CENTRAL PROVIDENT FUND (Employer's contribution for employees above 55 years)

Mr Goh Choon Kang asked the Minister for Labour whether he will review the employer's Central Provident Fund contribution rates for employees above 55 years of age in view of the fact that the retirement age is now 60 years.

Dr Lee Boon Yang: Mr Speaker, Sir, the employers' CPF contribution rates for employees aged above 55 were reviewed last year when the retirement age was raised to 60. As a result of the review, the employers' CPF contribution rate for employees aged 55 to 60 was reduced from 12.5% to 7.5%. The employers' contribution rates for employees aged 60 to 65 remain at 7.5% and for those above the age of 65, they remain at 5% unchanged.

The 5% adjustment for those aged between 55 and 60 was made to address concerns that raising the retirement age would result in higher labour costs as the wage scales were and still are very much seniority-based. It helped to reduce the cost of retaining employees beyond the age of 55. Employers were also urged to make use of the saving resulting from the 5% adjustment to upgrade the skills of their older workers through re-training.

Sir, the 5% adjustment would have minimal effect on most workers' ability to meet their retirement, housing and medical needs. Projections or studies by CPF Board show that apart from providing for the worker's housing and medical needs, his CPF balance at age 60, after the 5% reduction, would still be sufficient to provide him with a monthly annuity of between 20% and 40% of his last take-home pay.

In view of the recent 5% adjustment, my Ministry feels that there is no need to make further adjustments to the employers' or employees' CPF contribution rate for the older employees.

Mr Goh Choon Kang (Braddell Heights): Sir, does the Minister feel that this adjustment actually goes against the very rationale of raising the retirement age to 60 years old?

Dr Lee Boon Yang: Mr Speaker, Sir, I do not think the revision to the CPF contribution rate for those aged between 55 and 60 is contrary to the objective of raising the retirement age. I think we have to recognise that in the Singapore context where our wage scale is still, by and large, seniority-based, we have to note the concerns of the employers in particular that, by raising the retirement age, we are unwittingly contributing to a higher cost for the employers, especially if they have to retain more of their older workers.

The intention here is to ensure that older workers will remain in employment and not be retrenched by their employers because it may cost the employers more to employ them because of the seniority-based wage scale. So by adjusting the CPF contribution rate for those aged between 55 and 60, we are in fact supporting the objective of the higher retirement age. We are ensuring that fewer employers will feel the necessity or be compelled to retrench their older workers because there is now a slight reduction in the cost to the employers by way of a lower CPF contribution rate. So more of the older workers will remain in employment, more of them will be able to have a regular monthly income, at a slightly lower CPF contribution. But I think, on balance, it is in their long-term interest to have this adjustment and to remain in the workforce.

Mr Goh Choon Kang: But why is it that only this age group of 55 to 60 years are affected, that is, their contribution rates are reduced, and not the other age groups?

Dr Lee Boon Yang: Mr Speaker, Sir, I would like to inform the Member that those aged between 60 and 65 contribute a total of 15%, ie, the employer contributes 7.5% and the employee contributes 7.5%. Those above 65 contribute a total of 10%, ie, 5% each from employer and employee. So, in effect, there is a gradual reduction in the rate of CPF contribution as the worker gets older. Below the age of 55, the total contribution is 40%, ie, 20% each. For 55 to 60, it is 20%; 60 to 65, 15%; and above 65, 10%. So there is a gradual reduction in the rate of contribution.

Mr Goh Choon Kang: But why is it that the employer pays less for this category of workers?

Dr Lee Boon Yang: Mr Speaker, Sir, as I have explained in my main answer, the adjustment of the CPF contribution rate for the older workers is to take into account the concern about the higher cost that comes about with employing more of the older workers. And, again, I must reiterate that this has come about because of the seniority-based wage scale. So if you reduce the employees' CPF contribution rate, it has no impact on the cost reduction objective. Therefore, you should reduce the employers' contribution in order to reduce the cost to the employer for employing the older workers.

Mr Goh Choon Kang: The contribution rate is 20%. My question is: why cannot the employer pay 10% and the employee pay 10%?

Dr Lee Boon Yang: Mr Speaker, Sir, that is a matter of judgment. We felt that a 5% reduction for the employer was necessary to ensure that there is no temptation nor preference to retrench older workers. If I were to take the Member's suggestion, it would in effect mean only a 2.5% reduction for the employers of the older workers. This may still be inadequate to address the concern and may, in fact, still encourage some employers to find ways and means of either retrenching or terminating the services of their older workers.

Mr Chiam See Tong (Potong Pasir): The Ministry seems to assume that people who are 55 years and above are less productive. But they are just as productive after they reach the age of 55. They are very senior and if they carry on working up to 60 years, they are in fact taking a wage cut. So are there provisions for people, who are still very productive, to maintain their CPF at the normal rate?

Dr Lee Boon Yang: Mr Speaker, Sir, I pass no judgement on the productivity of the older workers. All I am saying is that, under the seniority-based wage scale, the older workers invariably will cost employers more. Although the CPF contribution for the employers has been reduced by 5%, there is no provision or requirement to stop the employer from rewarding his older workers for their experience or their high level of productivity by other means. And I think wise and prudent employers would do so to encourage or motivate their older workers. There are many other mechanisms which will more than offset the reduction in CPF on the part of the employers' contribution. They can always pay them a bonus, like other workers, and they can receive other kinds of incentive payments to give recognition to the older workers in order to get them to maintain their productivity and to make use of the experience for the organisation.