CPF Changes

The CPF rate will be cut from 36 to 33 percent from October 1, and CPF rates will range in future from 30 to 36 percent, depending on economic conditions.

Although this will have a major impact on the financial plans of many Singaporeans, it’s a painful but necessary change the government has to implement. A reduction in the employer’s contribution rate to the CPF effectively translates to a mandatory wage cut and will help to reduce the labour costs for companies. This aims to increase the competitiveness of companies in Singapore and attract more foreign investments.

However, changes to the CPF have more far reaching consequences than cost savings for the companies because its primary role is to provide retirement funds for Singaporeans.

DPM Lee Hsien Loong revealed in his parliamentary statement that nearly 38 percent of the 577,000 CPF members, who use CPF for mortgages, find that their monthly CPF contributions are not enough to cover their monthly mortgage payments. And the number will increase by 76,000 after the CPF cut.

The statistics are worrisome. Since most homeowners have to service their mortgages for 25 to 30 years, they’ll most probably pay their last installment just before their retirement. This means more than a third of Singaporeans have little or no savings in their CPF accounts when they retire. In fact, a research paper reported that approximately one-fifth of its respondents have less than $10,000 in their CPF account at age 55. The CPF would have failed its primary objective of ensuring that Singaporeans are financially independent after retirement if many retirees have to depend on social welfare to survive.

The government has announced a $1 billion help package for individuals and businesses to cushion the impact of slow growth and the CPF changes. This alone will not make Singaporeans financially self-sufficient after retirement. More importantly, we have to change our mindsets.

Is the Singapore Dream still worth chasing after, if achieving the 5 C’s (Career, Condominium, Car, Credit Card and Cash) means a lifetime in debt? Perhaps it’s time to do some serious thinking about this.

31 August 2003 · Money

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