Wednesday, 4 October 2023

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

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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