Budget 2012: CPF contribution rates raised for older S’porean workers

The government will help older workers, including those with incomes in the upper half, by raising CPF contribution rates, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam in his annual Budget 2012 announcement on Friday.

"We lowered contribution rates for older workers in the late 1980s and again in the last decade, because their employment rates were lower compared to younger workers," said Tharman.

"Seniority-based wages discouraged employers from hiring older workers. The lower CPF contribution rates hence helped to offset the higher cost of older workers, and kept them in demand in the employment market," he added.

He highlighted the good progress in recent years in flattening wage scales, and in increasing the employment of older Singaporeans, this positive trend is expected to continue.

"The labour market is tight. Our workers in their 50s and 60s will increasingly have better educational and skills profiles. Our re-employment legislation is now in place. And the SEC will provide further support," he said.

"It is therefore a good time for us to raise CPF contribution rates for three groups of Singaporeans — those aged 50 to 55, 55 to 60 and 60 to 65."

The minister revealed that those aged between 50 and 55, the CPF contribution rates for this group will be raised by 6 per cent - 4 per cent from the employer and 2 per cent from the employee — to reach the full CPF contribution rate of 36 per cent.

However, he stressed that the move cannot be made in one step, and particularly with an economic slowdown at hand.

"For the first step this year, we will raise CPF contribution rates for those aged between 50 and 55 by 2.5 per cent — 2 per cent from the employer and 0.5 per cent from the employee. This will bring their total CPF contributions up from 30 to 32.5 per cent," Tharman announced.

"For the second group comprising Singaporeans aged between 55 and 60, we will raise contribution rates by 2 per cent — 1.5 per cent coming from the employer and 0.5 per cent from the employee.

Moving to the third group, those aged between 60 and 65, their employer contribution rate will increase by 0.5 per cent. There will be no increase in their employee contribution rate.

The minister also stressed the need to watch how the employment market develops before making any further moves and added that the Special Employment Credit (SEC) will hopefully encourage employers to attract and retain more of these older workers.

The government will also be allocating more of the increased contribution rates to the Special Account (SA), with a smaller portion going to the Ordinary (OA) and Medisave (MA) accounts.

These changes in CPF contribution rates will take effect from September this year, in line with the first disbursement of the enhanced SEC."We will also raise contribution rates of self-employed persons into their Medisave Accounts, to be in line with those of employees. The Medisave contribution rates for those aged 50 and above will be raised from 9 per cent to 9.5 per cent. This change will take effect from January 2013," said Tharman.

Enhanced Earned Income Relief

The government will also be raising the income tax relief for older taxpayers so that they can retain more of their income from work. Their Earned Income Relief for those aged 55 and above will be doubled. Those aged 55 to 59 will now enjoy $6,000 in Earned Income Relief per annum, while those aged 60 and above will enjoy $8,000.

The minister highlighted that 119,000 older Singaporeans will benefit from this and the increased relief will cost the government $30 million per annum, and will be effective from Year of Assessment 2013.

Helping Seniors Unlock Savings

The minister next focused on providing the current generation of elderly with an attractive option to free up money for their retirement years by moving to smaller homes.

The government will introduce a Silver Housing Bonus of $20,000.

This Bonus will be given to older Singaporeans who wish to sell their existing flats and purchase 3-room or smaller HDB flats.

"Many of our senior citizens are in fact keen to do so — the great popularity of our Studio Apartments speaks for itself. It is not just a desire to unlock their savings, but that the apartments are practically designed for them. And they have nearby amenities that cater to the elderly, such as Senior Activity Centres. We will be building more Studio Apartments in the next few years," said Tharman.

He went on to share how the Silver Housing Bonus will work.

"The government will provide $15,000 in cash and $5,000 to the CPF accounts. To benefit from the scheme, the homeowners will use the proceeds from the sale of their previous home to top up their CPF savings up to the prevailing Minimum Sum. All amounts above the Minimum Sum can be withdrawn in cash, and we expect many to be able to do so."

"Suppose we have a retiree couple who each had $10,000 set aside in their Retirement Accounts when they turned 55. They decide to move from a 3-room flat to a Studio Apartment. That gives them net proceeds of $250,000," he added.

"The proceeds will go into their CPF LIFE. But because they will now exceed the Minimum Sum, they take out $8,000 in cash. Together with the $15,000 cash from the Silver Housing Bonus, they get $23,000 in total. Most important, they also get a much bigger income for life from CPF LIFE - an additional $1,200 per month."

The minister added that seniors who move from a 4- or 5-room flat to a Studio Apartment would gain much more — more than five times as much upfront in cash.

To complement the Silver Housing Bonus, the government will also enhance the Lease Buyback Scheme.

This is another way in which older Singaporeans can get money out of their homes — by selling part of their lease back to the Government.

"To make the Lease Buyback Scheme more attractive, we will double the incentive from $10,000 to $20,000. Of this, $15,000 will be paid in cash — a similar quantum to the Silver Housing Bonus," said the finance minister.

"We will also help them keep some of their cash proceeds. Unlike the current scheme, where all proceeds must be used to purchase a CPF-LIFE plan, participants can now receive in cash the proceeds that are above the prevailing Minimum Sum."