Singapore Law Blog

News Release by: Central Provident Fund Board 17 December 2004 --

The Board would like to remind CPF members of the following changes to CPF which will take effect from 1 January 2005. These changes had been previously announced by the Government in 2002 and 2003. The changes are summarised in Annex A for easy reference.

• LOWER CPF CONTRIBUTION RATE    FOR WORKERS AGED ABOVE 50 TO 55

From 1 January 2005,the CPF contribution rate for workers aged above 50 to 55 will be reduced from the current 33% to 30%. The employer contribution rate will be reduced from the current 13% to 11%. The employee contribution rate will be reduced by 1 percentage point to 19%. The 3% reduction in CPF contributions will come from the Ordinary Account, i.e. contributions to the Special and Medisave Accounts would remain at 7% and 8% respectively.

This contribution rate will be further reduced to 27% from 1 January 2006.

The lower employer CPF contribution rate will enhance the wage competitiveness of older workers and help them become more employable. The reduced employee contribution will also help increase the take home pay of older workers.

CPF members who have difficulty meeting the shortfall in their monthly housing instalment as a result of the change in CPF contribution will be allowed to use their Special Account savings to meet the shortfall.

• LOWER SALARY CEILING FOR CPF CONTRIBUTION

The salary ceiling will be reduced from $5,500 to $5,000. This is to give high-income earners greater flexibility in managing their finances, including their retirement needs. It also reduces the compulsory savings for this group of workers and lessens the burden on employers.

The salary ceiling will be further lowered to $4,500 on 1 January 2006.

• ADDITIONAL WAGE CEILING

The Additional Wage Ceiling will be revised. The maximum amount of wages that will attract CPF contributions in 2005 will be $85,000. The maximum Additional Wages that will attract CPF is the difference between $85,000 and the total ordinary wages subject to CPF contributions for the year.

• MEDISAVE CONTRIBUTIONS FOR THE SELF-EMPLOYED

The maximum amount of compulsory Medisave contributions payable by the self-employed for 2005 will be adjusted, following the change in the salary ceiling. See Annex A for details.

• MEDISAVE MINIMUM SUM

From 1 January 2004, CPF members who turn 55 and are able to meet the CPF Minimum Sum are required to set aside a Required Amount in their Medisave Account when they make a CPF withdrawal. The requirement for members to set aside the Required Amount in their Medisave is to enable members to have enough savings to meet their healthcare needs during old age.

From 1 January 2005, the Required Amount will be raised from $2,500 to $5,100, after adjusting for inflation. The Required Amount will increase by $2,500 (in 2003 dollars) each year until it reaches $25,000 (in 2003 dollars) on 1 January 2013.

If members have less than the Required Amount in their Medisave Accounts, they can use the balances in their Ordinary and/or Special Accounts in excess of the Minimum Sum to top up the Required Amount. This includes first withdrawals by CPF members at age 55 and all subsequent withdrawals.

Members who wish to check their Medisave balance upon reaching age 55 years may log on to the CPF website with their SingPass.

• HOUSING WITHDRAWAL LIMIT

The cap on the CPF withdrawal limit for the purchase of private residential properties and HDB flats financed with bank loans will be reduced from the current 144% to 138% of the Valuation Limit, and thereafter cut by 6 percentage points every year to reach 120% on 1 January 2008. This is to encourage prudence in using CPF savings to buy a house so that members will have enough savings in their CPF accounts to meet their retirement needs.

• TOP UP CPF MINIMUM SUM BEFORE YEAR END

As announced previously, all cash top-ups made under the CPF Minimum Sum Topping-Up Scheme will enjoy a tax relief of up to $7,000 instead of $6,000 per year from 2004.

In order to enjoy the tax relief, members are reminded to top up their loved ones’ CPF accounts before the end of the year. To avoid the year-end rush, members should submit their cash top-up applications by 28 December 2004.

The CPF Minimum Sum Topping-Up scheme was first introduced in 1987 with the objective to encourage Singaporeans to contribute to the financial security of their loved ones. These top-ups can be in cash or from members’ CPF Ordinary Accounts. The tax relief for cash contribution is applicable to those who top up their own Retirement Accounts, and/or the accounts of their non-working spouses, parents and/or grandparents who are aged 55 and above.

Those who are topping up for their non-working spouses should note that the recipient must be 55 years and above and earn $2,000 or less in the preceding year. More details of the Topping-Up scheme are available in the online Minimum Sum Scheme handbook.

For more details, please log on to www.cpf.gov.sg or call the CPF Call Centre at 1800 - 227 1188.