Working out the CPF Contribution Rates | TheFinLens

January 11, 2020 TheFinLens

Working out the CPF Contribution Rates | TheFinLens

You need to be a permanent Resident of Singapore or a Singaporean and working to be entitled to the CPF Contributions. Raising CPF contribution rates for older workers will help to build on the retirement savings. This CPF is applicable when you have a relationship of an employer and an employee, that is, a service contract. The employers will be paying the share of the employee and also the employer for the CPF Contributions, but will recover the share of the employee from the wages of the employee.

How much do you contribute to CPF?

Every month the employers contribute 17% of an individual’s salary to the CPF account and the employee contributes 20% of the salary. This is upto$6,000 which is the salary cap. The percentage of the contributions varies in accordance to the income and the age of the employee.

Most employees have a total of 37% of the salary contributed to the CPF account. From the age of 55 till the age of 65 the contributions of the employee to the CPF decline. This might be due to different reasons. This might be because you want to earn less after you have set aside enough for your retirement or probably you earn less due to the skills getting outdated as compared to the younger employees.

A lower contribution by the employee allows you to take home more income, a lower contribution by the employer makes hiring older employees less expensive to re-train or hire.

You do not make any contributions to the CPF if you earn less than $500 but more than 50 in a month. The contributions to the CPF accounts are made only by the employers. This is relevant to the ad-hoc employees or part-time or contract workers.

Raising Contribution Rates of the CPF for Older Workers:

Raising CPF contribution rates for older workers will help to build on the retirement savings. This process takes around 10 years. This additional money is credited into the Special Account. This can accrue a high interest among CPF accounts.

The first increase in the CPF contribution by the employees and the employers in 2021 will be around 0.5 percent or a point of one percentage for those workers who are between the age of 55 and 70.

For an individual who completed 55 years this year and has a monthly income of around $3,000, both the employer and the employee need to contribute $390 or 13 percent to the savings of the CPF.  The contribution rates for the employee and the employer will go up to $420 or 14 percent from the year2021. This works out to total of $360 of contributions every year.

cpf contributionBasic on CPF Contribution:

The rate of contribution to the CPF accounts depends on the age of an individual and the wage band. The employer needs to pay the contributions to the CPF account for the part-time, temporary and casual employees. The rates are the same for the full time employees and the temporary, part-time or causal employees.

Reasons for raising the CPF contribution rates:

Older workers are now more employable as the employment rate has substantially increased to 77% from a mere 69%. There is also a progress in flattening of the scales of wage. All the workers who are between the age of 50 and 65 can benefit from the increase.

The Government is all for re-employing older workers as The Special Employment Credit has been enhanced by the Government.

New Contribution Rates for SEP (Self Employed persons):

There is an increase of 0.5% points for the SEP who are 50 years old and above and are earning trade income which works out to $18,000. For SEP’s whose annual trade income is $12,000, they will contribute around 1/3 of the income. The contribution for Medisave for the SEP’s who are of 50 years old and above increase for aligning it with the rates of Medisave.

How much more of CPF contributions do you pay?

The contribution to Medisave is the same if you are below 50 years of age. If you are 50 years old and above the CPF Contribution sum depends on the income.

CPF contributions from the monthly salary go into the Ordinary, Special and the Medisave account. How much is contributed to the different accounts depends on the age of the individual. When an individual is younger, you tend to contribute more to the Ordinary Account for paying for a home. The contribution made to the Special Account is basically meant for retirement needs and the Medisave account for health.

With the passing of time, less is contributed to the Ordinary Account and more is put away in the Special Account and the Medisave Account. The interest earned on the Special Account and the Medisave account is higher.

Once you cross the age of 55 years, you would have already set a specific sum as the retirement sum in the Retirement Account and the focus is now on the needs of healthcare through the Medisave Account. On the CPF contributions per year the Annual limit is $37,740. If you are able to, you need to make CPF contributions on the Additional Wages up to the cap of $37,740.

You are not excluded from CPF contributions automatically if you earn more than $6,000 as Additional Wages. A salary of $7,000 every month would add up to $26,640 as CPF contributions per year as we make CPF Contributions on the initial $6,000 only. This lets you make more CPF Contributions right to the Annual Limit.

If you want to make CPF Contributions on the total amount, the CPF Contributions account to $15,540 as the bonus at the end of the year is $42,000. This is more than the Annual Limit and thus, you need to ensure that the contributions are only to the limit, which is for the $30,000. You can contribute to the CPF more if you feel the need by making these contributions to the VC (Voluntary Contributions).

You can check on the CPF Contributions by logging in to your CPF Account on the CPF website. This needs to be done on a regular basis even though the responsibility of making these contributions is on the employer.

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