Singapore businesses facing higher CPF contributions

It's time to brace for an additional 3 to 4.5% points in savings contributions for workers aged 50 to 55.

OCBC says the additional contribution will be in line with government intentions to raise contributions to Central Provident Fund or CPF, a savings scheme designed to help finance the healthcare, housing and other expenses of Singaporean retirees.

The 50 to 55 age cohort lags behind the under 50 age group in terms of contribution rate, and the adjustment should bring them closer in line.

The 55 to 66 age group may also receive an upward nudge but the over 60 age cohort is expected to stay the same for now.

Here's more from OCBC:

Older workers may get CPF wish, according to PM Lee. In a closed-door event last Thursday, PM Lee said the CPF contribution rates for workers over 50 years must rise, but gradually and with due concern on business costs and employability, according to a Business Times report dated 9 Feb. Last July, the labour movement had called for the mandatory fall in employers’ CPF contribution rates to be pushed back, saying that age 50 is too early as workers may not save enough for housing, medical and retirement needs now that they are living longer. NTUC also said a higher CPF rate will coax older workers to continue working, in line with the Re-Employment Act which became effective on 1 January.

Where are the likely adjustments? Eyeballing the historical employee and employer’ CPF contribution rates, the 29% combined CPF contribution rate for workers aged 50-55 years is still 7% points below the peak of 36% seen in 2003, of which employers currently contribute 11.5% (high was 16% in 2002) and employees contribute 18% (high was 20% in 2004). In contrast, the combined CPF contribution rates for those aged above 55 years are currently at their highest in over a decade, while that for those aged up to 50 years is only 1% point away from the 36% seen back in 2033.

So in terms of closing the potential gaps, doing so for the age-group of 50-55 years may be the logical place to start. To bridge the gap between those aged below and above 50 years, a gradual increment of say 3-4.5% points staggered over 2-3 years looks plausible. Employers may bear the bulk of this adjustment, and this would result in an eventual total contribution rate of between 32-33.5%, which would bring it closer to the 35% rate for those aged below 50 years. However, the reaction from businesses already struggling with the tight labour market and still elevated cost environment in the current slowdown may be mixed.

While the CPF contribution rates for the workers aged above 55-60 years may also be adjusted in tandem, we suspect that those aged above 60 are unlikely to be tampered with for now. Given that the FY2012 Budget is due on 17 February, it could also be an opportune time to do the adjustments if any.