CPF changes don't go far to address retirement needs, claims retired banker

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Some key changes to the Central Provident Fund scheme (CPF) came into effect on 1 January 2016. The changes, which are 3 key initiatives, provide for an increase in the CPF Salary ceiling and an increase in CPF contribution rates for older workers.

The key initiatives are as follows:

1. Higher CPF Salary Ceiling and Supplementary Retirement Scheme (SRS) Contribution Cap

  • The CPF salary ceiling will be raised from $5,000 to $6,000 effective from 1 Jan 2016.
  • Annual contribution cap within the SRS will be raised in line with the higher CPF salary
    ceiling from 1 Jan 2016.
  • The existing limits on tax reliefs on CPF and SRS contributions will be raised accordingly.
  • The additional wage ceiling will be increased accordingly to $102,000 less total Ordinary
    Wage subject to CPF for the year.
    cpf1

2. Raising CPF Contribution Rates for Older Worker

  • The CPF contribution rates for workers aged 50 to 65 will be increased from 1 Jan 2016
    per table below.
  • The increase in employer contribution rates will go to the Special Account. The increase
    in employee contribution rates will go to the Ordinary Account.
    cpf2

3. Enhancing Progressively through extra CPF interest

  • An additional 1% extra interest on the first $30,000 of CPF balances will be provided from the age of 55. This will take effect from 1 Jan 2016.
  • Together with the existing 1% extra interest on the first $60,000 of CPF balances, older CPF members can earn up to 6% interest on their balances. The table below shows CPF interest for members aged 55 years and above from 1 Jan 2016.
    cpf3

The Ministry of Manpower in announcing these changes, said that the “initiatives will help Singaporeans save more for retirement”.

Chris Kuan a retired international banker however, questions how much the Government is directly contributing to help Singaporeans save more for retirement.

The changes to the scheme which will increase contribution rates for those aged 55 and above, the increase in salary caps and the limit to the Supplementary Retirement Schemes, all require no contributions from the government, Mr Kuan said.

For these, “the onus is entirely on CPF members and their employers,” he remarks.

The extra 1% on first S$30,000 for those aged 55 and above however, means more interest will be paid to CPF by the Government “from the returns earned from GIC (Government of Singapore Investment Corporation)”, Mr Kuan acknowledges.

He points out that there are 1.127 million active and inactive CPF members who will benefit from the change, and assuming that all of them have at least S$30,000 in their CPF accounts, it will cost the government S$338 million.

That “is less than 0.09% of GDP”, Mr Kuan slams the lack of burden the changes will put on the Government, and calls it “PEANUTS!”.

He claims that the IMF data which shows that Singapore’s budget surplus runs at an average of over 10 percent per annum over the past 20 years or more, gives perspective about the cost to the Government from the recent changes.

Mr Kuan argued that the Singapore “Government is still doing very little to improve retirement adequacy”.

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