Increased CPF salary ceiling to cost businesses about $500 million a year: Tan See Leng
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Employers’ business costs are likely to remain manageable, as the increase will be spread out over four years, said Manpower Minister Tan See Leng.
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SINGAPORE - Singapore businesses will fork out about $500 million more a year in Central Provident Fund (CPF) contributions for employees, after the salary ceiling for contributions increases from $6,000 to $8,000
As the increase in the ceiling will be spread out over four years, starting with a hike of $300 in 2023, employers’ business costs are likely to remain manageable, said Minister for Manpower Tan See Leng during the debate on his ministry’s budget on Wednesday.
Not all workers are affected by the maximum increase of $2,000, and the annual salary ceiling also remains unchanged at $102,000, further limiting the impact on business costs, added Dr Tan.
Responding to Workers’ Party MP Louis Chua (Sengkang GRC), who mooted a review of interest rates of the CPF Ordinary Account, Dr Tan acknowledged that the account’s pegged interest rates have remained relatively stable.
This is even as the yields of other market instruments of comparable risk and duration have increased amid an elevated interest rate environment, he said.
“We are watching this interest rate environment very closely to ensure that the CPF interest rate pegs remain relevant in the prevailing operating environment while taking into consideration the longer-term outlook.”
But, he added, the Government has consistently paid a fair interest rate even during the low interest-rate environment of the last decade, with the Ordinary Account’s 2.5 per cent minimum interest rate exceeding the rate it is pegged to for over 20 years, even during the global financial crisis.
In response to a similar question from Mr Saktiandi Supaat (Bishan-Toa Payoh GRC), Dr Tan said the interest rate for the Special Account is pegged to the 12-month average yield of 10-year Singapore Government Securities plus 1 per cent, and is reviewed quarterly.
“This helps to smoothen the short-term market fluctuations on the interest rates,” he said.
“If the pegged rate exceeds the floor rate of 4 per cent, members will correspondingly earn the higher interest rates on their CPF savings.”
Moreover, the Government will continue to pay 1 percentage point of extra interest on the first $60,000 of the total CPF balance, including the first $20,000 of the Ordinary Account, he noted.
Dr Tan also said that those aged 55 and above receive 2 percentage points of extra interest on the first $30,000 of their total balance, and 1 percentage point on the next $30,000.
Mr Chua also asked whether CPF account holders could be offered more direct means to earn higher investment returns than the CPF Investment Scheme. To this, Dr Tan said a higher rate of returns appears easy with the benefit of hindsight.
However, higher returns also carry a higher risk, and a greater potential for losses, he said.
Dr Tan also said the Government is considering reallocating a greater proportion of CPF contributions to younger account holders’ Special Account, a suggestion mooted by Mr Saktiandi, Leader of the Opposition Pritam Singh and Ms Cheryl Chan (East Coast GRC).
He added that under the Forward Singapore consultation exercise, the Government is taking a deeper look at what should be done to improve the retirement adequacy of Singaporeans, young and old, via shoring up the CPF system and other means.
“Ultimately, we want to strengthen our support such that as long as you work, as long as you contribute consistently to your CPF, you will be able to meet your basic retirement needs.”
