Increasing Take-Home Pay

First, increasing take-home pay. Currently, employees start contributing CPF when their monthly incomes exceed $500, but at a lower rate. Their contributions are increased to reach the full rate of 20% at a monthly wage of $750. We will now increase the employee CPF contributions more gradually, so that employees only pay the full rate of 20% when they get to a monthly wage of $1,500. Workers earning $1,000 or less will have larger reductions in employee contributions and hence larger increases in take-home pay. This change in employee contributions will apply to all low-wage workers regardless of age. The contribution rates for workers above 50 years old, which are lower, will be scaled down accordingly.

Improving Employability

Second, improving the employability of older, low-wage workers. Currently, employers pay the full 13% rate for all workers earning more than $50 per month. We will now phase in the employer CPF contributions for workers who are aged above 35, so that employers only pay the full new contribution rate of 14.5% at a monthly wage of $1,500. Again, the contribution rates for workers above 50 years old will be scaled down accordingly.

Supplementing Wages and Savings

These two changes will reduce employer and employee CPF contributions for older low-wage workers. The new Workfare Income Supplement (WIS) scheme that we are introducing will more than make up for this.

The Workfare quantum will be based on age. For workers above 45 and earning $1,000 and below, the Workfare will supplement their wages by up to $1,200 per year, or between 10 to 20%* . Workers aged above 35 to 45 will receive three-quarters the amount that workers above 45 will receive.

Workfare will be given partly in cash, but mostly in CPF. The cash-to-CPF ratio will be 1 : 2.5. In other words, for every dollar of cash we give the worker, we will also put $2.50 into his CPF. We are putting a larger part into CPF, so as to help low-wage workers better provide for their future needs.

WIS will be conditional on regular work. It will be given to workers who have worked at least three months in any six month period in the calendar year, or at least six months in the calendar year. Eligible workers who have worked for at least three months in the first six months of 2007 can look forward to their first WIS on 1 January 2008.

Like the Workfare Bonus Scheme, the WIS scheme will be for those who live in properties with an annual value of $10,000 or less, who are mostly living in public housing.

Let me give two examples to summarise what WIS will do, coupled with the changes in CPF. First, let’s look at a 46-year old worker who earns $800. He used to take home $640 per month. He will now bring home $57 more. What he gets in his CPF, which used to be $264, will also be slightly higher now despite the cut in employer CPF. Overall, he has received $100 of WIS, in other words, a 12.5% supplement to his wage. The employer has also saved $27.

The second example is a 46-year old who earns $1,000 per month. Again, he gets more take-home pay - $49 more. And in his CPF - $38 more. He gets $100 of WIS, which is a 10% supplement to his wage. He is better off, overall, and his employer’s cost of hiring him is also reduced. This is the combined result of the CPF restructuring and Workfare - more cash-in-hand, and more CPF. Details can be found in Annex B.

*Workers above 45 years of age, earning between $500 and $1,000 inclusive, will receive $1,200 in total WIS, which translates to a 10%-20% increase in annual income.