Updating the CPF System to Meet Changing Needs

As part of a pilot scheme, 6,000 self-employed persons with Government clients will have their MediSave contributions transmitted directly into their accounts.

Called the Contribute-As-You Earn (CAYE), the scheme will come into effect on 1 January 2020.

Parliamentarians passed an amendment to the CPF Act on 4 November 2019 to allow the CPF Board to implement CAYE.

According to the Ministry of Manpower (MOM), some 130,000 of those self-employed are unable to make their full MediSave contributions as a lump sum amount at the end of every year. The number makes up about 60 per cent of all those who are self-employed.

With CAYE, self-employed persons will be able to keep up with their MediSave obligations through smaller and more regular contributions, as and when they receive payment, said MOM.

Comparing Current and CAYE

Let’s take a closer look at how this pilot scheme will work, using self-employed soccer coach Sam, 48, as an example.

A school under the Education Ministry engages Sam for $100 per coaching session. The school currently pays him the full amount after every session.

Over one year, Sam made $30,000 from both Government and non-government coaching jobs. However, he didn’t contribute anything to his MediSave account.

Given his age, Sam needs to contribute 10 per cent of his income to his MediSave the next year, which amounts to $3,000. He can either pay it as a lump sum or by instalments.

However, under CAYE, the school will pay Sam $90 and transmit $10 (10 per cent) to his MediSave, instead of giving him the full $100. And each time Sam earns his income, a small contribution will be made to his MediSave account.

If in that one year, Sam’s Government clients transfer a total of $1,300 into his MediSave, he would only need to contribute the remaining $1,700 instead of $3,000.

In her parliamentary speech, Manpower Minister Josephine Teo emphasised that CAYE is a pilot scheme and that the Government hasn’t decided to extend it to companies of intermediaries.

Instead, she suggested allowing the Government to try the scheme first to see how well it works.

While on the Topic of CPF

MOM and the CPF Board have also decided to lower the Retirement Sum Scheme (RSS) to the age of 90, instead of the current 95. This comes after CPF members gave feedback that the payout duration of up to age 95 was too long.

With the lowered age cap, the extra interest for the five years after 90 will now be recalculated into RSS members’ new monthly payout.

The RSS is the primary retirement payout scheme for CPF members who were born before 1958. It kicks in when they turn 65.

Who Will It Affect?

The new payout rules will automatically apply to members who turn 65 from 1 July 2020.

In her speech, Mrs Teo emphasised that despite the change on how the payouts are computed, there will be no changes to when members can start their payouts.

Today, 160,000 people are receiving RSS payouts under the current rules.

Of that number, some 60,000 older RSS members will be eligible for higher payouts from 1 January 2020 under the new rules.

For those receiving their payouts from 1 January 2020, CPF will send a letter detailing how they are affected by the changes.

“All RSS members who are currently receiving payouts will get either higher payouts or the same payouts,” said Mrs Teo.

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