Retirement savings boost for older workers

Retirement savings boost for older workers
CPF contribution rates of those aged above 50 to go up from next January

Published on Feb 24, 2015 2:41 AM                              
By Toh Yong Chuan, Manpower Correspondent

RETIREMENT savings for older workers will get a major boost, after the Government moved to raise their Central Provident Fund (CPF) contribution rates. Workers aged above 50 will see their total CPF rates rising by between 0.5 percentage point and 2 percentage points. These changes to the CPF will kick in from January next year and boost Singaporeans' retirement savings, said Deputy Prime Minister Tharman Shanmugaratnam yesterday. In announcing the changes, Mr Tharman said CPF was one of the four main pillars of Singapore's social security system. The other three are home ownership, affordable health care and Workfare, which is a wage supplement scheme introduced in 2007. "Each of these four pillars of our social security system seeks to preserve an ethic of work, personal effort and responsibility for the family," said Mr Tharman. "But the four pillars also reflect collective responsibility." The Government has stepped up its role to redistribute more to lower- and middle-income Singaporeans in recent years, said Mr Tharman, citing Workfare and the extra 1 percentage point interest for the first $60,000 of CPF savings introduced in 2008 as examples. The changes announced yesterday are in line with the moves made by the Government to strengthen the social safety net over the past few years. The CPF rates of workers aged 55 and younger were cut from 36 per cent to 33 per cent in 2003, alongside other CPF changes, because of an economic downturn. The rate for workers in the above 50 to 55 age group was further cut to 30 per cent in 2005 and 27 per cent in 2006. The CPF cuts were partially restored over the years from 2007, but the rate for workers in the above 50 to 55 age band continued to lag behind that for younger workers. Mr Tharman said the Government will "take the final step" to restore it fully to the level of younger workers. Employers and employees will split equally the CPF rate hike of 2 percentage points. The employer contribution will go to the Special Account, while the employee contribution goes to the Ordinary Account, which can help employees service housing mortgages, noted Mr Tharman. Workers aged above 55 to 60 will get a 1 percentage point increase in their CPF rates and those above 60 to 65 will get 0.5 percentage point more. The latest change means workers aged 50 to 55 will see the biggest hike of CPF rates, from 35 per cent to 37 per cent, bringing them on a par with younger workers. These moves will raise costs for firms but Mr Tharman said firms will get help to cope with the higher labour costs. Firms will be able to claim a Temporary Employment Credit, which pays 1 per cent of wages this year and next, and 0.5 per cent of wages in 2017. They will also get to claim from the Special Employment Credit an extra 3 per cent of the wages when they rehire staff who are 65 and above, on top of the 8.5 per cent of wages that they can already claim when they hire workers aged 50 and above. The changes to the CPF have drawn support from both employers and the labour movement. "The modest increase in the salary cap for CPF contributions was expected, as were the increased contribution rates," said Singapore International Chamber of Commerce chief executive Victor Mills. "Both are fair and just." tohyc@sph.com.sg