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Mr Heng, 57, who is Finance Minister, is expected to be named deputy prime minister at some point next year.
PM Lee intends to hand over the premiership by the time he turns 70, which is in 2022.
"It is not just about finding the right successor: We need to assemble the right team to lead Singapore," he said.
An fake online news article claimed Prime Minister Lee Hsien Loong was linked to the 1MDB scandal.
PM Lee Hsien Loong unveils new public housing, healthcare schemes to tackle concerns in National Day Rally
Having spoken about education at previous National Day Rallies, the Prime Minister focused on housing and healthcare instead last night.
Everything you need to know about what Singapore’s Prime Minister Lee Hsien Loong said in his National Day message
The Prime Minister said that economy has grown by "3 to 3.5% in recent years".