WP proposes scheme that gives ‘modest’ payouts to retrenched workers

SINGAPORE — Releasing details of a redundancy insurance scheme it first floated at this year’s Committee of Supply (COS) debates, the Workers’ Party (WP) has called for employers and employees to each contribute 0.05 per cent of monthly salaries to a fund that would provide payouts for those who have been retrenched.

While economists and a Member of Parliament (MP) told TODAY that the scheme would be more prudent than relying on taxpayers’ monies to provide any support for affected workers, they also raised questions over its sustainability and whether companies have the appetite for extra labour costs during the current lean times.

Released yesterday, the 17-page consultation paper will be put up for public consultation for a month.

Under the opposition party’s proposed scheme, employers and employees would each contribute about S$1.90 every month, based on the average wage of S$3,782 in 2014.

When workers are laid off, they will be given a payout of 40 per cent of their last-drawn salary for up to six months.

This amount is meant to be an extra “modest” safety net that will help prevent disruptions to the affected worker’s mortgage repayments and healthcare, among other things.

However, to get the payouts beyond the first month, retrenched workers need to show that they have been actively seeking employment, by signing a declaration that will be periodically audited. Penalties will be imposed on those who make false declarations.

There will be top-ups for those earning below S$1,000. Those with wages below S$500 a month will receive a payout equivalent to their last-drawn salary, while those earning between S$500 and S$1,000 will get a top-up of S$200 to their original payouts.

Using previous redundancy figures and resident median gross monthly incomes, the WP calculated that the scheme would have a surplus and the Government need not top up funds to this scheme. Even in a year of high redundancy, it said that a top-up by the Government may not be needed if the scheme has been running for a few years and has created a reserve from the accumulated surplus.

The WP said that the scheme has been made “deliberately conservative”, where the premium and payout have been set at a “relatively modest level” for employers and employees to understand and accept it.

The scheme should be “introduced early when unemployment is low so that we can build up a resilient system with healthy reserves that can be drawn upon in years of poor economic growth and high redundancy”, the party added.

On WP’s proposal, SIM University senior lecturer Walter Theseira said that no matter how well-designed unemployment insurance schemes are, they are expected to have some effect on lengthening the duration of unemployment, because it encourages people to find a better-fitting job than the first job they come across, he added.

UOB economist Francis Tan said that WP’s proposal takes a more prudent approach than a scheme that draws on taxpayers’ money or Government funds, but he also questioned if firms would be keen on taking extra labour costs during this period, and if the 0.1 per cent premium is sufficient and rigorously tested.

In response to queries, Associate Professor Daniel Goh, who is a WP member, said that while the party did not have a formal advisory panel, it consulted professional economists outside the party, as well as experts in related fields at various stages when drafting the paper.

A decade ago, a similar scheme was mooted by the Singapore Human Resources Institute (SHRI) and its social enterprise Spec. Former SHRI executive director David Ang said that the scheme was discontinued after some two years because insurance firms wanted to raise premiums.

Pasir Ris-Punggol GRC Member of Parliament Zainal Sapari, deputy chairperson of the Manpower Government Parliamentary Committee, told TODAY that similar schemes in other countries ran into problems, including not having enough time to grow the fund such that it could cover the payouts during an economic downturn.

Having such a scheme may also create a moral hazard, where workers would intentionally make themselves redundant to get the payouts, he added.

During the COS debates back in April, in response to MPs calling for stronger safety nets for retrenched workers, Manpower Minister Lim Swee Say said that while the Government promises its “best efforts” to help, it also needs unemployed workers “to do their best to help themselves, be prepared to adapt to different jobs, if necessary in different sectors and even different salaries, so that they can grow again”.