RECAP – UPCOMING CPF CHANGES FROM 1 JANUARY 2006

News Release by:
Central Provident Fund Board
15 December 2005 --

The Board would like to remind CPF members of the following changes to the CPF schemes which will take effect from 1 January 2006. These changes had been announced previously by the Government in 2002 and 2003. The changes are summarised in Annex A for easy reference.

• LOWER CPF CONTRIBUTION RATE
   FOR WORKERS AGED ABOVE 50 TO 55

From 1 January 2006, the CPF contribution rate for workers aged above 50 to 55 will be reduced by 3% from the current 30% to 27%. The employer contribution rate will be reduced by 2 percentage points from the current 11% to 9% and the employee contribution rate will be reduced by 1 percentage point from the current 19% to 18%. The reduction will come from the Ordinary Account. Contributions to the Special and Medisave Accounts will remain at 7% and 8% respectively.

The lower employer CPF contribution rate will enhance the wage competitiveness of older workers and help them be more employable. The reduced employee contribution will also help increase the take home pay of older workers. With this reduction, the plan announced in 2003 to achieve a 6% point difference in contribution rate between workers aged above 50 to 55 and younger workers will be completed.

CPF members aged above 50 to 55 who have difficulty meeting the shortfall in their monthly housing instalment as a result of the change in the CPF contribution rate will be allowed to use their Special Account savings to meet the shortfall.

• LOWER SALARY CEILING FOR CPF CONTRIBUTION

The salary ceiling will be reduced from $5,000 to $4,500. This reduces the compulsory savings for high-income earners, and gives them greater flexibility in managing their finances and retirement needs. It also lessens the burden on employers. This is the final step in the plan announced in 2003 to lower the salary ceiling so as to position the CPF system to cater to those earning up to the 80^th percentile income.

• ADDITIONAL WAGE CEILING

With the lowering of the salary ceiling, the maximum amount of wages that will attract CPF contributions in 2006 will be $76,500¹. The maximum Additional Wages that will attract CPF is the difference between $76,500 and the total ordinary wages subject to CPF contributions for the year.

• MEDISAVE CONTRIBUTIONS FOR THE SELF-EMPLOYED

The maximum amount of compulsory Medisave contributions payable by the self-employed for 2006 will be adjusted, following the change in the salary ceiling. See Annex A for details.

• CPF CONTRIBUTION LIMIT

The maximum amount of CPF contributions a member may contribute for 2006 will be revised downwards from $28,050 to $25,245². This amount includes both mandatory and voluntary contributions. No further voluntary contributions will be allowed once the member’s mandatory contributions reaches $25,245.

• MEDISAVE REQUIRED AMOUNT

Since 1 January 2004, CPF members who turn 55 and are able to meet the CPF Minimum Sum are required to set aside a Required Amount in their Medisave Account when they make a CPF withdrawal. If members have less than the Required Amount in their Medisave Accounts, their Ordinary and/or Special Account balances in excess of the Minimum Sum will be used to top up the Required Amount.

The requirement for members to set aside the Required Amount in their Medisave Account is to enable members to have enough savings to meet their healthcare needs during old age.

From 1 January 2006, the Required Amount will be raised from the current $5,100 to $8,300, after adjusting for inflation. The Required Amount will increase by $2,500 (in 2003 dollars) each year until it reaches $25,000 (in 2003 dollars) on 1 January 2013.

• HOUSING WITHDRAWAL LIMIT

The cap on the CPF withdrawal limit for the purchase of private residential properties and HDB flats financed with bank loans will be reduced from the current 138% to 132% of the Valuation Limit, and thereafter, by 6 percentage points every year to reach 120% on 1 January 2008. This is to encourage prudence in using CPF savings to buy a house so that members will have enough savings in their CPF accounts to meet their retirement needs.

Note : ¹17 months x CPF salary ceiling of $4,500
          ²17 months x CPF salary ceiling of $4,500 x 33%

For more details, please log on to www.cpf.gov.sg or call the CPF Call Centre at 1800 - 227 1188.