CENTRAL PROVIDENT FUND (Reduction)

CENTRAL PROVIDENT FUND

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(Reduction): **

5.

Assoc. Prof. Ong Soh Khim asked the Minister for Manpower (a) what is the rationale for the progressive reduction of the Central Provident Fund (CPF) contribution rate for the 50-55 age group by 2% from 1st January 2005 and 1st January 2006; and (b) do the employers have to correspondingly reduce the workload of the employees in this age group by 2% as the CPF contribution rate cut is effectively a pay-cut.

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Dr Ng Eng Hen: In general, older workers face greater difficulty getting re-employed once they lose their jobs. The Economic Restructuring Committee (ERC) had noted that one reason for this was wage rigidity in the form of the prevailing seniority-based wage system. This puts older workers at a cost disadvantage compared to younger workers. In addition, older workers have a higher risk of being re-employed at lower pay.

The employer's CPF contribution rate for workers aged 50-55 was thus lowered to enhance wage flexibility and help preserve their jobs. At the same time, the employee CPF contribution rate for this group was lowered to increase their take-home pay.

We encourage employers to pass on part of their cost savings from the lower CPF to deserving employees in this age group through the variable wage component, such as by giving higher bonuses when the company is doing well.