Retirement Sum Scheme (RSS) payouts will from next year be allocated up to age 90 instead of 95, to allow CPF members to receive more money each month.

Minister for Manpower Josephine Teo announced this and also explained the reason for the change in Parliament on Monday (Nov. 4).

Members gave feedback that age 95 is too old

This change was decided upon after the CPF Board received feedback from CPF members who felt that a payout duration that lasts up to age 95 is too long.

For CPF members who die with remaining balances in their retirement accounts (RAs), their RSS payouts could have been slightly higher.

Teo stressed that there will be no change to when payouts begin, or any of the existing CPF withdrawal rules.

How the Retirement Sum Scheme works

Teo said the RSS is still the main CPF retirement income scheme today, with most members aged 65 and above today receiving their retirement payouts through the RSS.

RSS payouts comprise of two components: a base payout, and a payout duration extension.

The base payout is computed using the member's RA savings, taking into account the RA base interest of 4 per cent per year.

The base payouts are designed to last 20 years from the payout eligibility age.

The payout duration extension beyond 20 years is provided through the Extra Interest and Additional Extra Interest earned on the RA savings, at 1 per cent each.

The extra interest is provided to "protect" members from outliving their RSS payouts.

RSS payouts are currently extended to age 95, but will now be reduced to age 90 with the new review, slated to take effect in 2020.

Payouts will stay the same or may increase for some

Teo emphasised that CPF members currently receiving payouts under the RSS will either get the same or higher payouts as a result of the change.

The new rules will apply to all RSS CPF members who turn 65 from July 1, 2020.

But there are also older RSS members who have already started their payouts. Minister Teo said the new rules will apply to them as well if this results in them getting higher payouts.

According to the Ministry of Manpower (MOM), there are around 60,000 CPF members who stand to benefit from this change.

A one-time letter will be sent in Jan. 2020 to inform those currently receiving payouts of the changes.

Under new change, 1 in 3 CPF members likely to outlive RSS payout currently

According to Teo, designing payouts to last up to age 95 will cover the longevity risk of up to four out of every five members.

In other words, only one in five CPF members is expected to outlive their RSS payouts.

But if this is reduced to age 90, then one in three members is projected to outlive their RSS payout.

Meanwhile, members who prefer to receive monthly payouts for life have the option to join CPF Life, said Teo.

They can apply to join CPF Life anytime between their payout eligibility age and before they turn 80 years old.

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Top image from gov.sg and CPF.