SINGAPORE: The employer CPF contribution rate will be increased by one percentage point for all workers.

The increase will be channelled to the Medisave Account to help workers save for their future healthcare expenses.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam made the announcement during his annual Budget Speech on Friday.

On top of the one percentage point rise in employer CPF contribution rate for all workers, the CPF contribution rates for older workers above 50 years will increase by another 0.5 to 1.5 percentage points.

For older workers aged above 50 years to 55 years, CPF rates will rise by 1.5 percentage points, with one percentage point from the employer’s portion, and 0.5 percentage point from the employee’s side.

For those aged above 55 to 65, rates will increase by 0.5 percentage point from the employer’s portion.

The additional contribution by the employer will be allocated to the Special Account, while the employee’s portion will be allocated to the Ordinary Account.

To help employers manage the CPF rate increase, the government will provide a 50 per cent offset through a one-year Temporary Employment Credit (TEC).

Employers will receive an offset of 0.5 percentage point of wages, up to the CPF ceiling of S$5,000.

To help employers adjust to the higher CPF rates for older workers, the government will give an additional one year offset of up to 0.5 per cent of wages for Singaporean workers above 50 years old earning up to S$4,000 a month, under the existing Special Employment Credit (SEC) scheme.

The temporary increase in SEC will cost the government an additional S$30 million.

The change in CPF contribution rates, the TEC, and SEC increase will take effect from January 2015.

Several Members of Parliament weighed in on the one percentage point increase in CPF employer contribution rates for all workers.

Nominated MP Tan Su Shan said: “The one per cent CPF increase in employer contribution will increase the burden of SMEs in the short term.

“And I’m hoping that the productivity gains using PIC or other schemes will help to alleviate the burden. But I think in the short term, it is going to affect overall costs for SMEs.”

MP for Sengkang West Lam Pin Min said: “This is a right thing to do. I think employers should understand the rationale behind the increase.

“And for those employers who may face difficulty with this increase, I think the government has also set aside some form of assistance for them. This increase will not take place immediately, so this will give employers ample time to adjust.”

MP for Sembawang GRC Vikram Nair said: “It’s generally a good thing because older workers will be closer to retirement, so the increase in employers’ contributions will help them save up more for that nest, have more for CPF Life and so on.

“Of course, it would mean higher costs for employers, but hopefully the economy is strong enough that employers will be able to bear that.”

Reachfield Security & Safety Management employs some 600 workers — about 30 per cent of whom are more than 50 years old.

The small and medium enterprise is one of many that will have to raise its CPF contribution rates for workers under the Budget 2014 measures.

Reachfield’s director, Alvin Lee, said: “I think the government has been very sensitive to the needs of the business community.

“The rates proposed are quite reasonable, especially with the timeline of implementation being January 2015 — it’s easier for a business to absorb the additional costs.”

Mr Tharman said: “Our efforts at improving the employability of older workers are showing results. The employment rate of older residents aged 50 to 64 has risen steadily from 56 per cent in 2003 to 70 per cent in 2013.

“We had made a commitment in 2012 to give older workers aged 50 to 55 the same contribution rates as their younger counterparts.”

Mr Tharman said that with higher Medisave contributions, it will allow elderly Singaporeans to use a portion of their Medisave more flexibly across a range of outpatient treatments.

The government also announced higher subsidies for services at Specialist Outpatient Clinics (SOC), to be implemented from this September.

Currently, all subsidised patients enjoy 50 per cent subsidy for general Specialist Outpatient Clinics services, including consultation and diagnostic tests.

From September, subsidies will be raised for lower and middle income Singaporeans to 70 per cent and 60 per cent respectively.

For example, a lower-income individual in his fifties suffering from a chronic condition like hypertension may fork out about S$480 for his annual SOC charges.

But with the new changes, his expenditure can be reduced by almost half to S$265.

This is expected to benefit some 400,000 patients.

It will cost the government an additional S$123 million per year.

To keep MediShield Life premiums affordable for the lower and middle income groups, the government will provide them with significant permanent subsidies so that they can fully pay their remaining premiums out of their regular Medisave contributions.

To ease the transition into MediShield Life, the government will also provide a subsidy to offset premium increases for the first few years, including for those who are in the higher income bracket.

Details of the subsidies will be finalised after the MediShield Life Review Committee completes its work, which is expected to be in June.