Flexibility for self-employed with difficulties meeting MediSave obligations
- The Straits Times (30 Apr 2022):"MediSave contribution can financially burden self-employed people"
Flexibility for self-employed with difficulties meeting MediSave obligations - The Straits Times, 7 May 2022
We refer to Mr Ortega Gerard James’ letter, (“MediSave contribution can financially burden self-employed people”, 30 Apr).
Under the CPF system, both self-employed persons (SEPs) and employees are required to save part of their work income for their longer-term needs. The treatment of SEPs’ MediSave contributions is the same as employees’ – once members have met the Basic Healthcare Sum (BHS), their contributions are channelled to their Special or Retirement Account, up to the Full Retirement Sum. This prevents over-saving in the MediSave Account, and helps members set aside more savings for their retirement.
A contribution to CPF is not a tax payment as it goes into the SEP’s own CPF account. Like other CPF members, SEPs enjoy attractive interest rates of up to 6% on their MediSave, Special and Retirement Account balances and can use these monies in accordance with withdrawal guidelines.
Although most SEPs can meet their MediSave obligations, we recognise that SEPs’ income streams can be unpredictable. SEPs can sign up to make their annual MediSave contributions via monthly instalments through GIRO, which will spread the required contributions into manageable sums over a longer period. MOM and the CPF Board are also piloting the Contribute-As-You-Earn scheme to help SEPs contribute to their MediSave as and when they earn their service fees.
Nonetheless, we understand this is a difficult period for many SEPs. For those who still face difficulties meeting their annual MediSave obligations, the CPF Board, which administers the Self-Employed Scheme, offers alternative arrangements to extend the GIRO payment period beyond 12 months. This will further lower the monthly instalments.
Members who are facing significant income loss and require urgent financial assistance can also apply for support through the COVID-19 Recovery Grant managed by the Ministry of Social and Family Development. We encourage them to visit their nearest Social Service Office if they need further help.
Dr Fereen Liew
Divisional Director, Income Security Policy Division
Ministry of Manpower
MediSave contribution can financially burden self-employed people - The Straits Times, 30 Apr 2022
Under the Central Provident Fund's Self-Employed Scheme, gig economy workers like me must make at least yearly MediSave contributions based on net trade income and age.
However, the contribution amount appears to be calculated without considering whether a person's MediSave account ceiling (in the form of the Basic Healthcare Sum) has already been reached.
Thus, a gig worker can be asked to make a contribution of a substantial amount to his MediSave account, with the excess spilling over into the Special Account.
My own experience this year bears this out.
The amount I was required to contribute was about three times my income tax for the same year.
I dutifully deposited the amount into my MediSave account, and half of this was instantly channelled into my Special Account because I had reached the account ceiling.
While this scheme is meant to provide for medical exigencies and even retirement, it adds unnecessary financial burden on gig workers, as our income streams are unpredictable.
Moreover, if one's MediSave account (or even Special Account) is not deficient, the forced contribution feels unjustified and more like a tax.
On that point, given that this scheme is concerned with CPF savings, it is counter-intuitive that the Inland Revenue Authority of Singapore (Iras) administers this scheme, especially since it sends out notifications of the MediSave top-up amounts during the tax season.
This leads me to wonder if Iras has an overview of a self-employed person's MediSave account or if it mainly proceeds to assign the quantum according to the net trade income details on file.
Regardless, since the Self-Employed Scheme falls under the CPF, it would be more conceptually streamlined for the CPF Board to manage this - lest the mandatory MediSave contributions get negatively associated with tax payments instead of compulsory savings related to CPF deductions.
Ortega Gerard James