NTUC wants CPF contribution rates for above-50-55 age group to be hiked

SINGAPORE — Ahead of the Budget statement next Friday, the National Trades Union Congress (NTUC) has called on the Government to raise the Central Provident Fund (CPF) contribution rates for workers aged from above 50 to 55 by one to two percentage points this year, to help them save more for retirement and healthcare.

While CPF rates were raised in 2012, there remains a 3.5-percentage-point difference between the rate for this cohort and those aged 50 and below. The total CPF contribution rate for those above 50 to 55 now stands at 32.5 per cent.

The NTUC also proposed yesterday that, over the longer term, total contributions to the CPF should also be increased across the board.

But with current employers’ contribution rates lower than that of employees across all age bands — except for those above 65 — the NTUC felt that it would be fair for employers’ contributions to increase more than those of employees. Any increase in employees’ contributions should also go into their Ordinary Accounts.

Speaking at a media briefing, NTUC Deputy Secretary-General Heng Chee How explained why the labour movement was calling on the Government to implement the CPF changes now.

“It is better to wait till a tight labour market … businesses already are factoring in the fact that in order to get the manpower, you have got to pay more ... and therefore, CPF cost is part of their overall wage cost, which will be under pressure in any case in a tight labour market,” he said.

The CPF rate for those aged 55 and below were cut in 2003, when the SARS health crisis triggered a recession in Singapore. Another factor that accounted for the cut was the seniority-based wage system, which made older workers more vulnerable to retrenchment as their wages were much higher than younger workers’.

But the labour movement had previously pointed out that the wage system had shifted towards a performance-based one over the past decade — thus, a basis to review CPF contribution rates.

The CPF cuts were partially restored during Budget 2012, when Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam promised to eventually equalise the CPF contribution rates for workers in the above-50 to 55 age group with younger workers.

Mr Heng, who is also Senior Minister of State in the Prime Minister’s Office, noted yesterday that it had been 11 years since the Government issued a set of long-term CPF contribution rates, “taking into account notions of adequacy at that time, notion of competitiveness of business at that time”.

But some CPF contribution rates have already surpassed these targets.

While Mr Heng acknowledged the need for businesses to be competitive, he pointed to the periods in the past where contributions of employers and employees were on par.

“So where possible, we feel that we should seriously also discuss whether or not there could be parity in contribution for each age band,” he added.

While Members of Parliament (MPs) and economists were supportive of what they saw as a gradual approach to increasing employers’ contribution rates, which would give businesses time to adjust, employers expressed their dismay at the labour movement’s proposals, even though they were resigned to the eventuality of CPF rates going up, given Mr Tharman’s pledge.

Pasir Ris-Punggol GRC MP Gan Thiam Poh said he preferred a “careful” and “gradual” approach to any increase in CPF rates, to avoid a situation where employers cannot afford attendant rises in costs, resulting in Singaporeans losing jobs.

Regional Economist at CIMB Research, Mr Song Seng Wun, also felt that a tiered approach to any increase in employers’ contributions would “smoothen the impact” on businesses.

Senior Regional Economist at Barclays Leong Wai Ho said: “You don’t want to create disincentives for businesses to hire older workers. So, a gradual movement over a longer period might work better for businesses.”

Mr Leong also cautioned against moving too soon, noting that “better external demand conditions” were just starting. “It’s better to let that solidify, let revenues rise a little further, let the outlook improve and somewhere in the middle of the improving business cycle, then we start making these adjustments.”