 55 in 2022 successfully set aside the CPF Basic Retirement Sum or more.

He expressed optimism that this figure would improve to around eight out of ten for CPF members reaching the age of 55 in 2027.

Dr Tan says the government support Singaporean senior to work longer to further strengthen their retirement adequacy

In response to the increasing life expectancy of Singapore’s seniors who desire to remain engaged in the workforce, Dr Tan said the PAP government are committed to providing support.

“We will support them by increasing the statutory retirement and re-employment ages to 65 and 70 respectively by 2030, up from 63 and 68 today.”

“This will enable our seniors to work longer if they wish to and further strengthen their retirement adequacy.”