Key changes to Singapore's CPF: Payouts till age 90, plus pilot contributions for freelancers

The CPF Amendment Bill 2019 was introduced for its Second Reading in Singapore's Parliament yesterday (4 November), announcing two key changes:

1. A review of payout rules for the Retirement Sum Scheme (RSS), implying that RSS payouts will now last till age 90, instead of 95.
2. A pilot Contribute-As-You-Earn Scheme (CAYE) for about 6,000 self-employed persons (SEPs) who provide services to the Government.

The reading was done by Minister for Manpower, Josephine Teo, who stressed that the CPF should continue to evolve to meet the changing needs of locals, and this Bill is part of that evolution. "It will amend the CPF Act in two broad areas. First, to cater to changes in employment practices. Second, to clarify and streamline the administration of the CPF Act."

While concluding, she added: "This is not a one-off task. We will continue to update the CPF system to better serve the changing needs of its members."

Both of the key announcements are detailed below.

Changes to Retirement Sum Scheme (RSS) payouts

How are RSS payouts computed today? RSS payouts have two components:

(a) A base payout computed using the member’s Retirement Account (RA) savings, taking into account the RA base interest of 4% per year earned on these savings. The base payout generally lasts up to 20 years from the payout eligibility age.

(b) A payout duration extension beyond 20 years, provided through Extra Interest (1%) and Additional Extra Interest (another 1%) earned on the member’s RA savings from age 55. RSS payouts are extended up to age 95 at most today.

What has changed after the review?

After receiving feedback from CPF members who felt that a payout duration up to age 95 was too long, the payout duration has been reviewed such that RSS payouts will now last up to age 90 (or another five years, whichever ends later. The 5-year duration applies more to members aged 85 and above), at most, instead of up to age 95 today.

Extra Interest (EI) and Additional Extra Interest (AEI) earned from age 55 until the member starts RSS payouts will now be used to increase payout amount. EI and AEI earned after the member starts payouts will continue to extend payout duration.

Thus, RSS members whose payouts were originally projected to end past age 90 can expect these changes to increase their payout amounts. The computation will also be adjusted so that when members defer their payouts, or make a top-up, they will generally see an increase in their payout amount.

There will be no change to the payout eligibility age, i.e. when members can start their payouts. The payout eligibility age remains at 65 for members born in 1954 and after.

When will the changes take effect? Who is affected?

The changes will take effect in 2020. All RSS members who turn 65 as of 1 July 2020 will be on the new payout rules.

For older members who have already chosen to start their RSS payouts under the current rules, the new payout rules will apply to them from 1 January 2020 if the resulting payout amount is higher than their current payout.

RSS members who are receiving their payouts as of 1 January 2020 will receive a one-time letter from CPF Board informing them whether and how they are affected by the changes, i.e. whether their payout amount is higher or remains the same, and how their payout duration has changed.

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Pilot Contribute-As-You-Earn Scheme

From 1 Jan 2020, the Government will pilot a Contribute-As-You-Earn (CAYE) scheme for a group of about 6,000 self-employed persons (SEPs) who provide services to the Government.

As the service buyer, the Government will help SEPs directly transmit contributions to their MediSave accounts, and pay the rest of the service fee to them.

This is a shift from the current way of doing things, whereby SEPs make contributions to their MediSave account once every year, based on their earnings in the previous year. In a given year, about 60% of SEPs (130,000) do not make their MediSave contributions in full in a lump sum.

Thus, CAYE significantly reduces the risk of not being able to make their contribution in full in a lump sum after the end of the year, by prompting them on smaller and more regular contributions, as and when they receive a payment.

 

The CPF Act will be thus amended to:

1. Allow CPF Board (CPFB) to implement CAYE.
2. Allow CPFB to make refunds in circumstances that arise because of evolving employment practices and are not currently catered for under the CPF Act*.
3. Clarify and streamline the administration of the CPF system, such as regularising CPFB’s current practice, under the Home Protection Scheme, of paying the interest accrued on the outstanding housing loan all the way until the claim is paid.

*For example, employers may structure wage components that are tied to contractual conditions, such as a sign-on bonus with a minimum service period condition.

If the employee does not fulfil the contractual conditions, he has to return the conditional component of his wage and the CPF contributions to the employer. Currently, the CPF Act does not allow CPFB to grant refunds for this repayable component.

With the amendment, employees and employers will have the flexibility to apply for a refund of the CPF portion within one year of having the return the conditional wage.

CAYE infographic / MOMLead image / iStock