The CPF moved up two ranks to seventh out of the 47 retirement systems that were reviewed in 2023 by pension expert Mercer. —The Straits Times
SINGAPORE: Singapore’s Central Provident Fund (CPF) has retained its top spot in Asia, according to an annual global index.
It is also the only Asian pension system among the top 10 globally in the 15th edition of the Mercer CFA Institute Global Pension Index released on Wednesday.
The CPF moved up two ranks to seventh out of the 47 retirement systems that were reviewed in 2023 by pension expert Mercer. It was an improvement from 2022, when CPF was ranked ninth out of 44 retirement systems globally.
The annual report from Mercer and the CFA Institute covers 64% of the world’s population in 2023.
Singapore was ranked first in Asia, with Hong Kong and Japan rounding out the top three in the region.
The city state improved its overall score (76.3) in 2023 and achieved a B+ grade for the first time, mainly due to the increased level of pension coverage, Mercer Singapore’s wealth business leader Chong Chee Loong said in response to queries from The Straits Times.
Singapore’s score was 74.1 in 2022 and it was graded B.
Chong further noted that Singapore’s score has been steadily improving since the annual Global Pension Index was first introduced in 2009.
Latest second-quarter data for 2023 from the CPF Board showed members’ total balances at around US$556.5bil, up 2% from 2022.
Members’ balances in the Retirement Account (RA) rose 4.6% from 2022 to US$105.5bil in the second quarter of 2023.
The RA is created when a CPF member turns 55, and the savings in his RA will be used to pay the premiums for his CPF Life plan. CPF Life is Singapore’s longevity insurance annuity scheme that gives a monthly payout for as long as the individual is alive.
However, Singapore’s performance on the Integrity sub-index component of the report dropped to 77 points, from 81 points in 2022, after changes were made to the questions that were used in the scoring.
Chong said Mercer added questions on anti-bribery and corruption, codes of personal conduct, and access to information on the CPF’s investment strategy and performance.
Low birth rates and longevity issues continue to plague many societies, Mercer said in its press release, adding that rising life expectancies mean that the retirement income system will have to cater for a longer period in retirement.
“The longer the period, the larger the total value of benefits that will be needed and the greater the financial strain placed on the overall system,” Chong noted.
He suggested that CPF could raise the age at which members can take out any excess savings, from 55 years old to 60 years old, to reduce the strain on the system.
Currently, if a CPF member has set aside the Full Retirement Sum (FRS) in his RA, he can withdraw all his CPF monies, in excess of the FRS, when he turns 55.
Singapore has also raised the retirement age so that a worker who is healthy and keen to continue working can work longer to boost his retirement income.
The current retirement age is 63 years old and the re-employment age is 68. By 2030, the retirement age will go up to 65 while the re-employment age will go up to 70.Mercer is also proposing that Singapore could reduce the barriers for companies to set up group corporate retirement plans.
Chong said this will encourage membership or contributions to these retirement plans, which will hopefully supplement the retirement coverage of an individual’s CPF savings.
Christopher Tan, chief executive of wealth advisory firm Providend, said the idea of a group corporate pension scheme has been around for more than 15 years but it failed to gain steam in Singapore.
He said there are many considerations involved in setting up such a scheme, including whether the company has the budget to employ a fund manager to oversee investment decisions.
The resources needed mean that only multinational companies can afford to set up group pension plans, while the small and medium enterprises may not have the capability to do so, he added.
The onus is also on individuals to take charge of their own retirement, he said.
Tan noted that CPF Life and retirement income plans from the private insurers will provide income for only a simple retirement.
If an individual wants a more comfortable retirement lifestyle, he will have to invest in equities and bonds.
“If they want to fight inflation and increasing interest rates, one of the best and proven instruments to use is to invest in the equity markets,” Tan noted. — The Straits Times/ANN
