By Joanna Seow
SINGAPORE - Central Provident Fund (CPF) members will be able to grow their retirement savings further next year as the Government will raise interest rates on account balances, the salary ceiling for contributions and contribution rates for older workers.
Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam announced these enhancements to the national savings scheme in his Budget speech in Parliament on Monday.
An additional 1 per cent interest will be applied to the first $30,000 of CPF savings for those aged 55 and above next year, on top of the existing 1 per cent extra interest on the first $60,000 of savings. This means that the first $30,000 in Special, Retirement or Medisave accounts can earn up to 6 per cent interest.
Currently, the basic interest rate for the Special, Retirement and Medisave Accounts is 4 per cent, while the rate for the Ordinary Account is 2.5 per cent.
The move will benefit members with low balances, said DPM Tharman. For an active member aged 55 next year with around $25,000 in CPF savings - this puts him at the 20th percentile - the extra 1 per cent of interest will give him some $40 more per month in CPF Life payouts.
To help middle-income workers, the income ceiling for CPF contributions will also be raised from $5,000 to $6,000 from next year onwards, affecting at least 544,000 members. Both the CPF Advisory Panel and the National Trades Union Congress had called for the ceiling to be raised in their proposals to the Government this year.
Based on the new salary ceiling, a 45-year-old worker who earns $6,000 or more today will save an additional $60,000 by the time he reaches 65, DPM Tharman said.
Correspondingly, the caps on contributions to the Supplementary Retirement Scheme will also be raised to $15,300 for Singapore citizens and permanent residents and $35,700 for foreigners.
From Jan 1, CPF contribution rates for workers aged 50 to 55 will match the level of those younger than them - due to a 1 percengate point raise in both employer and employee contribution rates. Employer contribution rates for those aged 55 to 60 will also be 1 percentage point higher, while those aged 60 to 65 will be 0.5 percentage points higher.
The increase in employer contributions will go to the Special Account, while the increase in employee contribution will go to the Ordinary Account.
Some of these changes will be offset by the Temporary Employment Credit scheme. It will be raised to 1 per cent for this year, up from 0.5 per cent. The scheme will also be extended for two more years. Next year, credits will cover 1 per cent of wages, and 0.5 per cent in 2017.
Employers will also get some help in managing wages for older workers. They will receive an additional 3 per cent of wages in Special Employment Credit for the wages of workers aged 65 and up this year, on top of the existing 8.5 per cent.
"The law already requires employers to re-employ eligible workers up to the age of 65. This measure will encourage employers to continue employing them beyond that age," said DPM Tharman.
He added that the Government will make a $500 million top-up to the funding for this scheme.