CPF Contribution & Retirement Age Changes: 7 Facts Singaporeans Should Know
I am seriously wondering if I’ve recently been abducted by aliens and implanted in an alternate universe, because, all of a sudden, every news channel in Singapore is talking about delaying retirement like it’s some kind of desirable thing.
Last I checked, there are tons of Singaporeans who labour way into old age not because they really love wiping down hawker centre tables or learning to use Google’s G Suite, but because bo pian, not enough money to retire what.
Fortunately, the government has swooped with a genius 2-prong solution, announced during National Day Rally 2019: Raise the retirement age, and increase CPF contributions for older workers.
National Day Rally 2019 — What are the CPF & retirement age changes?
In summary, here are the changes announced by PM Lee during the National Day Rally:
|Current||2021 / 2022*||By 2030|
|Retirement age||62 years old||63 years old||65 years old|
|Re-employment age||67 years old||68 years old||70 years old|
|CPF contribution (55 to 60 years old)||26%||28%||37%|
|CPF contribution (60 to 65 years old)||16.5%||18.5%||26%|
|CPF contribution (65 to 70 years old)||12.5%||14%||16.5%|
* CPF contribution changes will be effective 1 Jan 2021, while retirement age changes will take on by 1 Jul 2022.
In their simplest form, the labour changes are in just 2 key areas: Retirement (and re-employment) age, and CPF contribution rates for workers aged 55 and above.
But both changes are gradual. The earliest you’ll see changes is about 1+ years from now, which is when the new CPF contributions increase slightly. There will be several more increments between 2021 and 2030 (which is when the changes will be implemented in full).
In other words, if you’re now at retirement age, you won’t really benefit from the new policies. However, if you’re a bit younger, say in your 40s or 50s, these changes will definitely impact you.
Here are 7 important facts about the new changes, based on information from the official MOM website.
Fact 1: From 2022, the MOM retirement age will slowly increase from 62 to 65 years old
Right now, the Ministry of Manpower’s official retirement age is 62 years old. This will increase to 63 years old in 2022, and eventually to 65 years old by 2030.
But don’t be alarmed by the idea of a retirement age. It doesn’t mean that you will be locked out of Microsoft Outlook and asked to pack your desk in a cardboard box on your 62nd birthday.
What it means is that, before 62, your employer cannot force you to retire from your workplace. Legally, anyway. If anyone even suggests such a thing, please report them to MOM.
Of course, that doesn’t stop some “young punk” boss from making inappropriate remarks about dinosaurs at work. If that’s the case, then you die-die must hang in there. Don’t let the terrorists win.
Oh yeah, during the National Day Rally, Lee Hsien Loong also took great pains to emphasise that there is no change to the CPF withdrawal / payout ages. You can still withdraw money from your CPF RA at age 55, and start receiving CPF LIFE payouts from age 65.
Fact 2: Your employer is obliged to offer you employment up to the re-employment age
Even after you have reached MOM’s retirement age, you can continue to work if you want to. This is completely normal, legal and in fact encouraged, all the way up to the MOM re-employment age.
The re-employment age is currently 67 years old. Just like the retirement age, it will increase to 68 years old by 2022, and eventually become 70 years old by 2030.
A lot of numbers right? Don’t worry, all you need to know is MOM retirement age + 5 years = MOM re-employment age.
It simply means that after you hit the official retirement age, your employer must offer re-employment opportunities for 5 more years.
What typically happens is, when you hit the retirement age, you will be offered a contract for the same or similar role, possibly with a different salary and compensation package. Some employers may offer a shorter (e.g. 1-year) contract which they then review and renew annually.
If your employer really really cannot offer you a position, they will have to get another company to offer you a re-employment contract. You can choose to turn down the new employer if you want. If you do that, you will be entitled to a payout called the Employment Assistance Payment. See more details on re-employment here.
Fact 3: CPF contribution rates will be raised from 1 Jan 2021 onwards
So that’s retirement and re-employment age covered. Meanwhile, the other big change is to CPF contributions for workers aged above 55 years old.
Currently, your total CPF contribution (i.e. from both employee + employer) is 37% of your monthly salary up until you reach age 55. After age 55, it drops to 26%. Every 5 years until age 65, the CPF contribution amount will drop.
With the new CPF contribution changes, the government is trying to delay the drop in CPF by 5 years.
One way to look at this it to think of the different CPF contribution amounts in tiers. Each tier is tied to an age group, and the ultimate goal by 2030 is to add 5 years to each age group:
|CPF contribution tier||Age group (2019)||Age group (2030)|
|37% (maximum)||Up to 55 years old||Up to 60 years old|
|26%||55 to 60 years old||60 to 65 years old|
|16.5%||60 to 65 years old||65 to 70 years old|
|12.5% (minimum)||Above 65 years old||Above 70 years old|
Eventually, we’ll reach a point where a 60-year-old worker gets the full CPF contribution that a 55-year-old worker currently gets.
However, the changes will be incremental so as not to freak everyone out. The first change is on 1 Jan 2021, which is when the CPF contributions will increase slightly for every age group from 55 to 70 years old:
|Employee’s age||Current CPF contribution||CPF contribution from 1 Jan 2021|
|Up to 55 years old||37%||No change|
|55 to 60 years old||26%||28%|
|60 to 65 years old||16.5%||18.5%|
|65 to 70 years old||12.5%||14%|
|Above 70 years old||12.5%||No change|
The government has not released the subsequent increments, so we’ll just have to wait and see.
Fact 4: CPF contribution increases are shared between employer + employee
To recap, CPF contributions are made by both employer and employee. Hopefully you knew this already; if not, here’s a quick summary of who contributes what right now (pre-CPF changes):
|Employee’s age||CPF contribution (employer)||CPF contribution (employee)||Total CPF contribution rate|
|Up to 55 years old||17%||20%||17% + 20% = 37%|
|55 to 60 years old||13%||13%||13% + 13% = 26%|
|60 to 65 years old||9%||7.5%||9% + 7.5% = 16.5%|
|Above 65 years old||7.5%||5%||7.5% + 5% = 12.5%|
But when the total CPF contribution increases in 2021, exactly where will the increment come from!?
Man, I don’t envy the government for having to decide. If the increment comes from the employee, then a whole bunch of senior workers will get a significant dent in their take-home pay. Next election no chance liao.
Yet if the increment comes from the employers, then that makes employing older workers even more expensive… It almost makes employers want to get rid of them…
So in the end, it was decided that it’s best if everyone “suffers” together. The increments will be split between employer and employee.
For example, for the 55 to 60 age group, both employer and employee will increase their respective contributions from 13% to 14%, i.e. each party contributes an extra 1%.
At each stage of the CPF contribution increment, both employee and employer will only be asked to contribute an extra 0.5% to 1% each, so as to minimise disruption.
Fact 5: The extra CPF contributions will go straight into your CPF SA (not OA!)
Before you start planning to unlock all that extra cash in your CPF with your next property investment, you should know that the CPF contribution increments will go straight into your SA (Special Account), bypassing your OA totally.
Well, it shouldn’t surprise you that some money from your CPF contributions go into your SA each month. Currently, there’s a standard allocation of funds for each age group, and here’s what it looks like right now:
|Employee’s age||CPF (OA)||CPF (SA)||CPF (Medisave)|
|55 to 60 years old||12%||3.5%||10.5%|
|60 to 65 years old||3.5%||2.5%||10.5%|
|Above 65 years old||1%||1%||10.5%|
So when the CPF contributions for the 55 to 60 years old age group increases by 2 percentage points in 2021, the allocation for your CPF (SA) jumps up from the current 3.5% to 5.5%. There is no change to anything else.
This is because the need to build up your retirement savings is very urgent at this stage. To maximise its growth, the government will channel your funds to the SA, which has a much higher interest rate (4% a year, compared to 2.5% for the OA).
This also means you cannot use the CPF contribution increment for things like housing or education, which you can do with your OA balance. You can, however, use it to invest in a limited range of instruments, under the CPFIS-SA scheme.
It’s not possible to move your CPF SA balance into your OA, but take heart: It’ll be just a few more years until you reach the first CPF payout age of 65 years old (which has not changed), so you won’t have to wait for decades before you see your money again.
Fact 6: Employers are encouraged to restructure the workplace
In addition to recommending increasing the retirement/re-employment ages and CPF contributions for older workers, the Tripartite Workgroup on Older Workers also made several other suggestions, which can be read in full on the MOM website.
While this point wasn’t covered during the National Day Rally, one of the key recommendations was for businesses to restructure their organisations in the light of an ageing workforce.
Now, the word “restructuring” usually rings alarm bells for older workers, but in this case, companies are supposed to restructure to be more inclusive of senior staff. Some recommendations as follows.
Career planning & training: The Tripartite Workgroup recommends that companies take the lead in upskilling older employees for career development. They should also organise structured career planning sessions as their employees reach certain age milestones, e.g. age 45, age 55.
Organisational & systemic redesign: While it is fairly common to redesign the job scopes of older employees, the Tripartite Workgroup also calls for a wider redesign of the workplace to be more senior-friendly, such as by restructuring the organisation.
Part-time re-employment: Companies are encouraged to offer more part-time re-employment opportunities to older workers who wish to semi-retire.
Restructure medical benefits: Since older workers’ healthcare can be costly for the company, the Tripartite Workgroup suggests that employers rework their medical benefits and streamline areas that are already covered by MediShield Life. This allows companies to reduce the cost of employing older staff.
Fact 7: Most of these changes will be at the employer’s cost…
Older workers may complain about shrinking take-home paycheques all they like, but the fact is that the new MOM and CPF rules greatly favour the ageing workforce.
That’s because — apart from the slight increases in CPF contributions on the employee’s part — it’s employers who bear most of the costs of the changes.
When the MOM retirement and re-employment ages increase, your employer has to keep you on the payroll longer, no matter how much they might want to cut costs by giving your job to a fresh grad.
When the CPF contribution rates increase, your employer will have to fork out a lot more money than you do. The increase may be small from employee to employee, but if a company is hiring a significant workforce of older workers, the total amount can be really quite significant.
Finally, restructuring the workplace and work policies will take significant man-hours to plan and implement, and that’s not even factoring in the monetary cost of doing so.
Make no mistake: The government’s recommendations to make life better for older employees will be expensive for employers, which may seriously worry business owners, especially with a looming recession.
The government has agreed to offer a one-off wage offset scheme to businesses to help them cope with the increased CPF contributions, but there are no details on when or how much it is yet.
What do you think of the retirement age & CPF contribution changes? Tell us in the comments.