1

Employers and Employees 1) What are the CPF contribution rate changes, and when will they take effect? The CPF contribution rates for older workers aged above 50 to 65 years will be increased for wages earned from 1 September 2012. Specifically, the employer CPF contribution rates will be increased by 2.0, 1.5 and 0.5 percentage points for employees aged above 50 to 55 years, above 55 to 60 years and above 60 to 65 years respectively. The employee CPF contribution rates will also be increased by 0.5 percentage points for those aged above 50 to 55 years and above 55 to 60 years. The detailed changes (new contribution rates are in blue, percentage point increase is in brackets) are as follows:
Table A - CPF Contribution Rates (for monthly wages exceeding $1,500) Current Rates Employee Age (Years) By Employer By Employee (% of wage) (% of wage) 16 16 12 9 6.5 6.5 20 20 18 12.5 7.5 5 Total Contribution (% of wage) 36 36 30 21.5 14 11.5 By Employer (% of wage) 16 16 14 (+2) 10.5 (+1.5) 7 (+0.5) 6.5 From 1 Sep 2012 By Employee (% of wage) 20 20 18.5 (+0.5) 13 (+0.5) 7.5 5 Total Contribution (% of wage) 36 36 32.5 (+2.5) 23.5 (+2) 14.5 (+0.5) 11.5

35 and below Above 35-50 Above 50-55 Above 55-60 Above 60-65 Above 65

CPF contribution rates will continue to be phased in from 0% at the wage of $50 to their respective new full rates at the wage of $1,500, for employees earning monthly wages of $1,500 and below.

The contributions will be credited to the CPF accounts as follows:

Table B - CPF Allocation Rates Current Contribution Rates Employee Age (Years) Ordinary Account (% of wage) 23 21 19 13 11.5 3.5 1 Special Account (% of wage) 6 7 8 8 1 1 1 Medisave Account (% of wage) 7 8 9 9 9 9.5 9.5 Ordinary Account (% of wage) 23 21 19 13.5 (+0.5) 12 (+0.5) 3.5 1 From 1 Sep 2012 Special Account (% of wage) 6 7 8 9.5 (+1.5) 2 (+1) 1.5 (+0.5) 1 Medisave Account (% of wage) 7 8 9 9.5 (+0.5) 9.5 (+0.5) 9.5 9.5

35 and below Above 35-45 Above 45-50 Above 50-55 Above 55-60 Above 60-65 Above 65

2
The Medisave contribution rate for Self-Employed Persons aged 50 and above, earning an annual net trade income of above $18,000, will be increased by 0.5 percentage points. For details, please refer to Q11.

2)

Why is the Government raising CPF contribution rates for older workers? CPF contribution rates for older workers aged above 55 were first cut in 1988. The cuts were subsequently extended to those aged 50-55 in 2005. This was to help improve the employability of older workers when seniority-based wage structures were prevalent. Since then, older workers have become more employable. Between 2001 and 2011, the employment rate for resident older workers aged 50-54 and 55-64 has increased substantially from 69% to 77% and 44% to 61% respectively. The employment rate of workers aged 50-54 is in fact now comparable to those of workers aged 45-49 (81%). In addition, good progress has been made in flattening wage scales. The maximum-minimum (max-min) salary ratio, a measure for the extent of the seniority element in a companys wages, has decreased from 1.59 in 2004 to 1.52 in 2010 for rank-and-file workers and from 1.68 to 1.62 for junior management over the same period. With improving older worker employment rates and progress in reducing seniority-based wage rigidities, there is scope to increase the CPF contribution rates for older workers. In particular, we can maintain the same CPF contribution rates for older workers up to age 55, rather than age 50. Tripartite partners, who were consulted, agreed. Considering the subdued global economic outlook, a gradual approach will have to be taken, and the move to align rates for those aged 50-55 with younger workers cannot be made in one step. We are therefore starting with a calibrated first step increase to moderate impact on business costs. To further mitigate the cost impact on employers, the increase in CPF contribution rates will take effect from September 2012, in line with the first disbursement of the enhanced Special Employment Credit (SEC), which was announced at Budget 2012. With the announced enhancement, the budget of the SEC will be about $470 million, compared to the increase in annual wage costs of about $190 million arising from the increase in CPF contribution rates. In fact, the SEC will completely offset the increases in CPF contribution rates for about 73% of Singaporean workers aged 50-65.

3)

Who are the people affected by the CPF contribution rate changes? All workers aged between 50 and 65 will benefit from this increase. We are reviewing the CPF contribution rates for Singapore Permanent Residents who are in the first two years of obtaining their permanent resident status. Details will be made known in due course.

4)

Why is there no increase in CPF contribution rates for older workers aged above 65? The CPF contribution rates for older workers are lower because their employment rates have generally been lower, compared to younger workers. This is especially the case for workers aged above 65. The employment rate for residents aged 65 and above is only 20%, compared to 61% for residents aged 55 to 64. The CPF contribution rate for workers aged above 65 was therefore not increased, to maintain their employability and help them remain in demand in the employment market. Although this lower contribution rate would mean less CPF contribution for older workers, it has helped many such workers find jobs or stay employed. For them, the difference is between having work or not, rather than more or less CPF contribution.

3
5) The Government is encouraging companies to re-employ older workers. Why then is the Government making older workers more costly to hire by raising their CPF contribution rates? An increase in CPF contribution rates would typically raise costs of employing older workers. But the Government has also enhanced the Special Employment Credit. $470 million has been budgeted for the SEC each year, and this compares to the increase in annual wage costs of $190 million. With SEC, the increase in CPF contribution for about three-quarters of Singaporean workers aged 50-65 is completely offset. In fact, many employers will see a net gain, and this will give an incentive for employers to hire and retain older Singaporean workers. Furthermore, the higher CPF contribution rates will encourage older workers to come forward and join the workforce. Together, the increase in older workers contribution rates and the SEC raise the employability of older Singaporeans and aim to raise their employment rate. Why is there a need to increase the employees CPF contribution rate? Employees, as individuals, have a part to play in saving for their own retirement. This is why we are increasing the employees CPF contribution rate at the same time as we increase the employers contribution rates. 7) When will the CPF contribution rates for older workers be increased next? The Government will have to monitor the performance of the economy, the impact of the contribution rate changes, as well as the re-employment legislation before deciding on future adjustments. As with any CPF contribution rates increase, future changes to the CPF contribution rates for older workers will have to carefully balance the trade-offs between retirement adequacy, employability of older workers and impact on business costs. 8) Are there any changes to the CPF Ordinary Wage Ceiling and the CPF Annual Limit? There are no changes to the CPF Ordinary Wage Ceiling and the CPF Annual Limit. They will remain at $5,000 and $30,600 respectively. 9) How is CPF Board going to help employers implement the changes to the CPF contribution rates for older workers? The changes will take effect from 1 September 2012. Employers will have at least six months to prepare for the implementation of the changes. CPF Board will: (a) Send two rounds of direct mailers to employers as follows: i. First round of direct mailers to all employers in June 2012 to inform them of the changes. ii. Second round of direct mailers to all employers by end August 2012 to remind them of the changes. (b) Update CPF Auto-eXcel Plus and CPF online calculators by 1 September 2012 to reflect the new rates. (c) Send new contribution rate booklets to employers submitting CPF contribution details via hardcopy submission. This will be done together with the second round of direct mailers. (d) Conduct briefings to employer and business associations e.g. Singapore National Employers Federations and Singapore Human Resources Institute, from July 2012.

6)

4
Self-Employed Persons (SEPs) 10) What are the new contribution rates for Self-Employed Persons (SEPs)? The Medisave contribution rate will be increased by 0.5 percentage points for SEPs aged 50 years and above and earning an annual net trade income of above $18,000 (i.e. the full contribution rate). For SEPs earning an annual net trade income of $12,000 or less, they will continue to pay 1/3 of the full contribution rate relevant to their age group. SEPs who earn above $12,000 to $18,000 will pay a graduated rate from 1/3 of the full rate to the full rate. The new contribution rates will take effect from 2013.
Table C New Contribution Rates of SEPs (Applicable to Annual Net Trade Income from 2013) Period Net Trade Income Above $6,000 to $12,000 Above $12,000 to $18,000 Above $18,000 Age as at 1 January Below 35 Years 2.33% Phase in** from 2.33% to 7.00% 7.00% (Maximum $4,200) 35 to below 45 Years 2.67% Phase in** from 2.67% to 8.00% 8.00% (Maximum $4,800) 45 to below 50 Years 3.00% Phase in** from 3.00% to 9.00% 9.00% (Maximum $5,400) 50 Years and above 3.17% Phase in** from 3.17% to 9.50% 9.50% (Maximum $5,700)

Jan-Dec

** Phase in rates are calculated using formulas in Table D. Table D Phase in rates for NTI Above $12,000 to $18,000 Net Trade Income (NTI) Age as at 1 January Below 35 Years (% of NTI) 35 to below 45 Years (% of NTI) 45 to below 50 Years (% of NTI) 50 Years and above (% of NTI) [[380.4 + 0.2216 (NTI 12,000)] x 100 ] / NTI

Period

Above [[279.6 + 0.1634 (NTI [[320.4 + 0.1866 (NTI Jan-Dec $12,000 to 12,000)] x 100 ] / NTI 12,000)] x 100 ] / NTI $18,000

[[360 + 0.21 (NTI 12,000)] x 100 ] / NTI

The rates will also apply to the voluntary contributions paid by self-employed and Informal Workers in 2013 for work done in 2013 to qualify for the Workfare Income Supplement Scheme (WIS).

11) Why are Medisave contribution rates increased for older self-employed persons (SEPs)? The Medisave contribution rates for SEPs aged 50 and above are increased to align it with the Medisave rates for employees aged 50 and above.

5
12) How much more CPF do I have to pay? The Medisave contribution rates remain unchanged if you are aged below 50. If you are aged 50 years and above, depending on your income level, you will see the following changes:
Table E Medisave Contribution Rates for Self-Employed Persons Annual Net Trade Income ($) 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 18,000 Above 18,000 2.33% 2.67% 3% 2.33% 2.67% 3% 3.17% Current Contribution Rates Below 35 years 35 to below 45 years 45 years and above Below 35 years New Contribution Rates for Income earned from 2013 35 to 45 to 50 years and below 45 below 50 above years years

3.41% 4.33% 5.13% 5.83% 6.45% 7% 7%

3.90% 4.95% 5.87% 6.67% 7.37% 8% Full Contribution Rates 8%

4.38% 5.57% 6.60% 7.50% 8.29% 9% 9%

3.41% 4.33% 5.13% 5.83% 6.45% 7% 7%

3.90% 4.95% 5.87% 6.67% 7.37% 8% 8%

4.38% 5.57% 6.60% 7.50% 8.29% 9% 9%

4.63% 5.88% 6.97% 7.92% 8.76% 9.5% 9.5%

Full Contribution Rates

13) Do the new CPF contribution rates apply to the Self-Employed Persons (SEPs) and informal workers who wish to qualify for the Workfare Income Supplement (WIS) scheme? Yes, the new CPF contribution rates will apply to informal workers and SEPs who wish to qualify for WIS. Informal workers and SEPs aged 50 and above with annual income of more than $6,000 will pay up to 0.5 percentage points more to Medisave to qualify for WIS. For those aged 50 and above, with annual income of $6,000 or less, they can voluntarily pay 1/3 of the full contribution rate relevant to their age group to qualify for WIS. 14) I am self-employed/informally employed. Why do I need to contribute to CPF at the new rates to qualify for WIS? The CPF contribution rates for SEPs are pegged to the Medisave contribution rates for employees and will increase in tandem with the employees contribution rates.