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CPF – F1 or F9 : Poor get less % than the rich?

Posted by theonlinecitizen on July 2, 2007

By Leong Sze Hian

I REFER to NTUC’s proposal to reduce the CPF contribution for lower-income workers and put 40 per cent of the Workfare bonus to CPF.

On the one hand, we are putting more of the Workfare Bonus cash payout to worker’s CPF, but on the other, we are cutting their CPF contribution so that they can have more cash for living expenses.

Since both Workfare and the CPF contribution cut are for lower-income workers, are these not contradictory?

For example, if the employee’s CPF contribution is lowered from 20 to 10 per cent, and the proposed 40 per cent of Workfare is channelled to CPF, for a worker earning $600 a month, his or her take-home pay would increase by only $20 a month ($600 multiplied by 10 per cent, minus Workfare – $1,200 multiplied by 40 per cent, divided 12).

This is an increase in disposable cashflow of only 3.3 per cent. In contrast, if the Workfare bonus is left unchanged as a fully cash payout, the increase in cashflow would be $60, which is three times more. For those whose monthly HDB flat mortgage repayment is $120 or more, the CPF and Workfare changes may not improve their cash flow at all, as the net cash disposable income of $100 or lower would be less than the existing $100 Workfare cash per month.

It may also be counter-productive to use Workfare to top up workers’ CPF, and then pay them a lower interest when they retire.

In the past, those who had less than the CPF Minimum Sum (MS), and chose not to withdraw half their account balance allowed, were paid 4 per cent on their entire CPF account balance. Now, those who turn 55 with less than the MS, currently $94,600, who choose not to withdraw half of their CPF balance, as the other half will be transferred to the Retirement Account (RA) which earns 4 per cent, are now only paid 2.5 per cent.

Why is it that Singaporeans are not allowed to keep as much of their CPF as they like, to earn 4 per cent interest, when they retire? For richer Singaporeans who have more than double the MS, which is $189,200, they will be paid 4 per cent on the entire MS of $94,600. Hence, the current policy pays the rich more and the poor less.

To further illustrate this unfairness, a rich man with $189,200 will get 4 per cent on $94,600, whereas a poor man with $94,600 will get 4 per cent on $47,300 and only 2.5 per cent on the other $47,300.

According to the Department of Statistics’ (DOS) General Household Survey 2005 (GHS), there were 106,384 households with no working persons, presumably most of which are retirees. With the rapidly ageing population, Singaporeans who are risk adverse or not investment savvy, may have a dire need for their CPF after the age of 55 to earn 4 instead of 2.5 per cent.

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7 Responses to “CPF – F1 or F9 : Poor get less % than the rich?”

  1. My suggestion is to deduct from S$1001 onwards. Those below S$1000 income should not be deducted. This is about the policy in 1968. Then S$200 income did not be deducted for CPF. S$200 then is now about S$1000.
    I also advocate a maximum contribution to S$500,000. Many who earn high salary now might have contributed more than S$1 million. These are people who are highly educated and rich businessmen/women. They should know how to manage their money.

    By manipulating the CPF policy, the government is indulging into the lives of the people. This is like saying: ‘all Singaporeans are stupid except the PAP’.

    So if you are smart, you don’t vote for them.

  2. Yan Chee Keong said

    Kew Kah Fatt, CPF contribution:
    (1) Maximum contribution for the private sector is calculated based on a salary ceiling of $4,500 for both the employer and the employee.

    (2) Maximum contribution for Non-Pensionable Employees in Government Ministries and Statutory Bodies & Aided Schools are calculated based on a salary ceiling of $4,500 for both the employer and the employee.

    (3) Maximum contribution for Pensionable Employees in Government Ministries and Statutory Bodies & Aided Schools groups are calculated based on a salary ceiling of $6,000 for both the employer and the employee.

    No contribution of more than 1 million, check this out at http://www.cpf.gov.sg you need to read more. LOL…

  3. Yan Chee Keong,

    I based on report of Chia Shi Teck that he used over S$700,000 CPF money for his apartment. This is what I don’t agree with the policy of the rich putting too much money into CPF. S$500,000 is good enough for them because they are the kiasu people, therefore they will buy more insurance coverage for themselves and their family members.
    I am not interested on the salary ceiling for contribution. What I suggested is no contribution for people earning below S$1,000. Only their employers have to contribute their part. This is somewhat like in 1968 and before. I started work in 1968 and my initial pay was S$190. I did not have to contribute to CPF. My job then was a temporary clerical officer in MOE Exam department.

  4. Adrian Lim said

    “To further illustrate this unfairness, a rich man with $189,200 will get 4 per cent on $94,600, whereas a poor man with $94,600 will get 4 per cent on $47,300 and only 2.5 per cent on the other $47,300.”

    Pardon my ignorance, I have read through cpf website and I have not come across any ruling that give rise to the abovementioned circumstances. Could you please enlighten me on the rules which you have read?

  5. Leong Sze Hian said

    I have also not been able to find this information on the web site. You may have to find people whose CPF statements will show this difference. I had a letter published in the newspaper on this issue, and the reply also did not answer my question.

    Cheers

    Leong Sze Hian

  6. Anon said

    Last year (2006), I collected a portion of my miserly CPF Money and left a tiny portion of the withdrawable amount with the Board hoping to prevent myself from ‘misusing it as well as to earn the 4% interest rate. The Officer who attended to me repeated the withdrawal arrangements before I left; that was, I have transferred the withdrawable balance into the so called Retirement Account which earn 4% interest and can be withdraw from age 62 onwards. However, on my birthday this year(March 2007), I received a cheque from CPF for the withdrawable balance plus the interest accrued at 2.5%. I went to the CPF Tampines Branch to verify and was told that I have arranged for withdrawal according to the Records in the CPF Computer System. As the money came in handy because I had gambled (shame) away the initial sum and also because the Balanced Sum was negligible, I ended my case. Ultimately it was also that I deemed it futile to pursue the Matter and gave up. Just for info of readers.

  7. sianz said

    CPF is all bullshit…increasing the age of withdrawal…medisave …all crap.

    increasing age?… ppl are living longer den they expected and able to withdraw them SO? they extend the age n if u pass away b4 the withdrawal age ..who gets to keep the $$?…ur kids?…NO!!!…even if the $$ is transfered to ur kids acc…the $$ will still be wif CPF

    Medisave?..i have to contribute cash $$ to medisave every mth but when i wan to use them when im sick or sumthing…..OH!! u can oni use medisave to pay certain amount and the rest nids to be settled in cash. WTF!!!! is’nt it REAL cash that i deposit into medisave. We contribute to medisave for medical needs and wad happens? If i have to go looking for cash for medical bills when i have enuff to pay in my medisave(But cant use full) y the hell shld i contribute to them? might as well save them in a bank whereby i can withdraw any amount to settle full medical bills.

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