Frequently Asked Questions (FAQs)

CPF CONTRIBUTION RATE
1.	Why is the Government not restoring previous cuts?
2.	Why is the cut only to employer’s contribution?
3.	Why is there a need for lower contribution rates for older workers aged 50-55?
SALARY CEILING
1.	Why is the salary ceiling being lowered further to $4,500?
CPF AND MEDISAVE MINIMUM SUMS
1.	The CPF cut will mean that workers will be getting less CPF. Why is it then, that the CPF Minimum Sum is being raised from $80,000 to $120,000?
2.	Why do I need to top up the Medisave Minimum Sum with my Ordinary and Special Account savings before I am allowed to withdraw my CPF at age 55?
3.	What happens if I do not have the required CPF Minimum Sum and Medisave Minimum Sum when I apply for withdrawal at age 55? Does that mean that I cannot withdraw anything?

MEDISAVE MINIMUM SUM
1.	What will be the amount that I can withdraw from CPF with the enforcement of the Medisave Minimum Sum?
50% WITHDRAWAL RULE
1.	Why is the Government phasing out the 50% withdrawal rule at age 55?
2.	The phasing out of the withdrawal rule will affect the retirement plans of those approaching 55 years of age. What measures are in place to help these people?
NEW ADDITIONAL WAGE CEILING
1.	What is the new Additional Wage Ceiling for FY 2004 and 2005?
2.	Does the Additional Wage Ceiling affect all employees?
3.	Why is the maximum amount of total wages subject to CPF contributions based on 17 months?
4.	How do I know if I should apply the new Additional Wage Ceiling to the Additional Wages paid?
5.	How do I contribute CPF on my employee’s Additional Wages?
6.	How can I calculate the Additional Wage Ceiling in 2004 if the Total Ordinary Wages subject to CPF is not known yet?
7.	I used the preceding year’s Ordinary Wages to estimate the Additional Wage Ceiling. However, the Ordinary Wages paid in the current year turned out to be different. What should I do?
8.	What if the employee resigns during the year?
9.	How do I pay CPF contributions on Additional Wages if the employee joined us in 2004?
10.	When is the deadline to apply for a refund of excess contributions?
11.	If the employee moves to another age group during the year, which rate should I use when paying the shortfall in CPF contributions on the Additional Wages at the end of the year?
	Example 1: Calculating Total Ordinary Wages subject to CPF
	Examples on estimating the Additional Wage Ceiling
	Example 2
	Example 3
	Example 4
	Example 5

CPF CONTRIBUTION RATE
1.	Why is the Government not restoring previous cuts?
	It is no longer realistic to restore the CPF contribution rate to 40% because of the new realities of global competition. Cost competitiveness is a key concern today. There are new regional competitors who are able to compete with us for skilled jobs. To stick to the target contribution rate of 40% will price us out of the market and cause more job losses. We have therefore decided to give up the 40% target rate and set a new long-term target rate of between 30% and 36%. This will give us the flexibility to have a higher rate to save more during good years and to cut the rate in bad years to help businesses save costs and preserve jobs. At a 30% contribution rate, the large majority of Singaporeans can still save enough to provide for their retirement needs, healthcare expenses and housing. We encourage companies that are still doing well to channel the wage savings into variable wage components to improve the flexibility of their wage structures, so that they will be able to respond quickly to volatile market conditions.
2.	Why is the cut only to employer's contribution?
	The cut in employer’s contribution is to lower the statutory burden on employers and lower wage costs. This will make Singapore more cost competitive and help us attract investments, thereby helping to save and create jobs for Singaporeans.
3.	Why is there a need for lower contribution rates for older workers aged 50-55?
	Older workers are at greater risk of losing their jobs. One reason for this is that our seniority-based wage structure results in older workers being paid more than younger workers. The wage differential is sometimes larger than the productivity differential, leading to companies retrenching older workers first when their business comes under pressure. The last two recessions have shown that older workers who lose their jobs find it more difficult to get another, compared to younger workers, and they are more at risk of becoming unemployed for more than 25 weeks. The lower employer CPF contribution rate for older workers is meant to improve their wage competitiveness to make them more employable. The ERC has also highlighted that older workers who emerge out of unemployment tend to be re-employed at lower wages. The Government recognises this and therefore, to help increase their take home pay, we will also reduce the employees’ contribution by 2 percentage points over 2 years.
SALARY CEILING
1.	Why is the salary ceiling being lowered further to $4,500?
	The CPF scheme should cater to the needs of workers earning between the 10th and the 80th percentile incomes. The top 20% of wage earners should be able to look after their own financial affairs, including their retirement needs, and not rely only on their CPF. Lowering the ceiling is also in line with our objective of lowering the statutory burden on employers. Following the ERC review, the plan was to reduce the salary ceiling from $6,000 to $5,500 on 1 Jan 2004, and further to $5,000 on 1 Jan 2005. However, $5,000 is still much higher than the current 80th percentile income of $3,700. Assuming a reasonable rate of wage increase and inflation, $4,500 in 2006 will be approximately equal to the 80th percentile income then. Employers are encouraged to pass on part of their wage savings to deserving workers through variable pay, such as bonuses and variable components, if they are able to.
CPF AND MEDISAVE MINIMUM SUMS
1.	The CPF cut will mean that workers will be getting less CPF. Why is it then, that the CPF Minimum Sum is being raised from $80,000 to $120,000?
	As we lower the CPF rate, we have to ensure that Singaporeans still have enough to meet their needs for housing, healthcare and retirement expenses. Today, Singaporeans can expect to live till about 80. The current CPF Minimum Sum is $80,000, of which half can be in a property pledge. With $40,000 in cash, members will receive only $252 a month if the money is to last them 18 years, from age 62 to 80. $252 is not enough for a person’s basic needs. If half the new CPF Minimum Sum of $120,000 is in a property pledge, the $60,000 in cash will give members $378 a month for about 18 years. As we increase the CPF Minimum Sum to $120,000 in today’s dollars, we will adjust the monthly payments so that the savings will last around 18 years for most members. The increases will take place gradually over 10 years from 1 Jul 2004 to give Singaporeans time to adjust.
2.	Why do I need to top up the Medisave Minimum Sum with my Ordinary and Special Account savings before I am allowed to withdraw my CPF at age 55?
	With longer life expectancy, Singaporeans will spend more on healthcare. Furthermore, someone aged 80 on average spends 3 to 5 times more on healthcare than someone aged 62. The Medisave Minimum Sum is to make sure that a member sets aside enough money when he turns 55 to meet his future healthcare expenses.
3.	What happens if I do not have the required CPF Minimum Sum and Medisave Minimum Sum when I apply for withdrawal at age 55? Does that mean that I cannot withdraw anything?
	CPF members will still be able to withdraw the first $5,000 from their Ordinary and Special Accounts, even if they do not meet the CPF and Medisave Minimum Sum requirements.
MEDISAVE MINIMUM SUM
1.	What will be the amount that I can withdraw from CPF with the enforcement of the Medisave Minimum Sum?
	If you have more than the CPF Minimum Sum after the withdrawal of 10 – 50% (depending on year) of your OA and SA balance, you will be required to top up your Medisave balance up to the required phased-in amount. You can then make a further withdrawal of the remaining OA and SA balance that is in excess of the CPF Minimum Sum.
50% WITHDRAWAL RULE
1.	Why is the Government phasing out the 50% withdrawal rule at age 55?
	As Singaporeans are living longer, and having smaller families on which to rely on, they will have to depend more on their CPF for their retirement. With the cut in the CPF contributions, it has become even more important for Singaporeans to ensure that they have enough CPF savings for their old age. The current withdrawal rule allows members to withdraw 50% of their combined Ordinary Account and Special Account balances, even if this leaves the Retirement Account with less than $40,000 in cash. This leaves many members with insufficient CPF to see them through their retirement. Phasing out the 50% withdrawal rule will help more Singaporeans to set aside their CPF Minimum Sum.
2.	The phasing out of the withdrawal rule will affect the retirement plans of those approaching 55 years of age. What measures are in place to help these people?
	There is no change to the current withdrawal rule for the next 5 years so as not to upset the plans of those who are turning 55 during this period. The change in the withdrawal rule will be phased in from 1 Jan 2009 when the withdrawal percentage will be reduced to 40%. Over the subsequent 4 years, this will be reduced by 10 percentage points every year on 1 Jan, until the process is completed on 1 Jan 2013. We believe this gradual phasing in will give CPF members time to make adjustments to their financial plans.
NEW ADDITIONAL WAGE CEILING
Definitions :
Ordinary Wages (OW) Wages due or granted wholly and exclusively in respect of employment during that month and payable before the due date for the payment of CPF contributions for that month.     Additional Wages (AW) All wages not classified as Ordinary Wages is Additional Wages.     Payable "Payable" means the employer has a legal obligation to pay the wages to the employee, regardless of when the wages is actually paid. For example, the employee's wages is payable at the end of the month although the employer's payroll practice is to pay the wages early on the 24th of each month.
1.	What is the new Additional Wage Ceiling for FY 2004 and 2005?
	For 2004, the Additional Wage Ceiling is calculated as follows:
	NEW ADDITIONAL WAGE CEILING FOR FY 2004 Additional Wage Ceiling(Maximum amount of Additional Wages subject to CPF contribution) $93,5001 – (Total Ordinary Wages subject to CPF2 )
	Note: the new formula uses the Total Ordinary Wages that is subject to CPF, rather than the Total Ordinary Wages paid as used in the old formula 1Equivalent to 17 months multiplied by the monthly CPF salary ceiling of $5,500 2Total Ordinary Wages subject to CPF is the sum of monthly Ordinary Wages subject to CPF paid in the year (maximum $66,000, i.e. monthly CPF salary ceiling of $5,500 x 12 months) For 2005, the Additional Wage Ceiling is calculated as follows: NEW ADDITIONAL WAGE CEILING FOR FY 2005 Additional Wage Ceiling(Maximum amount of Additional Wages subject to CPF contribution) $85,0001 - (Total Ordinary Wages subject to CPF2 ) Note: the new formula uses the Total Ordinary Wages that is subject to CPF, rather than the Total Ordinary Wages paid as used in the old formula 1Equivalent to 17 months multiplied by the monthly CPF salary ceiling of $5,000 2Total Ordinary Wages subject to CPF is the sum of monthly Ordinary Wages subject to CPF paid in the year (maximum $60,000, i.e. monthly CPF salary ceiling of $5,000 x 12 months)
2.	Does the Additional Wage Ceiling affect all employees?
	Yes, it is applicable to all employees. Employers should track the monthly wages and CPF contributions of their employees to ensure that no excess contributions are paid.
3.	Why is the maximum amount of total wages subject to CPF contributions based on 17 months?
	Setting a 17-month limit on the amount of wages that attracts CPF is in line with CPF's objective of focusing on the needs of those in the 10th to 80th income percentile. With this limit, it still allows employees to enjoy CPF benefits on variable payments of up to five months' salary.
4.	How do I know if I should apply the new Additional Wage Ceiling to the Additional Wages paid?
	You should apply the new Additional Wage Ceiling if the Additional Wages are due and payable in 2004.
5.	How do I contribute CPF on my employee’s Additional Wages?
	You should first calculate the Total Ordinary Wages subject to CPF. You will then be able to calculate the Additional Wage Ceiling. Please refer to Example 1.
6.	How can I calculate the Additional Wage Ceiling in 2004 if the Total Ordinary Wages subject to CPF is not known yet?
	For Additional Wages paid at the end of the year: Calculate the Additional Wage Ceiling based on the wage records for 2004. For Additional Wages paid before the end of the year: (a) Wage records for 2003 are available Apply the new salary ceiling of $5,500 to the Ordinary Wages paid each month in 2003 to estimate the Total Ordinary Wages subject to CPF contributions. (b) There are no wage records for 2003 Pay CPF on the full amount of Additional Wages paid or up to $93,500, whichever is lower.
7.	I used the preceding year’s Ordinary Wages to estimate the Additional Wage Ceiling. However, the Ordinary Wages paid in the current year turned out to be different. What should I do?
	You should recalculate the Additional Wage Ceiling based on the actual Ordinary Wage paid for the current year and make adjustments if necessary. Any shortfall in CPF contributions should be paid together with the contributions for December. The Board will refund any excess contributions upon application. Please refer to Example 2.
8.	What if the employee resigns during the year?
	If the employee resigns in the current year, recalculate the Additional Wage Ceiling in the last month of employment. Any shortfalls in CPF contributions must be paid together with the employee’s contribution for last month of employment. The Board will refund any excess contributions upon application.
9.	How do I pay CPF contributions on Additional Wages if the employee joined us in 2004?
	You should pay CPF on the full amount of Additional Wages or up to $93,500, whichever is lower, and make adjustments at the end of the year when the actual Additional Wage Ceiling can be calculated.
10.	When is the deadline to apply for a refund of excess contributions?
	All refund applications should be submitted within 6 months from the end of the year or last month of the employee’s employment.
11.	If the employee moves to another age group during the year, which rate should I use when paying the shortfall in CPF contributions on the Additional Wages at the end of the year?
	Apply the rate for the month in which the Additional Wages were paid. For example, if the Additional Wages were paid in April 2004 and the employee turned 55 in June 2004, you should apply the contribution rate for April 2004, (i.e. 33% for employees aged 55 years and below) when paying the shortfall at the end of the year. Similarly if the Additional Wages were paid in August 2004 and the employee turned 55 in June 2004, you should apply the contribution rate for August 2004 (i.e. 18.5 % for employees aged 55 to 60 years) when paying the shortfall at the end of the year.
	Example 1: Calculating Total Ordinary Wages subject to CPF
	Assumptions:
	Both Employees A and B are below 55 and earn the following wages in 2004: a) Total Ordinary Wages (TOW) = $70,000 b) Total Additional Wages (TAW) paid in Sept 2004 = $40,000 c) Total Wages (TW) =$110,000
	Breakdown of wages paid to Employees A and B
	Employee A Employee B Month OW paid ($) OW subject to CPF ($) AW paid ($) AW subject to CPF ($) OW paid ($) OW subject to CPF ($) AW paid ($) AW subject to CPF ($) Jan 5,500 5,500     3,000 3,000     Feb 5,500 5,500     3,000 3,000     Mar 5,500 5,500     3,000 3,000     Apr 5,500 5,500     3,000 3,000     May 5,500 5,500     4,000 4,000     June 5,500 5,500     4,000 4,000     July 5,500 5,500     6,000 5,500     Aug 5,500 5,500     8,000 5,500     Sep 5,500 5,500 40,000 27,500 9,000 5,500 40,000 40,000 Oct 6,500 5,500     9,000 5,500     Nov 7,000 5,500     9,000 5,500     Dec 7,000 5,500     9,000 5,500     Total 70,000 66,000 40,000 27,500 70,000 53,000 40,000 40,000
	Employee A Employee B Total Ordinary Wages (TOW) subject to CPF $66,000 $53,000 Additional Wage (AW) Ceiling $93,500 - $66,000 = $27,500 $93,500 - $53,000 = $40,500 Total CPF contributions on OW $66,000 x 33% = $21,780 $53,000 x 33% = $17,490 Total CPF contributions on AW $27,500 x 33% = $9,075 $40,000 x 33% = $13,200 Total CPF contributions for FY 2004 $21,780+$9,075 = $30,855 $17,490+$13,200 = $30,690
	Notes: 1. Although Employees A and B both earn TOW of $70,000, their AW Ceilings differ as their TOW subject to CPF is different. 2. CPF is payable on the actual AW paid, or the AW Ceiling calculated, whichever is lower.
	Example 2: Estimating the Additional Wage Ceiling
	Company XYZ is paying its employees a bonus in September 2004. They need to calculate the CPF payable on the bonus, which is considered Additional Wages. Company XYZ can estimate the AW Ceiling based on the preceding year’s wage records.
	Step 1: Calculate the TOW subject to CPF contributions
	a) Employee C has been working at Company XYZ for the past few years. Based on the wage records for 2003, Company XYZ estimates that the TOW subject to CPF is $50,000.
	Wage records for Employee C Wage records for 2003 OW paid ($) OW subject to CPF ($) Jan 3,500 3,500 Feb 3,500 3,500 Mar 3,500 3,500 Apr 3,500 3,500 May 3,500 3,500 June 4,000 4,000 July 4,000 4,000 Aug 4,000 4,000 Sep 4,000 4,000 Oct 6,000 5,500 Nov 6,000 5,500 Dec 7,000 5,500 Total 52,500 50,000
	Based on the preceding year’s wage records, the TOW subject to CPF for Employee C is $50,000.
	Step 2: Calculate the AW Ceiling and contributions on the AW
	Employee C (a) AW Ceiling ($93,500-TOW subject to CPF) $93,500 – $50,000 = $43,500 (b) Total AW paid $45,000 c) CPF contributions payable on AW for September 2004 33% x $43,500 = $14,355
	By the end of December 2004, Company XYZ will know the actual TOW that is subject to CPF. Hence, there may be a need to re-calculate the AW ceiling and make adjustments to the contributions paid. Please see below:
	Assumptions:
	Actual TOW subject to CPF in 2004 for Employee C is $55,000.
	Employee C Total Additional Wages (TAW) for the year 2004 $45,000 (d ) AW Ceiling based on current year’s TOW subject to CPF $93,500-$55,000= $38,500 (e) Maximum CPF contributions payable on AW for year 2004 $38,500 x 33% = $12,705 (f) Adjustment of CPF contributions. Pay shortfall together with contributions for Dec 2004 or apply for a refund if excess contributions made. (c) – (e) $14,355 - $12,705= $1,650 (To be refunded)
	Example 3:
	An employee left the company in Dec 2003. In Mar 2004, a performance bonus of $40,000 was paid to the employee for work done in 2003. How do I apply the AW Ceiling? His monthly wages was $7,000 per month.
	There is no wages earned in FY2004. Hence, the AW ceiling is $93,500 (see calculations below).
	Total Wages subject to CPF = $0 AW Ceiling = $93,500 – 0 = $93,500 AW paid = $40,000 AW subject to CPF = $40,000
	Example 4:
	My employee was an Employment Pass holder between Jan and Jun 2003. In July 2003, he became a Permanent Resident. A bonus of $30,000 was paid in Mar 2004. How do I calculate the AW Ceiling since the wages for 2004 are now known yet? Assume that his wages is $7000 per month.
	Estimate the AW Ceiling based on the wage records for 2003:
	CPF contributions are payable once an employee becomes a Permanent Resident. Apply the salary ceiling of $5,500 on the wages paid for Jul to Dec 2003.
	Total Wages subject to CPF ($5,500 x 6 months) = $33,000 AW Ceiling = $93,500 – 33,000   = $60,500 AW paid = $30,000 AW subject to CPF = $30,000
	By Dec 2004, Re-calculate the AW Ceiling based on the wage records for 2004. Make the necessary adjustments if there is a shortfall or apply for a refund if there are excess contributions.
	Example 5:
	My employee was working in Singapore between Jan and Jun 2003. In July 2003, he was posted overseas for 3 months. He returned in Oct 2003, and has been working in Singapore since. There was a performance bonus of $45,000 paid in March 2004 for work done in 2003. How do I apply the AW Ceiling? Assume his Ordinary Wages is $6,000 per month.
	Estimate the AW Ceiling based on the wage records for 2003:
	Apply the salary ceiling of $5,500 on the preceding year’s wages. However, do not include wages earned during the overseas assignment as CPF contributions are not payable on these wages.
	Total Wages subject to CPF ($5,500 x 9 months) = $49,500 AW Ceiling = $93,500 – $49,500   = $44,000 AW paid = $45,000 AW subject to CPF = $44,000
	By Dec 2004, Re-calculate the AW Ceiling based on the wage records for 2004. Make the necessary adjustments if there is a shortfall or apply for a refund if there are excess contributions.