Josephine Teo explains why Govt did not make bolder moves in raising CPF rates, retirement, re-employment ages

SINGAPORE — Some have suggested rethinking the way Singapore looks at retirement and re-employment ages and Central Provident Fund (CPF) contribution rates for older workers.

On the other hand, there are those who take the raising of the retirement and re-employment ages to mean that Singaporeans are being forced to work longer.

Manpower Minister Josephine Teo delved into these and addressed concerns at the Economic Society of Singapore’s annual dinner on Thursday (Aug 22), explaining the Government’s rationale for making the changes Prime Minister Lee Hsien Loong had announced at his National Day Rally last Sunday.

The retirement age would be raised from 62 to 65, and the re-employment age from 67 to 70, by about 2030.

Over the same time period, the CPF contribution rates would increase for most older workers. The rate for those between 55 and 60 years old would eventually be raised to be on par with younger workers.

But those 60 years and older would have a smaller quantum of increase.

Currently, those aged 55 and below receive a 37 per cent CPF contribution rate, while those older receive a lower rate.

RATIONALE BEHIND CPF, RETIREMENT AGE CHANGES

Mrs Teo said that the decision to pace out the changes over the next decade or so may come across as a little “glacial” for some.

While the Government’s aim is to raise the retirement and re-employment age by three years over the next decade, only the first raise has been “pinned down”, she added.

The retirement age will be raised to 63 and the re-employment age to 68 on July 1, 2022.

The next increases will be discussed between the Government, employers and workers, taking into account “the evolving economic landscape”, Mrs Teo said.

Previously, two Institute of Policy Studies (IPS) researchers, Mr Christopher Gee and Mr Damien Huang, had suggested that the retirement and re-employment ages be pegged to the average number of years Singaporeans are expected to live in good health, or what is known as the Health-Adjusted Life Expectancy (Hale).

However, Mrs Teo said that would mean having a re-employment age of 74 in 2029 based on their model, which is four years above the Government’s target age of 70 by 2030.

“Hale is undoubtedly a useful reference point. But for the proposed shifts to be workable, there’s equally the need to account for other factors such as economic and labour market conditions,” she added.

The examples of Denmark and the Netherlands — two countries that have linked their retirement age to improvements in life expectancy — have shown that there is a pushback as people are worried about the overly fast pace of increase in the retirement age, and whether it was applicable to all categories of workers.

The researchers also suggested that CPF contribution rates for older workers up till 65 years old be raised to the same level as that for younger workers.

Mrs Teo said the proposal will carry considerable risks. It would mean higher manpower costs for businesses and lower take-home pay for workers.

The decision to taper CPF contribution rates after a person is 60 years old is “a practical way” of helping both the employer and worker.

“At least maintain (his) employability... (he) may not accumulate a lot more in retirement savings, but he at least has a salary. And a job is better than no job, a salary is better than no salary,” she said.

MISCONCEPTIONS ABOUT RETIREMENT AGE

Mrs Teo also said that one of the most common misconceptions is that Singaporeans think they must work until they reach the retirement or re-employment age.

“As a result, when these are raised, they think they are being forced to work longer. They are mistaken,” she said.

It may be the case in other countries when the retirement age is also the age for pension withdrawal, hence people expect to work up to retirement age as they are unable to get their pensions before that.

However, in the case of Singapore, CPF withdrawal is not tied to the retirement or re-employment age, she emphasised.

“People can and do choose to stop working before they reach the retirement or re-employment age,” she added.

CPF members may withdraw a part of their savings at 55 years old. They are able to start receiving their monthly payouts from the age of 65.

Despite the de-linking, there has been criticism that the withdrawal age only starts three years after the retirement age of 62.

HOW CAN COMPANIES COPE WITH HIGHER MEDICAL INSURANCE COSTS?

With older workers expected to remain in employment longer, one member of the audience pointed out that this could mean companies having to bear the medical costs of older workers.

Given that some companies provide for their workers' medical insurance that goes beyond what they can claim under MediShield Life, he asked during the question-and-answer session whether these policies can be ported so that an older worker would not lose such benefits after changing jobs or retiring.

Mrs Teo said that the most common insurance scheme companies buy for their workers, the Group Hospital and Surgical (GHS) insurance scheme, is a duplicate of Medishield Life, since individuals can claim their hospitalisation bill only once, whether through the company or through their MediShield Life.

But employers “have a way out”, she said, as they can use their budget for GSH towards other benefits for their employees instead.

“Why are employers providing duplicate coverage? Insurance companies, no offence to them... are not going to be terribly excited about reminding you of this duplicate coverage. Employers have a way out.

“Why do companies still persist in not moving to this? Partly inertia, partly lack of understanding.”