Saturday, May 2, 2020

CPF Can Provide Greater Flexibility To Employers and Employees In Uncertain Times

The Central Provident Fund (CPF) Board is a compulsory comprehensive savings and pension plan for all working Singaporeans and Permanent Residents primarily to ensure that they have enough buffer for their retirement, healthcare, and housing needs in Singapore.

When I started working in Singapore about 12 years ago, I started off as an employment pass and only started to contribute to my CPF account a few years later when my Permanent Resident was approved. 

I was always envious about my Singaporeans colleague who has strong hands to back them up during retirement. As much as the system is not perfect, I found it a perfect saving tools for the majority of the public who simply just cannot save during their employment tenure. 

With CPF, your savings are minimally secured at approximately 37% of your entire monthly pay. The tendency and propensity to spend here is high, so you have a system like CPF to control you. I've personally known a few friends who have close to no savings at all but have a few tens of thousand of grands in their CPF. 

The system is built for these people.

But as much rigid the system is to ensure that citizens have sufficient for their retirement, can they provide more flexibility in unprecedented times like this today? All of us know that Covid-19 is unprecedented tough periods which comes once in an era, so tougher times require higher flexibility on the system and this is where I think the CPF Board could do more.

Deferring Contributions Made By Employer

Even prior to the Circuit Breaker, many employers (especially smaller SMEs) are already struggling to cope with increasing cost of operations including higher rental and higher salaries. 

With many of the businesses shut down over a couple of weeks, it is an almost certainty that most employers will be struggling with cashflow to tide through these testing period.

The government has been very helpful in acknowledging this by providing assistance of co-funding up to 75% of Job Support Scheme to qualified companies that are payable in April and May 2020, but that has still not stopped some companies from retrenching their employees or forcing their employees to go on unpaid leaves. 

These moves suggest that the JSS assistance to companies, while generous, has not been completely invulnerable.

For one, the government cannot save each and every businesses out there as it requires a massive amount of reserves needed just to support them one or two months, let alone if this continues for the next few months.

In this regard, I think the flexibility to allow employers to defer the employer's contribution for a few months will help them. As you know, employer's contribution makes up 17% of almost the salary pay out so it is not a small amount to scoff at.

Most businesses struggle with temporary cashflow more than their underlying problems with demand (which is a longer term thing) so it is imperative that businesses get help with cashflow during these period.

Taking the recent announcement from Malaysia as a benchmark, the EPF Board has announced the launch of the Employer Covid-19Assistance Programme (e-CAP) to allow for SMEs to defer and restructure their EPF contributions obligations for month of Apr, May and Jun 2020.

These contributions are deferred for a period of 3 months, which coincides to period post-lockdown when businesses can resume their normal activities.

Lowering Contributions and Partial Withdrawal From Employees

Employee's contributions of 20% comes in handy when we can survive beyond 55 eventually. 

But in trying times like today, when most people are trying to survive on forced unpaid leaves or face retrenchment, the CPF seems like miles away in terms of usefulness.

For one, most who needed instant cashflow would have deferred their mortgage payments by now, which means there won't be much Ordinary Account (OA) deductions for a while. 

The Special Account (SA) is even further away. 

Apart from accumulating a good interest rate of 4% annually, it simply does not do good enough justice during trying times like today. The SA is restricted to be used for many things, even today, and is almost certainly "useless" that we can only look but not touch in survival mode today.

There are ways that the CPF Board can be more flexible in uncertain moments like this.

First, acknowledge that trying times like now is a harder survival than when folks reach retirement age and beyond. 

We are talking about people who are totally out of job, no income and have to go around asking for money just for basic survival expenses such as utilities and groceries.

In order to help these batch of people, the CPF Board should allow them to tap onto their reserves by a certain amount just like how the government themselves are tapping onto their own reserves.

This will not only help them to survive but also gives confidence that there are reserves that they can tap on in trying times. After all, we are talking about each and every own reserves that they have built up over the good years. So it's really simply left pocket right pocket in the books.

As a reference, EPF has allowed its members to withdraw up to Rm500/month from Apr 2020 to Mar 2021 (12 months period), subject to the approved withdrawal amount.

If that is not an option, then make an adjustment to the contribution amount that employees have to contribute to their retirement account every month. Perhaps we can look to lowering the contribution figures from 20% to say 10% for the next 6 months to enable more take home pay to tide through this period.


This is by no means saying that the government has not done enough for its people.

In fact, based on the comparative level of support across other countries, I think the amount of support the government has provided to the businesses and its people is unparalled.

But the growing frustrations regarding CPF from its people will continue to remain at the same level prior to the Covid, if not more, especially if they can't render any form of assistance during this period.

After all, many of us will look at the amount of our retirement account accumulating but amount of savings going down in opposite direction.

Thanks for reading.
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  2. Hi B,

    Before 2000, S'pore had quite a few lowerings of employer CPF contribution. I started working in the early 1990s with 40% total contribution rate. (In those days POSB interest was 4% and FDs can be 6% *drool* --- older people & retirees simply "invested" in FDs LOL)

    After that, employer CPF rates went from 20% to 10% to 12% to 16% to 13%, and gradually to now 17%. Click this chart to see CPF rates from 1985-2013

    I'm fully expecting govt to slash employer CPF rates by end of this year i.e. wef 2021.

    As for employee CPF rates, I'm not so sure govt will do anything. The last time they lowered was back in 1986, from 25% to 20%. And it has remained at 20% ever since.

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  4. The government has not done enough for its people.
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