RETIREMENT AGE (AMENDMENT) BILL

Order for Second Reading read. 2.28 pm

The Minister for Manpower (Dr Lee Boon Yang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, in July last year, I informed this House that the Tripartite Committee on Extension of Retirement Age had proposed that the retirement age be extended from 60 to 62 with effect from 1st January 1999. The Tripartite Committee also recommended the reduction in the employer's CPF contribution for workers above the age of 60 and allowing employers to reduce the wage cost of older employees by up to 10%.

Sir, the raising of the retirement age is a strategic move to tackle the problem brought about by our ageing population and declining birth rates. Currently, eight economically active persons aged between 15 and 59 support one person aged 60 and above. This ratio will decline sharply in future. By the year 2010, there will only be four economically active persons supporting one person aged 60 and above. This ratio is expected to fall further to 2.5 in the year 2030.

Sir, this decline in economically active persons will affect our economic vitality. The working population will be faced with an increasingly heavy burden of having to support a growing number of elderly persons who are not able to work. The growing number of economically inactive senior citizens will also place a heavy demand for a wide range of social services including health care. This will result in a heavier tax burden on those who are still working. Furthermore, a dwindling supply of local workers will compel employers to turn to more foreign workers to meet their manpower needs. While an increase in skilled and talented foreign workers will be an asset to Singapore, an increase in the number of unskilled foreign workers will create more social problems.

The life expectancy at birth is 77 years. Many Singaporeans are healthy and vigorous well beyond 60 years of age. It is a waste of valuable human resources if workers are required to retire at the age of 60 when they are still able to add value to the economy. Moreover, an early retirement means that a retired worker or retiree will have to start living on the CPF savings much earlier. This will result in a faster depletion of their retirement savings. Hence, an extension of the retirement age will not only maximise the utilisation of our human resources, it will also provide the opportunity for older workers to continue earning a regular income and accumulating more savings for their eventual retirement.

I should point out that most developed countries are already ahead of us in this area. The retirement age norm in countries like Germany, Switzerland, United Kingdom, Sweden, Netherlands and Italy is 65. Some countries like Norway and Denmark set a higher retirement age of 67 years. We understand that the United States has recently announced its long-term plan to raise the retirement age to 70. The current retirement age is 65 and is due to increase to 67 next year. Even in the Asian NIEs, workers are now working well beyond 60 years. For example, retirement age norm in Taiwan is now 65. As a country with a small population, we should maximize our limited indigenous human resource, including the older Singaporeans who have accumulated valuable skills and working experience.

There should be no doubt that raising the retirement age will generate long term benefits for our economy, for the employers and also for the workers themselves. It is a win-win strategy. Despite the current economic downturn and an increase in unemployment rate, we should not ignore the long-term impact of a rapidly aging workforce. We need to take a pro-active approach to address the issue now before it develops into a serious problem in future. The time to tackle such potential problems is now, not when our competitiveness is already seriously weakened by an aging workforce. But in raising the retirement age, we must not ignore the reality to employers, which is, the cost of employing older workers is higher as a result of our seniority-based wage scale.

With the current wage structure, the longer a worker has been employed, the higher is his pay. In other words, wage levels are determined more by an employee's length of service than the value of his job or performance. As a result, wages of older workers are not closely linked to their productivity or performance. Consequently, older workers are often being paid beyond their job worth. That is why employers are reluctant to retain or to employ older workers.

To address the problems of the seniority-based-wage system, the Tripartite Committee on the Extension of Retirement Age had recommended that employers should implement the base-up wage system. The adoption of the base-up wage system will help to narrow the maximum-minimum salary ratio and enable wage increases to be more closely linked to productivity and performance. However, before the base-up wage system can be implemented, companies have to adjust their salary ratio to the optimal level of 1.5:1. Since it will take some time to achieve the optimal salary ratio, the Tripartite Committee recommended that employers should be allowed to initiate a wage cut of up to 10% for employees above the age of 60. This measure will make it more attractive for employers to retain their older workers.

To supplement the 10% wage cut for older workers, the Tripartite Committee also proposed that employer's CPF contribution rate for employees aged 60-65 years be reduced from 7.5% to 4% and from 5% to 4% for employees aged above 65 years.

The recommendation to introduce wage and CPF cuts came about after extensive discussions and deliberations by the Tripartite Committee. The Committee took note of the fact that since most workers are on the seniority wage system, it is currently not uncommon for an employee to accept a wage cut of 20% to 25% when they are re-employed upon retirement at 60 years. The Tripartite Committee's proposal to cut wages by up to 10% in addition to the CPF cut is therefore a more favourable arrangement for older workers. This should encourage more older workers to work beyond 60 and continue to contribute to their companies.

Although the employers have given the full discretion to initiate a wage cut, the Tripartite Committee also urged them to be judicious in implementing this policy. Employers should bear in mind that the wage cut is introduced with the aim to rectifying the problems arising out of the seniority-based-wage system and to bring wages of older workers in line with their productivity and performance. They should therefore take into account their companies' maximum-minimum salary ratio, as well as their job worth and performance of older employees when deciding on making the wage cut. A wage cut is not needed if the older employees' salaries are already reflective of their job worth or their productivity or where their productivity and performance already justify their salaries.

Essentially, the Bill seeks to amend the Retirement Age Act (Cap 274A) to enable employers to reduce the wages of their employees who attain the age of 60 years and above, on or after 1st January 1999. The higher retirement age of 62 will be effected separately through Regulations.

Clause 2 of the Bill introduces a new section 4A to spell out the circumstances and conditions whereby an employer can reduce the wages of employees above the age of 60. This section stipulates that an employer should give reasonable prior notice in writing to an older employee of the intention to reduce his salary. The prior notice should furnish information, such as the amount and the effective date of the reduction. The extent of the wage reduction is limited to 10% of the employee's wage at the age of 60.

Employers will be required to give the older employees a reasonable opportunity to consider and respond to the proposed wage reduction. In the event that no agreement can be reached, the older employee may choose to retire on his own accord. Alternatively, the employer may retire him from service.

A new section 4A(5)(a) lays down the grounds whereby employers can initiate a wage cut. It states that the reduction shall be based on reasonable factors, such as the employee's productivity, performance, duties and responsibilities, and whether he is on a seniority-based-wage system. Employers are prohibited from initiating a wage cut solely on the ground of an employee's age, unless age is a bona-fide requirement for the performance of his job.

To provide more flexibility, section 4A(5)(b) allows employers to introduce the wage cut, either at the age of 60 or at any age above 60. Hence, in a situation whereby an employee's salary is still reflective of the job worth at the age of 60 but not beyond, his employer can choose not to cut his wages at the age of 60 but to initiate a cut later on, say, at age 61. At the same time, employers are allowed to either introduce a one-off cut in the wages of their older employees by up to 10%, or to stagger the wage cut in such a manner that the total extent of the reduction does not exceed 10% of the employee's wages at age 60. In view of the differing productivity levels and performances among employees, the extent of the wage cut could vary from one employee to another.

The Bill hence enables employers to implement the wage reduction in a manner most suited to the company's needs and circumstances. However, employers should follow closely the Tripartite Committee's recommendation of initiating a wage reduction either through a direct wage cut or through a combination of various wage cost items which include fringe benefits, variable bonus, AWS and the basic wage. In the case of unionized companies, the union concerned should be consulted.

Besides the key recommendations on raising the retirement age and reducing wages of older workers, the Tripartite Committee also proposed several other measures to address the problems of an aging workforce. These include :-

A 25-year cap on the service period for the calculation of retrenchment benefit;

Adoption of a base-up-wage system in place of the seniority-based-wage system;

An Alternative Medical Benefit Scheme in place of the current medical benefit scheme; and

An outplacement programme to assist older workers who cannot be re-deployed within the company, to secure a suitable job in another company.

These are supplementary measures to address concerns of the high costs of retaining older workers. These measures will be implemented through the tripartite guidelines. We do not need legislative changes at this juncture for the measures to be applied. In fact, some employers and unions have already started to implement these measures. While some teething problems may crop up at the initial stage of implementation, I am confident with good tripartite co-operation, we will be able to make progress in these reforms.

Mr Speaker, Sir, since the retirement age was raised from 55 to 60 in 1993, it had provided employment opportunities for some 63,000 employees who are above the age of 55. With the raising of the retirement age to 62, it is estimated that another 7,000 employees who will turn 60 next year will benefit. In the 2nd, 3rd and 4th year of the implementation, about 10,000 workers are expected to benefit each year. The raising of the retirement age is clearly beneficial to older workers as it allows them to remain gainfully employed for a longer period. Employers will also stand to gain from the retention of these skilled and experienced workers.

Sir, I beg to move.

Question proposed.

Dr S. Vasoo (Tanjong Pagar): Mr Speaker, thank you for allowing me to speak on this interesting Bill. I fully support this Bill.

I feel that the picture painted by the Minister is indeed a very challenging one for all of us in Singapore because demographic transition will be very dramatic in the years ahead. By the Year 2010, as the Minister has stated, the population of the aged could become quite dramatic and grave for us. It is a issue well thought of, because we would have to think about how we need to deal with this challenging issue of the future, ie, the greying of Singapore. The Bill will be relevant at this juncture, but it will be redundant in the future because we would not be able to talk about retirement in the years ahead as nobody will be retiring and the work world will change significantly. Nobody will be allowed to retire. Mind you, some of you would not be allowed to get off! You will be kept as long as possible and there will be no retirement, Mr Speaker.

There would be the issue of information technology. With the change of work itself, people will be retained as long as it is possible and it is not a picture that we can avoid. It could be a real picture in future.

Sir, in relation to this Bill, it will enhance the employability of the retirees and this is good. It enables various companies to think about retaining older workers and this is indeed a very positive move. But there are a few areas of concern that I would like to raise, because with this transition, there will obviously be areas of disputes related to wages. I want to find out from the Minister who mediates in case there is dispute on the wages. I can understand that for workers who are unionised, the unions would be able to represent them. But there are lots of workers who are not unionised and one needs to look at how their interest could be protected.

Secondly, there would be a lot of employers who might take advantage of this Bill and try and find a leverage to retire off people earlier than they should. So there will be to some extent older workers who would be got rid off because they are either not really productive or found not to be suitable, or some excuses could be given to terminate them from their work world. I want to find out what protection or recourse would be available to ensure that older workers would not be unjustifiably retired off earlier than they should by the employers.

Looking at the Bill as a whole, I agree with it because it is going to help us meet the challenges of the aging population of Singapore.

On that note, Sir, I support the Bill.

Mr Ang Mong Seng (Bukit Gombak): (In Mandarin): Mr Speaker, Sir, to those who have reached the age of 60, "1-1-99" is a very important number to remember because, with effect from 1st January 1999, the Ministry of Manpower will raise the new retirement age from 60 to 62. The new Act will allow employers to cut up to 10% of the wages of employees beyond the age of 60 over a period of two years.

Sir, I fully support this Bill. For employees who have reached the age of 60, the employers' CPF contribution has already been reduced from 20% to 4%. With the recently announced employers' cost-cutting measures, this will again be cut by 2%. In other words, the employers' CPF contribution will be reduced from 20% to 2%, which is a reduction of 18%. This will reduce the income of the employees. During their years of employment, these employees have made contributions to the company. They worked hard for the company. I hope that when employers are deciding on the wage-cut of the employees, they will consider all these factors. At the same time, they must also value and treasure the experience acquired by the older employees. I feel that the wage-cuts should not be exercised too frequently, otherwise the employers will be busy calculating the amounts to be cut all the time while the employees will be bogged down with worries and anxiety and lose heart to work. Efficiency will be affected. So will productivity. So I would suggest that wage cuts should be limited to not more than once a year.

Private companies and the civil service should adopt the principle of annual increments to evaluate the performance of their employees before the employers decide whether the pay should be cut or not. An annual appraisal will be more rational. Secondly, under the Bill, the employers who intend to cut the pay of employees must give reasonable advance notice in writing to the employees so as to give the employees time to consider the matter. As such, I would propose that the Bill should specify that the employees must be given at least one month's notice and should be required to reply to their employers within one month whether they accept the terms. With the stipulation of one month, it is good for both sides. There will be no unnecessary controversies.

Thirdly, the civil servants who are under the pension scheme will be seriously affected by this new Bill when they reach the retirement age at 60. I would propose that the Government consider allowing civil servants to collect their lump sum pension when they reach the age of 60 and then continue to work in keeping with the spirit of the new Bill. These civil servants have worked their whole adult working lives in various Ministries and Government departments and have made contributions to the development of Singapore. I hope the Government will allow them to take their pensions and also to continue working under the provisions of the new law. I support the Bill.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.20 pm.

Sitting accordingly suspended at 2.52 pm until 3.20 pm. Sitting resumed at 3.20 pm