CPF CONTRIBUTION RATES

Mr Noris Ong Chin Guan asked the Minister for Manpower (a) if he will explain whether the current Central Provident Fund (CPF) policies in respect of the accumulation of balances in the individual's account, will adequately ensure that retirees, particularly those who are currently self-employed, will be sufficiently taken care of for the period of their retirement; and (b) whether there are any plans to increase the CPF contribution rates for the self-employed to bring them in line with the CPF contribution level of employees.

Dr Lee Boon Yang: Currently, employees and their employers contribute a total of 30% of the employees' monthly salary into the employees' CPF account - 20% by the employee and 10% by the employer. The employer's CPF contribution will be restored by 2% point to 12% from 1st April 2000. The CPF Board's projections show that despite the lower CPF contribution rate for a few years, CPF members would still be able to accumulate sufficient savings for basic old-age needs. CPF savings should give an employee who has worked continuously for 35 to 40 years, a monthly retirement income of about 20% to 40% of his last take-home pay, after paying for a home which is commensurate with his income and setting aside savings for his medical needs in old age.

In the case of the self-employed, since July 1992, those with a net trade income of more than $2,400 per year are required to contribute to the Medisave Account. They contribute between 6% to 8% of their yearly net trade income, depending on their age. Such contributions are granted tax relief.

As at December 1999, about 231,500 self-employed persons were contributing to their Medisave Accounts under the law. To encourage self-employed persons to contribute beyond their Medisave Account, tax relief is also given for additional voluntary CPF contributions. The tax relief is subject to a cap of 20% of the self-employed persons' net trade income or $14,400, whichever is the lower. Of the 231,500 self-employed persons who contribute to Medisave, 76,400 (33%) made voluntary contributions on top of their Medisave contributions. Self-employed persons who only contribute to Medisave would obviously not have savings for their old age apart from savings for medical care. We hope that they are putting aside their own savings or making voluntary CPF contributions to prepare for retirement.

In view of the ageing population, savings for old age needs are becoming more important. The Inter-Ministerial Committee (or IMC) for the Ageing Population had suggested that the CPF system be extended to provide coverage for as many Singaporeans as possible. The Committee suggested that contributions to the CPF Special Account should be made compulsory for the self-employed. My Ministry is studying this recommendation and will consider ways to encourage and help self-employed to save for their retirement.