9 June 2006
“Why did we retune the CPF?”
Background of the Retuning of the CPF
In 2003, key changes were made to the CPF scheme.
What were the main changes?
> Long term target contribution rates in ranges instead of a single rate
– 50 and below : 30% to 36%
– Above 50 to 55: 24% to 30%
> Immediate moderate cut of 3% in employer rate for workers aged 55 and below
– Employer share
- 16% to 13% on 1 Oct 03
> Lower contribution rate for older workers (i.e. aged above 50-55)
– Reduced in 2 stages
- 33% to 30% on 1 Jan 05
- 30% to 27% on 1 Jan 06
– Employer share
- 13% to 11% to 9%
> Lower salary ceiling
– Reduced in 2 stages
- $6,000 to $5,500 on 1 Jan 04
- $5,500 to $5,000 on 1 Jan 05
- $5,000 to $4,500 on 1 Jan 06
Rationale for retuning the CPF
> Make our wage costs more competitive
> Create and save jobs for workers
> Make older workers more employable
PM’s speech in Parliament on 28 Aug 2003
– Singapore’s business cost was previously lower than those in developed countries.
– Singapore faced limited competition as many economies were highly regulated and protectionist.
– Today, the cost of doing business in Singapore has reached first world levels.
– Fierce competition as countries such as India and China has opened up to foreign investments.
Why is the Retuning of CPF Still Relevant Today?
The principles why NTUC supported the CPF cut in 2003 still stand today:
> Job security is the most important issue
– In 2003, resident unemployment rate is at a record high of 5.2%. In the 1990s, about 2% is the norm.
– Today, job security is still an issue despite recovery of the economy and strong job growth.
– Companies may re-locate if we push wages too high without corresponding productivity increases.
– Easier for older workers to find and remain in employment (*See note below for details and supporting statistics).
> Cost of doing business is an issue
– All costs should be tackled, not just wage costs.
– Lower other costs and to raise productivity.
> Companies should reward workers through wage increases and special bonuses if they perform well because of the cut in CPF
– For our many rank and file workers, a dollar in hand is better than a dollar in CPF.
– CPF is a blunt instrument
- PM’s speech in Parliament on 28 Aug 2003
• Do not envisage fine-tuning the rate every year
• Will only adjust it from time to time when conditions change significantly
Easier for older workers to find and remain in employment
> Seniority-based wage structure disadvantages older workers
– Takes time to reduce the seniority element in the wage structure
– Companies tend to retrench older workers first because they are more expensive
> Older workers who lose their jobs find it more difficult to get another, compared to younger workers (Source: Labour Market 2005, MOM)
– Long-term unemployed residents were mostly aged 40 & above (65%)
– Resident long-term unemployment rate for aged 40 and above at 0.9% is significantly higher than those younger (e.g. 0.4% for those aged below 30)
> They are more at risk of becoming unemployed for longer period than younger workers (Source: Report on Labour Force in Singapore 2004)
– The median duration of unemployment for those aged below 25 was only 4 weeks, substantially shorter than the 16 weeks among those aged 40 and above
See Annex 1 for Summary of CPF Changes.
See Annex 2 for Chronological Events.
*****
For media queries, please contact:
Goy Kae Lip
Consultant
Corporate Communications Department
National Trades Union Congress
DID 6213 8184
HP 9792 0650
Email goykl@ntuc.org.sg
Summary of CPF Changes (Annex 1)
Table 1: Long-Term Target CPF Contribution Rates
|
Age |
Total |
Employee |
Employer |
|
50 and Below |
30 – 36 % |
20% |
10 – 16 % |
|
Above 50 to 55 |
24 – 30 % |
18% |
6 – 12 % |
|
Above 55 to 60 |
18.5% |
12.5% |
6% |
|
Above 60 to 65 |
11% |
7.5% |
3.5% |
|
Above 65 |
8.5% |
5% |
3.5% |
Table 2: CPF Contribution Rates for Workers Aged 50 and Below
|
Date |
Total |
Employee |
Employer |
|
1 Oct 2003 |
33% |
20% |
13% |
Table 3: CPF Contribution Rates for Workers Aged Above 50 to 55
|
Date |
Total |
Employee |
Employer |
|
1 Oct 2003 |
33% |
20% |
13% |
|
1 Jan 2005 |
30% |
19% |
11% |
|
1 Jan 2006 |
27% |
18% |
9% |
NB: No change in contribution rates for workers above age 55.
Table 4: Special Account Target Contribution Rates
|
|
35 and Below |
Above 35 to 45 |
Above 45 to 55 |
|
Old * |
5% |
7% |
9% |
|
New |
5% |
6% |
7% |
NB: * Existing contribution rates are 4%, 6%, 6% for respective age groups. Government had accepted ERC recommendation to change to target rates of 5%, 7%, 9%.
Table 5: Medisave Account Target Contribution Rates
|
|
35 and Below |
Above 35 to 45 |
Above 45 |
|
Old ^ |
7% |
8% |
9% |
|
New |
6% |
7% |
8% |
NB: ^ Existing contribution rates are 6%, 7%, 8% for respective age groups. Government had accepted ERC recommendation to change to target rates of 7%, 8%, 9%.
Table 6: CPF Salary Ceiling
|
Current |
$6,000 |
|
1 Jan 2004 |
$5,500 |
|
1 Jan 2005 |
$5,000 |
|
1 Jan 2006 |
$4,500 |
Table 7: CPF Minimum Sum (in today’s dollars)
|
Current |
$80,000 |
|
1 Jul 2004 |
$84,000 |
|
1 Jul 2005 |
$88,000 |
|
1 Jul 2006 |
$92,000 |
|
1 Jul 2007 |
$96,000 |
|
1 Jul 2008 |
$100,000 |
|
1 Jul 2009 |
$104,000 |
|
1 Jul 2010 |
$108,000 |
|
1 Jul 2011 |
$112,000 |
|
1 Jul 2012 |
$116,000 |
|
1 Jul 2013 |
$120,000 |
As CPF Minimum Sum is raised, amount of monthly payout will be adjusted so that Minimum Sum can last about 18 years for most members.
Table 8: Medisave Minimum Sum to be Topped Up Before CPF Withdrawal at Age 55 (in today’s dollars)
|
Current |
$0 |
|
1 Jan 2004 |
$2,500 |
|
1 Jan 2005 |
$5,000 |
|
1 Jan 2006 |
$7,500 |
|
1 Jan 2007 |
$10,000 |
|
1 Jan 2008 |
$12,500 |
|
1 Jan 2009 |
$15,000 |
|
1 Jan 2010 |
$17,500 |
|
1 Jan 2011 |
$20,000 |
|
1 Jan 2012 |
$22,500 |
|
1 Jan 2013 |
$25,000 |
Table 9: Withdrawal of OA and SA Balances at Age 55
|
Until 31 Dec 2008 |
50% (unchanged) |
|
2009 |
40% |
|
2010 |
30% |
|
2011 |
20% |
|
2012 |
10% |
|
From 1 Jan 2013 |
0% |
1. From 1 Jan 2013, CPF members must meet the CPF and Medisave Minimum Sums requirements before withdrawing their remaining Ordinary and Special Accounts balances.
2. All CPF members can continue to withdraw the first $5,000 in their CPF accounts, even if they have not met the Minimum Sums requirements.
Chronological Events (Annex 2)
1 Oct 2003 - CPF contribution rate cut to 33% (Employees: 20%; Employers:13%)
1 Jan 2004 - Salary ceiling lowered, from $6,000 to $5,500
- If you meet the CPF Minimum Sum, you must have at least $2,500 in the This amount will increase by $2,500 every year until it reaches $25,000 (in today’s dollars) on 1 Jan 2013
1 Jul 2004 - CPF Minimum Sum to go up by $4,000 every year till it reaches $120,000(in toady’s dollars) in 2013
- Medisave Minimum Sum of $25,000 will be adjusted every year, to take into account inflation of healthcare costs
1 Jan 2005 - Salary ceiling lowered, from $5,500 to $5,000
- CPF contribution rate for older workers aged above 50 to 55 cut to 30% (Employees: 19%; Employers: 11%)
1 Jan 2006 - Salary ceiling lowered, from $5,000 to $4,500
- CPF contribution rate for older workers aged above 50 to 55 cut to 27% (Employees: 18%; Employers: 9%)
1 Jan 2009 - Gradual phasing out of 50% withdrawal rule. The percentage for withdrawal will be reduced to 40%, and will go down by 10 percentage points every year until it is phased out by 1 Jan 2013
1 Jan 2013 - Withdrawal rule phased out; withdrawal possible only after setting aside CPF and Medisave Minimum Sums. However, first $5,000 can be withdrawn
- Medisave Minimum Sum to be topped up before CPF withdrawal at age 55 reaches $25,000 (in today’s dollars)
1 Jul 2013 - CPF Minimum Sum reaches $120,000 (in today’s dollars)
