EFFECTS OF REDUCTION FROM CENTRAL PROVIDENT FUND
Parliament of Singapore · 16 October 2003
Official Report, 16 October 2003, Vol 76, Issue 22 · Open in the reader (summaries, search, filters)
Column No : 3249
EFFECTS OF REDUCTION FROM CENTRAL PROVIDENT FUND
4.
Mr Low Thia Khiang asked the Acting Minister for Manpower if he will release data showing the effect of the reduction in Central Provident Fund contribution to 30% on the 10th to 90th percentile of workers, at 10 percentile intervals, on their ability to meet their housing, mandatory Medisave and retirement needs as well as on the balance in the Ordinary Account.
Dr Ng Eng Hen: The Acting Minister for Manpower had said in Parliament previously that even if the CPF contribution rate is lowered to 30%, the majority of future CPF members could still meet basic retirement, healthcare and housing needs. Our projections are based on prevailing interest rates in the OA and SA accounts. It also assumes real annual increases of wages ranging from 1.6% to 5.7% for ages 20-35, -0.1% to 3.7% for ages 35-45 and -1.8% to 1.8% for aged 45-55. It should be noted that Medisave consumption patterns of individual members can impact significantly on the their retirement adequacy - a point elaborated on by the Parliamentary Secretary's reply to Mr Ravindran question in the last sitting.
A 10th percentile CPF member with a starting salary of $572 is projected by age 55 to have $33,000 in his OA available for housing, $6,700 in his MA and $16,100 in his SA - please refer to Table 1. The low savings arise because the worker only contributes CPF if his monthly salary exceeds $750. At a starting salary of $572, the worker only needs to pay graduated CPF contribution rate (lower than 30%) and during periods when his monthly salary is below $500, he need not contribute any employee CPF. He will not be able to afford a 3 room flat but can rent a flat at subsidised rates from the HDB. Data on CPF members with low starting pay need to be interpreted with caution, as it is possible that this may be distorted by the low wages of part timers.
The 12.5th percentile CPF member with a starting salary of $722, is able to buy a 3-room flat at subsidised prices from the HDB and can set aside $26,000 for the Minimum Sum, after withdrawing $5,000 at age 55. He is not able to meet the Minimum Sum target.
The 25th percentile CPF member in Table 1 is nearly able to meet the Minimum Sum requirements. If he is conservative about the use of his CPF for housing and medical expenses, or has contributions from a working spouse towards interest payment on the housing loan, then it is likely that he can meet the Minimum Sum requirements. At a macro level, up to 76% of future CPF members should be able to meet their Minimum Sum requirements.
For more information on the adequacy projection of CPF members by 10th percentile intervals, please refer to Table 2.
Table 1 ADEQUACY OF CPF AT 30% CPF CONTRIBUTION RATE FOR NEW ENTRANTS TO THE WORKFORCE (All values are in 2003 dollars): |
10 th
Percentile
Worker
|
12.5 th Percentile Worker
|
25 th Percentile Worker
|
50 th Percentile Worker
---|---|---|---|---
Starting Pay
|
$572
|
$722
|
$1,160
|
$1,600
Ending Pay
|
$427
|
$572
|
$1,050
|
$2,370
Total Career Savings
|
$55,800
|
$114,000
|
$205,000
|
$354,000
OA 1
|
$33,000
|
$61,000
|
$109,000
|
$181,000
MA
|
$6,700
|
$22,000
|
$41,000
|
$81,000
SA
|
$16,100
|
$31,000
|
$55,000
|
$92,000
Type of Housing
Purchasable By
Individual 2
|
-
|
3-room HDB
flat
|
3-room HDB flat
|
4-room HDB
flat
Type of Housing
Purchasable With
Working Spouse 2
|
-
|
3-room HDB
flat
|
4-room HDB
flat
|
5-room HDB
flat
Minimum Sum of
$120,000
| | | |
Withdrawable at 55 from
SA 3
|
$5,000
|
$5,000
|
$5,000
|
$32,000
Property pledge
|
$0
|
$60,000
|
$60,000
|
$60,000
Medisave
|
$6,700
|
$22,000
|
$41,000
|
$81,000
Amount set aside in Minimum Sum
|
$44,100
|
$26,000
|
$50,000
|
$60,000
Notes:
1. The OA balance at age 55 includes CPF interest earned and assumes no withdrawals for housing.
2. According to MND, prices of direct purchase flats offered in 2002 are as follows:
|
3-room HDB flat
|
4-room HDB flat
|
5-room HDB flat
---|---|---|---
Price Range
|
$39,000 to
$125,000
|
$85,000 to
$297,000
|
$161,000 to
$450,000
3. Members can withdraw the first $5,000, even if they have not met the Minimum Sum requirements.
Table 2 ADEQUACY OF CPF AT 30% CPF CONTRIBUTION RATE FOR NEW ENTRANTS TO THE WORKFORCE: **(for every 10 th Percentile) **
Percentile
|
10 th
|
20 th
|
30 th
|
40 th
|
50 th
|
60th
|
70th
|
80th
|
90 th
---|---|---|---|---|---|---|---|---|---
Starting Pay
|
$572
|
$1,020
|
$1,261
|
$1,450
|
$1,600
|
$1,754
|
$1,950
|
$2,200
|
$2,612
Ending Pay
|
$427
|
$862
|
$1,242
|
$1,637
|
$2,370
|
$2,958
|
$3,575
|
$4,154
|
$5,178
Total Career Savings
|
$55,800
|
$176,600
|
$233,700
|
$279,700
|
$354,000
|
$386,300
|
$424,800
|
$408,900
|
$434,900
OA
|
$33,000
|
$92,200
|
$123,000
|
$145,300
|
$181,000
|
$197,200
|
$216,500
|
$212,500
|
$226,100
MA
|
$6,700
|
$38,200
|
$48,900
|
$61,300
|
$81,000
|
$89,700
|
$99,500
|
$90,100
|
$96,400
SA
|
$16,100
|
$46,200
|
$61,800
|
$73,100
|
$92,000
|
$99,400
|
$108,800
|
$106,300
|
$112,400
Type of
Housing
Purchasable By
Individual
|
-
|
3-room
HDB flat
|
3-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
Type of
Housing
Purchasable With
Working Spouse 2
|
-
|
3-room
HDB flat
|
4-room
HDB flat
|
4-room
HDB flat
|
5-room
HDB flat
|
5-room
HDB flat
|
5-room
HDB flat
|
5-room
HDB flat
|
5-room
HDB flat
Minimum Sum of
$120,000
| | | | | | | | |
Withdrawable at 55
From SA
|
$5,000
|
$5,000
|
$5,000
|
$13,100
|
$32,000
|
$39,400
|
$48,800
|
$46,300
|
$52,400
Property pledge
|
$0
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
Medisave
|
$6,700
|
$38,200
|
$48,900
|
$61,300
|
$81,000
|
$89,700
|
$99,500
|
$90,100
|
$96,400
Amount set
aside in
Minimum Sum
|
$44,100
|
$41,200
|
$56,800
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
|
$60,000
Notes:
· All values are in 2003 dollars.
· The OA balance at age 55 includes CPF interest earned and assumes no withdrawals for housing.
· According to MND, prices of direct purchase flats offered in 2002 are as follows:
|
3-room HDB flat
|
4-room HDB flat
|
5-room HDB flat
---|---|---|---
Price Range
|
$39,000 to $125,000
|
$85,000 to $297,000
|
$161,000 to $450,000
· Members can withdraw the first $5,000, even if they have not met the Minimum Sum requirements.
Source: Singapore Parliament Official Report (Hansard) for 16 October 2003. Republished on SGParliament.