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03 Feb 2019
Ministry of Manpower
Suggestion View - 352
CPF contribution rate for older workers

The CPF contribution rate for workers 55 years and below is 37%. The worker contribute 20% and the employer 17%. 

For older workers, the contribution rate dropped to 26% (between 55 to 60), 16.5% (between 60 to 65) and 12.5% (above 65%). The reduction applies to employers and workers. 

This table shows the current contribution rates.

The govt has now formed a committee to review the contribution rate. The goal is to increase the contribution rate so that the older workers have adequate savings for retirement. 

Should the contribution rate for the older workers be the same as for the younger workers?

I give my views here.

First, I strongly hold the view that the contribution rate should be the same for all workers regardless of age. Apart from being "fair" to the older workers, it will save a lot of work in calculating the contribution which changes according to age band.

However, we still need to address the issue of higher cost to the employers. Older workers are considered to be less cost effective than younger workers. They earn higher salaries and become less productive when they get older. 

There is already the mechanism for employers to stop salary increases for older workers or even to adjust the salaries downward on their re-employment. Hence there is no need to cut their CPF contribution rate. 

However, if there is a change now to apply the increase the contribution rate for older workers to the same level as the younger workers, some businesses which are not operating profitably may suffer a cash flow problem. There is a case for the government to give a wage subsidy to the affected businesses to cushion the impact of the higher contribution rate. 

For example, the wage subsidy could be 7% of the wages of older workers. This subsidy can be reduced over time. 

What about the impact on the net take home pay of the workers? This is a more tricky question. Indeed, the workers will contribute more to the CPF and receive a lower take home pay.

I suggest that the worker should be allowed to opt for a lower contribution rate (say 10% or 15%)  after passing age 55. This lower rate is personal to the worker.  This is the rate that the older worker can choose according to his or her personal financial situation. It should not be a rate set by the CPF regulation.

I welcome the move to streamline the CPF contribution for workers and to avoid the different contribution rate set by regulation. 

I hope that my suggestions can be considered for implementation. It will address the issues faced by employers and workers. 

Tan Kin Lian


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