Govt pilots Contribute-as-you-Earn scheme for public sector's service providers

SELF-EMPLOYED persons (SEPs) who provide services directly to the public sector will have their Medisave contributions transferred by the government, as and when they earn such income, Manpower Minister Josephine Teo said in Parliament on Monday.

Currently, self-employed persons are required to make Medisave contributions annually, based on earnings the previous year. In any given year, about 60 per cent or 130,000 do not make their Medisave contributions in full as a lump sum.

The pilot Contribute-as-you-Earn (CAYE) scheme is about helping them "keep up with their Medisave contributions, to strengthen their protection against health shocks", said Mrs Teo. It does not change their CPF obligations, only how their Medisave contributions are made, she stressed.

From Jan 1, those who provide services directly to the government will estimate their net income - that is, deducting expenses - from such transactions. The government will then make the corresponding Medisave contribution directly to the worker's account, and pay the rest of the service fee to the worker. This will affect about 6,000 self-employed persons.

The Central Provident Fund (CPF) Act will be amended to allow for this, among other changes, in a Bill debated on Monday.

Medisave contribution rates vary by age and income. Mrs Teo gave an illustrative example of a 48-year-old freelance soccer coach. If his net trade income for the year was S$30,000, he would have to make a Medisave contribution of S$3,000.

But if S$13,000 of his income came from work done with government schools, then the schools would have already helped him make the required S$1,300 contribution directly. He will only have to make a lump-sum contribution for the remaining S$1,700.

"I think we can see that his risk of not being able to make the contribution in full is now lower," said Mrs Teo. By contributing earlier, workers also accrue more interest on their Medisave contributions.

Those who have made their Medisave contributions in full or are keeping up via an instalment plan can opt out of the pilot. But those who have not been keeping up must be on the CAYE scheme. "This will help them keep up with the current Medisave obligations and prevent their obligations from snowballing," said Mrs Teo.

In response to a suggestion from labour Member of Parliament Ang Hin Kee and association leaders that the government provide some matching of contributions under CAYE, Mrs Teo said this was a "good suggestion", adding: "The government will look into providing some support for SEPs participating in the CAYE pilot."

As for suggestions to extend the scheme wider, Mrs Teo said the government has not decided whether to extend it to include payments made to self-employed persons by private-sector companies or intermediaries, such as for insurance and real estate agents.

"Some of the intermediaries have already indicated interest," she noted. "They can see the benefit of helping their agents make Medisave payments as and when they earn an income.

"But let us try out CAYE first, see how well it works, and decide later if and how other SEPs can also benefit," she concluded.

Other changes under the CPF (Amendment) Bill include allowing for the possibility of refunds. This is for cases where wage components are tied to contractual conditions that are not fulfilled.

For instance, companies may have a sign-on bonus with a minimum service period condition. If the employee leaves before that, he must return the sign-on bonus, including the employer CPF paid upon this bonus. But the law does not currently allow the CPF Board to grant refunds, meaning that such employees have to repay the CPF portion out of their own pocket.

Regulations prescribed under the amended Act will thus allow employees to apply for a refund for the CPF portion within a year of having to return the conditional wage. Employers may also apply for the refund, with the employee's consent.

"Let me state for the record that we neither encourage nor discourage the practice of sign-on bonuses," said Mrs Teo. "With the changes, regulations can be made to allow members and employers greater flexibility to accept and offer such payments, knowing they can obtain a refund of their CPF contributions if the payment has to be returned."