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What are the new CPF changes?
The Government is introducing 3 main changes to the Central Provident Fund system. They are:
- Raising the Employer CPF contribution rate by 1.5% for all employees, except those who are aged above 35 years and earning $1,500 or less. 1% of the increase will go into the Ordinary Account to help Singaporeans build up their retirement savings and pay for their mortgages. 0.5% of the increase will go into the Medisave Account to help meet their healthcare needs.
- Employee CPF contribution rate for all employees earning $1,500 a month or less to be less than full rates. This means that all employees earning more than $500 to $1,500 will contribute less to CPF and receive more take home pay.
- Employer CPF contribution rate for all employees aged more than 35 years and earning $1,500 or less to be less than full rates. Currently, employers pay the full rate of 13% when wages exceed $50 for workers aged up to 50. With the change, the rate will be gradually increased from 0% at above $50 to 13% at $1,200. This will increase the employability of older, lower income workers by reducing the hiring cost to employers. From $1,200 to $1,500, the employer contribution rate will increase to the new full rate of 14.5%.
Self-Employed Persons (SEP) will also see 2 changes to their contribution rates. They are:
- Increased CPF contribution rate for all SEPs earning a net trade income of more than $18,000 per year. The SEP Medisave contribution rate will increase by 0.5% for all SEPs earning a net trade income of more than $18,000 per year. This will help SEPs to build up their Medisave savings to take care of their future medical needs.
- SEPs earning a net trade income of $18,000 or less per year. For all SEP earning a net trade income of $12,000 or less per year, they will pay only 1/3 of the full contribution rate relevant to their age group. This will help increase the take home pay of lower income SEPs and reduce their CPF burden. SEPs who earn between $12,000 to $18,000 will see a gradual increase in their contribution rates from 1/3 of the full rate to the full rate.
New Contribution Rates of SEPs
|
Annual Net Trade Income |
35 years or less * |
Above 35 - 45 years * |
Above 45 years * |
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<$6,000 |
Voluntary contributions at one third full rates |
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>$6,000 - $12,000 |
One third of full rates |
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2.2% |
2.5% |
2.8% |
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>$12,000 - $18,000 |
Increase from one third full rates to full rates |
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> $18,000 |
Full rates |
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6.5% |
7.5% |
8.5% |
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Above $6,000 |
Current rates |
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6% |
7% |
8% |
Note: *Age as at 1 January 2008
Who are the people who will be affected by the CPF changes?
Employees:
|
Income Level |
Age 35 years or less |
Age more than 35 years |
|
$500 or less |
No change |
Reduced Employer CPF contributions |
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>$500 - $1,200 |
Reduced Employee CPF contributions |
Reduced Employee and Employer CPF contributions |
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>$1,200 - $1,500 |
Reduced Employee CPF contributions
Employer CPF contributions increase from 13% to the new full rate of 14.5% |
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More than $1,500 |
Employer CPF contributions increase by 1.5% |
In general for employee aged more than 35 years, the reduction in CPF from the changes in the employer and employee contributions will be more than offset by the Workfare Supplement Scheme (WIS) benefits.
Example:
Mr Kumar is a 40 year old employee with a gross income of $1,000 per month, who works at least 6 months in 2007 and fulfills the other WIS criteria.
With the CPF restructuring and WIS, Mr Kumar, who used to bring home $800 per month, will now bring home $41 more or 5.1%. His total CPF contributions, including the portion paid by his employer, will also increase from the current $330, by $21 or 6.4%. Mr Kumar will now receive a total income of $1,192, which is a gain in total income of $62 per month or 5.5%.
Impact on Mr Kumar:
|
|
Current ($) |
New ($) |
Difference ($) |
|
Employee CPF |
200 |
180 |
-20 |
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Employer CPF |
130 |
117 |
-13 |
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WIS Cash (monthly) |
- |
21 |
21 |
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WIS CPF (monthly) |
- |
54 |
54 |
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Take home Pay |
800 |
841 |
41 |
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Total CPF Contributions |
330 |
351 |
21 |
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Total Income |
1,130 |
1,192 |
62 |
SEPs
|
Annual Net Trade Income |
Age 35 years or less |
Age more than 35 years |
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<$6,000 |
No change |
Can voluntarily contribute at the reduced SEP contribution rate to benefit from WIS. |
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>$6,000-$18,000 |
Reduced Medisave contributions, more take home pay. |
Reduced Medisave contributions, more take home pay
Increased CPF from WIS
|
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More than $18,000 |
Pay 0.5% more Medisave contributions | Example:
Mr Harun is 40 years old, is self-employed for at least 6 months in 2007 and fulfills the other WIS criteria. His annual net trade income for 2007 is $12,000 or $1,000 monthly.
With the CPF restructuring and WIS, Mr Harun, who used to have an equivalent take-home pay of $930 per month after deducting his Medisave contributions, will now bring home $45 more monthly or 4.8%. His total Medisave contributions will also increase by $5 or 7.1% from the current $70. Mr Harun will now have a total income of $1,050 ($975 take-home pay and $75 in his CPF), which is a gain in total income of $50 per month or 5%.
Impact on Mr Harun
|
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Current ($) |
New ($) |
Difference ($) |
|
CPF Contributions |
70 |
25 |
-45 |
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WIS CPF (monthly) |
- |
50 |
50 |
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Take-home Pay |
930 |
975 |
45 |
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Total CPF Contributions |
70 |
75 |
5 |
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Total Income |
1,000 |
1,050 |
50 | Almost all workers will be affected by the new CPF changes. Depending on your age group and whether you are an employee or a Self-Employed Person (SEP), different changes may apply to you.
Why is the government reducing the employer CPF contribution for older, low wage workers and employee CPF contributions for those who earn $1500 a month or less?
The increase of 1.5 percentage points for CPF members earning more than $1,500 in monthly wages will help the majority of workers to build up their retirement adequacy.
This CPF increase will not apply for older low wage workers who are affected by wage stagnation and structural unemployment as a result of global competition. For this group, a different solution is required. Instead of raising their employer CPF contribution rates, we will instead reduce their CPF contributions: a reduction in employer CPF contributions to help improve their employability and a reduction in employee CPF contributions to increase their take-home pay.
To complement these CPF changes, Government will implement a new Workfare Income Supplement Scheme (WIS) which will make up for the reductions in their CPF contributions.
Why is the Government not restoring the CPF rates for those aged more than 35 years old and earning $1,500 or less?
The Government recognizes that this group of older low wage workers still faces employability challenges and wage stagnation. Our solution is to reduce the employer CPF contributions for these workers to raise their employability, reduce their employee CPF contribution rates so as to increase their take-home pay and to introduce Workfare wage supplements to boost their income and help them build up their savings. |
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When will the new changes take effect?
The new changes will take effect on 1 July 2007. This will give ample time for employers to adjust to the new rates.
How much more/less CPF do I have to pay?
- SEPs earning a net trade income of $18,000 or less will have to pay up to 5% less into their CPF.
- SEPs earning a net trade income of more than $18,000 will have to pay up to 0.5% more into their CPF.
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What will the CPF changes mean to me as an employer?
Depending on the age and income level of your employees, you will see the following changes:
|
Income Level of Employee |
Age 35 years or less |
Age more than 35 years |
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$1,500 or less |
Contribute 1.5% more Employer CPF |
Contribute less Employer CPF, depending on age and income of the employee |
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More than $1,500 |
Contribute 1.5% more Employer CPF |
Employers who employ or hire workers above 35 earning between $500 and $1,000 will save about 3% on their wage bill.
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