CPF Changes and Workfare for Low Wage Workers

MOM restructures the CPF system and institutionalises Workfare to enable all Singaporeans to benefit from economic growth

With the economy doing well, it is timely to retune the balance of our CPF contribution rates towards the upper end of the 30-36% range. A modest CPF increase will not erode our economic competitiveness and will allow us to better meet the needs of an ageing population. To enable our workers to benefit from economic growth and to help them build up their CPF savings, effective 1 July 2007 the Government will raise the employer's CPF contribution rate by 1.5 percentage points.

2.   This CPF increase will not apply for older low wage workers who are affected by wage stagnation and structural unemployment as a result of global competition. For this group, a different solution is required. Instead of raising their employer CPF contribution rates, we will instead reduce their CPF contributions: a reduction in employer CPF contributions to help improve their employability and a reduction in employee CPF contributions to increase their take-home pay. To complement these CPF changes, Government will implement a new Workfare Income Supplement Scheme (WIS) which will make up for the reductions in their CPF contributions.

3.   The WIS and the 2007 CPF changes will provide more incentives for older low wage workers to work, and for employers to hire them.

Changes to CPF System

4.   Effective 1 July 2007, the following changes will be made to the CPF system:

(i) Increase Employer CPF Contribution Rate by 1.5% Points

5.   Workers earning more than $1,500 a month or who are 35 years or younger will have the full 1.5% point increase in the employer's CPF contribution rate. Workers above 35 years earning more than  $1,200 will have partial increases, gradually stepped up to the 1.5% point increase at $1,500. 1 percentage point will go into the worker's Ordinary Account (OA) and 0.5 percentage point will go into the Medisave Account (MA). This will cost employers $600m more per year, an increase of 0.7% of the total wage bill or 0.3% of GDP. The CPF increases will help our ageing population build up their retirement adequacy. It will also help more workers pay for their mortgages and better provide for their healthcare needs. As a result, for a young worker earning $1,700 at age 21¹ , the 1.5% point increase in contribution rate will increase his CPF balances at age 55 by a projected $17,900 or 12% over his lifetime. For an older worker aged 45 years and earning $3,000, it will increase his CPF balances at age 55 by a projected $6,000 or 6%.

(ii) Increase Take-Home Pay of Low-Wage Workers by Lowering Employee CPF Contribution

6.   Workers who earn $1,500 or less per month will now pay less than full rates for their employee CPF contributions applicable to their age group. By reducing the employee CPF contribution rates for low wage workers who earn between $500 and $1,500 per month, we will increase their take-home pay. Please refer to Table 1 at Annex A.

(iii) Increase Employability of Older Low-Wage Workers by Lowering Employer CPF Contribution

7.   Employers will now pay less than full rates in employer CPF contributions for older workers who earn $1,500 or less per month. By lowering the employer CPF contribution rates, we lower wage costs and improve the employability of older, low wage workers. Please refer to Table 2 at Annex A.

Changes to Workfare

(i) New Workfare Income Supplement Scheme for Older Low-Wage Workers

8.   The CPF contributions for low wage workers will be reduced as a result of the reductions to their employee and employer contribution rates. The government will in tandem give this group Workfare income supplements, mainly into their CPF accounts, and so help them to build up their savings for future needs.  The WIS payouts will, in general, more than offset the reduction in CPF contributions for older, low wage workers.

9.   The principal target group of low wage workers comprise older, full time workers aged above 45 years who earn $1,000 or less. They will receive the highest WIS benefits, up to a maximum annual payout of $1,200. However, we will extend the WIS benefits to a wider group – to those above 35 years who earn $1,500 or less - but at a lower rate.

10.   The WIS quantum will depend on age with the lower income and older workers getting more (please refer to Table 4 at Annex B). It will be paid out in a cash-to-CPF ratio of 1 : 2.5.  A larger proportion will be paid into the CPF to help low wage workers better provide for their future needs.

11.  The WIS is conditional on regular work and will be paid out twice a year. To qualify, beneficiaries must:

• Be a Singapore Citizen; and
• Have a monthly salary of $1,500 or less; and
• Be above 35 years of age; and
• Stay in a property with an Annual Value of not more than $10,000; and
• Have worked at least three months in any six month period in the calendar year for half the payout, or at least six months in the calendar year for the full payout.

12.   In addition, contributions to CPF will be a prerequisite for receiving WIS benefits. The WIS will be administered through the CPF system to ensure proper verification of work and income

(ii) WIS for Self-Employed Persons

13.   Low wage self-employed persons (SEPs) will be required to contribute into their Medisave Accounts (MA) in order to receive WIS. This is because they need to build up their MA to provide for their future healthcare needs. Like formal employees, the principle of co-contribution into their CPF will apply.  To encourage low-income self-employed persons to contribute to Medisave, we will reduce their contribution rate to one-third of the full Medisave rates. Please refer to Table 3 in Annex A for details on the changes to the SEP contribution rates. Those who qualify for Workfare will receive from the Government two-thirds the amount of the WIS for employees. Please refer to Table 5 in Annex B for details on the WIS benefits for the self-employed. This will be paid into their Medisave.

(iii) WIS for Informal Workers

14.   Informal workers will also receive the same WIS benefits as self-employed persons, if they work and contribute to their Medisave like self-employed persons. We want to bring as many informal workers as possible into the CPF system so that they can build up savings for their future needs. Under the CPF Act, so long as a worker works regularly for any employer, that employer is liable to pay their CPF.  As we institutionalise Workfare, MOM and CFB will step up enforcement to ensure that payment for CPF is complied with. Apart from Medisave contributions, self-employed persons and informal workers will also have to declare to the CPF Board that they are working.

Overall Impact of the WIS and CPF Changes

15.   The WIS is expected to benefit 438,000 Singaporeans², and cost about $400m per year. The numbers are likely to go up over time as more individuals are incentivised to join the workforce and contribute to CPF. We will review the WIS Scheme after three years and adjust it to better achieve our objectives. Older low wage workers will benefit from these changes to increase their take-home pay, make them more employable to employers and help build up their CPF savings. For an illustration of the impact of WIS and CPF changes on older, low wage workers, please refer to Examples 6.1-6.4 at Annex C.

The following lists how age and income boundaries are defined in the Annexes.

• Above 35 years – 45 years:
  A person who is at least one day past his 35th birthday (i.e. 35 years old + 1 day up to the person's 45th birthday
• 50 years or less:
  A person at his 50th birthday or has yet to reach his 50th birthday.
• Above 45 years:
  A person who is at least one day past his 45th birthday (i.e. 45 years old + 1 day)
• < $500:
  Exactly $500 or less.
• > $500 - $1,500:
  From $500.01 up to exactly $1,500.
• More than $1,500:
  From $1,500.01 and above.

Net Trade Income:
"Net trade income" is your gross trade income minus all allowable business expenses, capital allowances and trade losses as determined by the Inland Revenue Authority of Singapore (IRAS). It excludes income from share dividends, employment and interest from savings.

¹ Based on the Labour Force Survey, the median income of full time employed residents is $2,170.

² Estimated numbers by imposing the Housing AV criterion.

Contact Information

Queries on the CPF changes and WIS can be addressed to CPF Board through the following channels:

• Email at wis@cpf.gov.sg
• Hotline number at 1800-2222-888
• Speak to CPF service staff at any CPF Service Centre