AGENCE FRANCE-PRESSE

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THE government has announced wide ranging changes to Central Provident Fund (CPF) contributions to reinforce the aim of saving for retirement.

The changes, announced jointly by the manpower and health ministries, are in line with recommendations from an inter-ministerial committee set up to tackle the problems of a rapidly ageing population.

The government dismissed claims that market sentiment could be dampened by new regulations reducing contributions to ordinary accounts, used to repay property loans and phasing out the withdrawal of profits from investments.

"Our intention is to increase your net savings, not to finance a holiday or a piece of furniture," Manpower Minister Lee Boon Yang was quoted as saying in the Business Times yesterday.

The changes were to ensure Singaporeans had enough cash for their retirement, he said.

Contributions to the special account, the major source of retirement savings, will rise at the end of the year from 2 per cent of salary to 4 per cent for people aged 35 and younger, 6 per cent for the 35-45 age bracket and 8 per cent for people older than 45.

To keep pace with rising medical costs, medisave account contributions will rise by one percentage point to between seven and nine percentage points of CPF contributions for various age groups.

Increased payments to the special and medisave accounts would mean reduced contributions to ordinary accounts which many Singaporeans use to repay property loans and for stock and gold investments.

Mr Lee said home ownership remained a fundamental policy and "as long as the CPF member buys a home that is compatible with his income level . . . it's entirely sound and no cause for concern".

The new measures also end the right to withdraw profits from CPF ordinary accounts, presently allowed on stock investments, from October 2002.

The ban on investing special account funds will be lifted, although investments can only be in low-risk retirement related instruments such as bank deposits and government bonds, as well as approved unit trusts and insurance-linked products.

Mr Lee said the long-term target rate of CPF contributions would be retained at 40 per cent of an employee's salary.

Employees and employers used to contribute 20 per cent each but the employer's contribution was halved during the recent Asian economic crisis. It was raised to 12 per cent earlier this year.