Singapore

Singapore: Pension system in 2016

The Central Provident Fund (CPF) covers all Singaporean and permanent resident workers earning a monthly wage of at least SGD 50. CPF is a defined contribution scheme.

Key indicators: Singapore

Singapore

OECD

Average earnings

SGD

60 888

53 003

 

USD

42 070

36 622

Public pension spending

% of GDP

8.2

Life expectancy

at birth

83.3

80.9

 

at age 65

21.0

19.7

Population over age 65

% of working- age population

16.0

23.4

 StatLink http://dx.doi.org/10.1787/888933873782

Qualifying conditions

The minimum age to start receiving payouts from the national life annuity scheme is 64 (will be 65 in 2019).

Benefit calculation

Defined contribution

The maximum contribution is calculated based on a salary ceiling of SGD 6 000 per month for both employer and employee contributions. The contribution rates vary with age as indicated below. Contributions to the Ordinary Account and Special Account are for retirement, while contributions to the MediSave Account are for medical expenses. Savings in the Ordinary Account can also be used to buy a home but amounts withdrawn must be refunded with interest upon sale of the property.

Currently savings in the Ordinary Account earn an interest rate of 2.5% per annum while savings in the other accounts earn an interest rate of 4% per annum. An extra interest of 1% per annum is paid on the first SGD 60 000 of an individual’s CPF savings regardless of age. On top of this extra interest, an additional extra interest of 1% per annum is also paid on the first SGD 30 000 of CPF savings for those age 55 and above.

At age 55, savings in the Ordinary Account and Special Account are set aside in the Retirement Account to meet a specified sum. Savings above the specified sum can be withdrawn in a lump sum. Individuals who own their own homes may choose to set aside a smaller specified sum called the ‘Basic Retirement Sum’ (SGD 83 000 in 2017). Those who do not own their own homes need to set aside at least a ‘Full Retirement Sum’ (SGD 166 000 in 2017). There is also an ‘Enhanced Retirement Sum’ (SGD 249 000 in 2017) for those who wish to set aside a larger specified sum for retirement.

Monies in the Retirement Account are used to purchase a life annuity for the member. Monthly payouts commence from age 64 (65 in 2019), but members can start payouts later, up to age 70, for higher monthly payouts.

As the amount of Ordinary Account savings the individual uses to buy a home would affect the total amount of savings used to purchase the life annuity and in turn the benefits he receives, we lay out two scenarios, where the Ordinary Account contributes 35% and 50% to retirement benefits respectively.

In addition to the CPF retirement benefits, Singaporeans aged 65 and above who have low lifetime incomes and little to no family support receive a quarterly income supplement of SGD 300 to SGD 750 through the Silver Support Scheme.

For the purposes of comparing replacement rates with other economies, this report uses a standardized set of macro assumptions and computes the pension payout as a price-indexed annuity based on sex-specific mortality rates. The results would thus differ from that of an earlier study by academics from the National University of Singapore.

The study, which took into account institutional features unique to Singapore, found that a male entrant to the workforce earning the median income would have a net income replacement rate of 70% upon retirement at age 65. For the female entrant, the net income replacement rate was 64%.

Employee age (years)

Contribution rate (for monthly wages > SGD 1 500)

Credited to

Contribution

by employer

(% of wage)

Contribution by employee (% of wage)

Total contribution

(% of wage)

Ordinary account

(% of wage)

Special account

(% of wage)

Medisave

account

(% of wage)

35 and below

17

20

37

23

6

8

Above 35-45

17

20

37

21

7

9

Above 45-50

17

20

37

19

8

10

Above 50-55

17

20

37

15

11.5

10.5

Above 55-60

13

13

26

12

3.5

10.5

Above 60-65

9

7.5

16.5

3.5

2.5

10.5

Above 65

7.5

5

12.5

1

1

10.5

Variant careers

The minimum retirement age in Singapore is age 62, but employers must offer re-employment to eligible employees who turn 62, up to age 67.

Early retirement

Individuals can make lump sum withdrawals of their CPF savings in excess of the specified sum from age 55.

Late retirement

Individuals have the option to defer the start of their life annuity payouts up to age 70 and by doing so, receive permanently higher payouts. Individuals can receive payouts from CPF while continuing to work.

Personal income tax and social security contributions

Taxation of workers

Compulsory CPF contributions are fully tax-exempt. Individuals can also receive tax relief of up to SGD 7 000 per year for voluntary contributions made by their employers or themselves to their own CPF Special or Retirement Accounts, and an additional tax relief of up to SGD 7 000 per year for voluntary contributions that they make to their family members’ CPF Special or Retirement Accounts.

Taxation of worker’s income

There is also tax deductible “earned income relief”, and the relief amount depends on the worker’s age as described below

Age

Relief amount

Below 55 years old

SGD 1 000

55 to 59 years old

SGD 6 000

60 years old and above

SGD 8 000

Individuals who wish to save more for their old age can participate in the Supplementary Retirement Scheme (SRS), a scheme operated by the private sector. SRS contributions are voluntary, and are eligible for tax relief. SRS contributions for Singaporeans and foreigners are capped at SGD15 300 and SGD35 700 respectively. SRS investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement.

Chargeable income

Rate (%)

Up to SGD 20 000

0

Over SGD 20 000 up to SGD 30 000

2

Over SGD 30 000 up to SGD 40 000

3.5

Over SGD 40 000 up to SGD 80 000

7

Over SGD 80 000 up to SGD 120 000

11.5

Over SGD 120 000 up to SGD 160 000

15

Over SGD 160 000 up to SGD 200 000

18

Over SGD 200 000 up to SGD 240 000

19

Over SGD 240 000 up to SGD 280 000

19.5

Over SGD 280 000 up to SGD 320 000

20

Over SGD 320 000

22

Social security contributions payable by workers

Workers make contributions to the CPF as described above.

Taxation of pensioners

There is no additional tax relief for pensioners.

Taxation of pension income

Retirement income from CPF is exempted from personal income tax.

Pensions from approved pension schemes may be taxed. The amount of pension accrued up to 31 Dec 1992 in the approved funds in Singapore is exempt from tax if the person retired at the retirement age stated in the pension or provident funds/schemes.

Pensions paid out of contributions made to the funds after 31 Dec 1992 will be taxed.

Social security contributions payable by pensioners

Individuals who work while receiving retirement income from CPF continue to make CPF contributions.

Pension modelling results: Singapore in 2061 retirement at age 65
(Ordinary Account contributes 35% of retirement benefits)
picture

Assumptions: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 20 in 2016. Tax system latest available: 2016.

 StatLink http://dx.doi.org/10.1787/888933873801

Pension modelling results: Singapore in 2061 retirement at age 65
(Ordinary Account contributes 50% of retirement benefits)
picture

Assumptions: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 20 in 2016. Tax system latest available: 2016.

 StatLink http://dx.doi.org/10.1787/888933873820

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