LONG-TERM CENTRAL PROVIDENT FUND RATES OF CONTRIBUTION - (Statement by the Minister for Labour)
Mr Deputy Speaker, Sir, as usual, Members have shown very keen interest in this issue and I thank them for their questions and comments. It will give me the opportunity to clarify various aspects. I will deal with the questions in the order they were raised. First, the questions from the Member for Kebun Baru. How will the new CPF rates for those above age 55 be implemented? The answer is that as we adjust the rates for the younger workers, we will also adjust the rates for the older workers. So both the rates for the younger workers and the older workers will be in phases. The time scales may not be identical but the basic concept is that it is better to phase in the rates to allow the people affected time to adjust, both the employers as well as the employees. Second question: whether this call to employers to negotiate, if necessary, lower wage scales beyond age 55 will cause delays in the wage reform process? Yes, it is true that wage reform is very important and I hope the employers will not delay unduly. With economic recovery on the way, it is important that they reform the wages as soon as possible. That obviously is top priority. But at the same time the Government is keen to raise the retirement age to 60, progressively. So it may be a good idea if we can start work straightaway and if the employers and the unions can get together to discuss this issue. It does not mean that wage scales will have to be lowered for all workers beyond age 55. There could be certain categories of workers, for example, brain services, where, in fact, the performance improves with experience and age. But there are certain other jobs, say, the manual ones, where clearly some workers may be overpaid when they are at the top of their wage scales. In those situations, I think it will not be feasible to simply insist that the employers raise the retirement age. What we have done is to lower their CPF rates to make it possible to lower the cost of employing the workers without affecting, if possible, their take-home pay. But it may not be sufficient in some cases, for example, where the wage scale is very long. There are some situations where the older employees at the top of the scale may be paid as much as three times the starting salary. So if we assume that the correct market wage may be somewhere in the middle, those at the top may, in fact, be paid 50% over their market value. The adjustments in the CPF rates may not be sufficient to correct for this factor. So it is important that both union leaders and the workers realize that it is in their self-interest to make the necessary adjustments, not only through the CPF rates but also, if necessary, through wage scales. Otherwise there will be no employment opportunities beyond 55. The third question: I think I have already answered it. It is not necessary that this will apply in every case. We are proposing these new rates for the different age groups. The rates will apply across the board to all the workers in the same age group. The expectation is that with negotiations, adjustments and so on, we will eventually reach a new equilibrium where the rates are at those levels and hopefully the workers will also be employed up to age 60 or beyond, and the economics will sustain that kind of a situation. Question No. 4: Will the Government set the example by also extending the retirement age of public sector employees who were employed before 1st July 1956? It is true that those employees who joined the Government before 1st July 1956 have a retirement age of 55. Those employed after that date form the vast majority of employees and with few exceptions, for example the uniformed services, the retirement age is now 60 for the public sector. Whether the Government will consider raising it for the other groups, I think the numbers affected are small because most of them would have retired by now. This is a question that I will pass over to the Minister for Finance because it is really in his field and it has to be looked into further. The Member for Buona Vista pointed out a technical error in the Annex. I thank him for it. Of course, at age 55, there is this question of the birthday - whether you are just below or above 55. The first line "below 55" means up to but not including age 55, and the other column "Above 55" means 55 and above, and so on. So this is the borderline situation. Coming now to the Member for Pasir Panjang. He was asking for numbers affected in the different age groups. I do not have the detailed numbers on CPF contributors with me. It should be in the CPF Report but I have some figures on the number of people employed beyond age 55. I think the figures should be quite similar. I will supply the data to him later on. His question No. 2: Will the public sector take the lead? The public sector has, in fact, taken the lead for many years already. The retirement age is in fact 60 for almost all employees in the public sector who joined on or after 1st July 1956. That was 31 years ago. By now the majority of those who joined before that date would have retired. But it is important that Government should set the lead. I would also appeal to all the union leaders and the public in general to understand the issue and make the necessary adjustments. The retirement age is already 60 or 65 years in most developed countries. Our life expectancy has gone up. At the present moment it is about 75 or 76 years for males and 78 years for females. We are somewhat similar to the Japanese situation 15 years ago. Right now the Japanese life expectancy is about three years more. By the turn of the century, our life expectancy may well be in the 80's. So it is important that the employees should continue to work as long as they can. That is why the Government is so keen to raise the retirement age. The question was raised: What would happen to the CPF rate of pensionable officers? This is a detail which we are working out and there are various other details which will be announced in due course. Coming now to the questions from the Member for Yuhua. She asked for clarification of the time-frame for implementing the transition to the new rates. I have mentioned that if things go well, we will make our first move next year. Then we will have to observe the economic performance every year and, if conditions permit, we will make the adjustments. It is difficult to put an actual time-frame on it. It will depend on economic performance. But the intention is not to delay this unduly. I do not know, it may take five years. It depends on our economic performance. She asked whether we have considered the problems of those above age 55 in implementing the new rates. I think she has in mind mainly this question of housing loans. We have some data on this. There are about 7,200 CPF members who are above age 55 and who are still servicing their housing loans with CPF contributions. The important thing for this group of workers is that they should continue to be employed beyond age 55 because without employment there will be no pay, no CPF. So what we are trying to do is to make it feasible for them to go on working beyond 55. We have done a study of numbers affected by the new CPF rates. Of those above age 55, we reckon that not more than 500 persons will be in some difficulty, in the sense of having to dip into their pockets beyond their CPF balances. As for the other members, there are about 280,000 CPF members who are still servicing housing loans, both private and public. We estimate that perhaps 10,000 may have to supplement their loan instalments with cash. The number is actually very small as a percentage of the total number who are still servicing their housing loans and there are various schmes to assist them, for example, the HDB scheme of extended repayment, ballooning, and so on. As for private property owners, we have a bridging loan scheme. But as of now, only 17 persons have made use of the scheme. So there does not seem to be a very big problem for this group of people. On this question of housing, I should elaborate a little bit. Before the CPF cut, out of the 50% CPF rate, 40 percentage points went into the Ordinary Account which could be used for housing. After the cut, out of the 35%, 29 percentage points went into the Ordinary Account. So it was reduced from 40% to 29%. With the restoration to the final 40% rate for workers below 55, 30 percentage points will go into Ordinary Account, 4 percentage points into Special Account and 6 percentage points into Medisave. For those members who have housing loan commitments, they will be able to make use of the 30% in the Ordinary Account plus the 4% in the Special Account, if they have exhausted their Ordinary Account. In addition, they will have the 5 percentage points which will be the reduction in the employee's CPF rate. This will go into their pocket as increased pay and they can make use of that to service their housing loan instalments. So all in, they will have 30% plus 4% plus 5%, a total of 39% points to service their housing loans. This is almost the same level as before, 40%. In addition, the CPF contribution will increase as salaries increase over the years. So the quantum will increase. We do not think the housing problem will be a serious one. The Member for Cairnhill has asked for data on the number of collective agreements which provide for retirement age above 55. I have some data here. If we exclude the marine officers who are on short-term contracts, there are about 933 collective agreements at present. Out of this number, 136 or 15% specify retirement age of 60 years. Some even provide for employment beyond 60, subject to mutual agreement and health permitting. 11 collective agreements provide for retirement at age 57 or 58 years. 67 collective agreements do not specify the retirement age. I think they will follow the norm of 55 at the moment. The remaining 719 collective agreements specify retirement at 55 years, the majority of them with the option to be re-engaged subject to medical fitness and mutual consent. This is the baseline from which we hope in three to four years' time to go generally to 60 years. The Member also asked whether there are any collective agreements where the wage scale is reduced after age 55. I am not sure of this point. But again I want to emphasize that this is not something that will have to apply to everybody. In fact, for those workers who are very valuable to the employers, there is a possibility that the salary will be maintained and therefore with the lower CPF rates they will have more take-home pay. Or to go one step further, if they are really that valuable, through private negotiations, there could be enhancement of salary since the CPF has been reduced. So there will be all kinds of situations. But I think in general where productivity has gone down with age then it is fair that there should be some adjustments. The Member asked the question: What are target rates? Do they represent a cap on the CPF rates? I think the Member for Leng Kee also asked a similar question. How long is long-term? The answer is this. We have done a careful study of all the factors and the conclusion is that 40% is enough for the three basic objectives of housing, retirement income and Medisave. Therefore, we will restore the CPF rate progressively to this final 40% and the intention is to hold this 40% for as long as we can to give stability both for employers and employees. But there could be economic situations where we have no choice. For example, there could be a severe bout of recession before we have built up the variable wage component. The preference will be to vary the wage component first and not touch the CPF. We will not touch it unless we cannot avoid it. It will be a kind of last resort. There could be another situation where we have hyper-inflation when it may be wise to soak off some of the money into CPF. Both these situations will be temporary situations, the intention being to restore back to the 40% as soon as possible. This is the meaning of target rates. The Member also asked the question about part-time workers, whether we could lower the rates to encourage their employment. This is something that requires further study. But in relation to this question, I would like to clarify that at present those workers earning below $363 per month, in fact pay less than the full CPF rate. The employers pay the full rate but the employees pay less than the current 25%. Those who are earning less than $200 per month pay nothing. The employee's CPF contribution is zero. At $200, the rate is 10% and then it goes up progressively to 25% at $363 per month. With the cut in the CPF rate on the employee's side, the lower paid workers will similarly get the benefit of lower CPF contributions on their part. In other words, those earning $200 per month will pay eventually 5% instead of 10% and so on. So they will benefit by the full 5 percentage point cut. Most part-time workers, I think, will be in the ---