SINGAPORE — To help Singaporeans save more for their retirement needs, several changes were announced to the Central Provident Fund (CPF) system yesterday, including the raising of the monthly salary ceiling, increased contribution rates for older members and changes to CPF interest rates to make it more progressive for the less well-off.

Finance Minister Tharman Shanmugaratnam made these announcements in his Budget speech yesterday as part of steps to bolster Singapore’s social security system by strengthening savings and income in retirement.

The changes, which will take effect from Jan 1 next year, comes after the Government accepted recommendations by the CPF Advisory Panel earlier this month aimed at making the scheme more flexible and predictable for its members.

CPF contributions will be accrued up to S$6,000 from next year, an increase from the current ceiling of S$5,000, to help middle-income Singaporeans accumulate more savings during their working years.

The raising of the CPF salary ceiling, proposed by the labour movement and the advisory panel earlier, will benefit at least 544,000 members, said Mr Tharman, who is also Deputy Prime Minister.

The ceiling was last revised in 2011 to S$5,000 a month, up from S$4,500 previously, to keep pace with income growth.

“Based on the new ceiling, a 45-year-old worker who earns S$6,000 or more today will save an additional S$60,000 by the time he reaches 65,” said Mr Tharman.

The Government will also raise the contribution cap within the Supplementary Retirement Scheme (SRS), which offers tax incentives to encourage voluntary retirement savings to complement the CPF, he said.

In his speech, Mr Tharman also announced a “final step” of restoring the contribution rates of workers aged 50 to 55 by two percentage points to 37 per cent, bringing them to the same level as those of younger workers. The increase will be split evenly between employer and employee contributions.

Contribution rates for workers aged 55 to 60 will increase to 26 per cent, through a one-percentage-point rise in employer contributions.

For workers aged 60 to 65, contribution rates will go up to 16.5 per cent, through a 0.5-percentage-point increase in employer contributions. Contributions by employees aged 55 to 65 remain unchanged.

Additional employee contributions will go to the Ordinary account and can be used to help service housing mortgages, said Mr Tharman. Increased employer contributions will go to the Special Account.

To help older CPF members who have small balances in their accounts, an additional 1 per cent Extra Interest will be paid on the first S$30,000 of balances from the age of 55, said Mr Tharman.

This comes in addition to the existing 1 per cent Extra Interest provided on the first S$60,000 of balances. With the change, about three in five CPF members aged 55 and above can earn 6 per cent interest.

“It will encourage Singaporeans to retain savings in their CPF accounts, and make top-ups to the accounts of family members,” he said.

Apart from changes to the CPF, the minister announced enhancements to the Special Employment Credit (SEC) to encourage companies to voluntarily re-employ workers after they turn 65, ahead of legislative changes.

Employers can receive an additional SEC of up to 3 per cent of wages for workers aged 65 and above this year, in addition to an 8.5 per cent wage offset this year.

Mr Tharman added that the SEC fund would be given a S$500 million top-up to meet “broader funding needs” of workers aged 50 and above, until the scheme’s expiry next year.

READ THE FULL BUDGET STATEMENT HERE

Other documents on Budget 2015 available on the Budget 2015 website.