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Raising CPF rates for older workers a tough balancing act
THE call to raise older workers' Central Provident Fund (CPF) contribution rates is not new, nor are the common objections to it. What does change is the economic context surrounding each instance of this call.
Given the many concerns faced by firms today, any such move will have to be carefully calibrated - though ironically, increasing the pressures on firms might end up aiding Singapore's transformation efforts.
The latest suggestion came on Wednesday from the People's Action Party Senior Group (PAP.SG), an advocacy group in the ruling party. In a paper that was also submitted to the government, they included a proposal for older workers' CPF contribution rates to be raised and equalised with those of younger workers.
Currently, workers aged 55 and younger have a 17 per cent employer CPF contribution rate and a 20 per cent employee contribution rate.
These decrease progressively with age, falling once after the age of 55, again after the age of 60, and a third time after the age of 65, to a final employer rate of 7.5 per cent and employee rate of 5 per cent.
Raising older workers' contribution rates will improve retirement adequacy "and ensure that our older workers are paid the same as their younger colleagues for doing the same job," said PAP.SG.
In contrast, when these rates were first differentiated by age in 1988, the aim was to make it more attractive to retain older workers, who might be more expensive due to seniority wage systems.
With tight labour conditions having persisted for several years, today's employers arguably require less persuasion to keep experienced staff. Seniority wages aside, mature workers have also become an important source of labour in sectors hit by stricter foreign labour laws. The justification for older workers' lower contribution rates seems weaker today.
There is also some precedent for restoring CPF contribution rates to the same level as those for younger workers. In 2005, a new age band had their CPF contribution rates cut: workers aged over 50, up to 55. Their rates were fully raised back in line with those of younger workers in 2016.
Changes in the employment landscape were precisely what then-Finance Minister Tharman Shanmugaratnam cited when announcing the rate restoration in 2015's Budget speech, saying: "In recent years, we have seen significantly improved employment of our older workers. Schemes such as the Special Employment Credit and Workfare Training Support have encouraged employers to hire them, and invest in training them."
Yet as the employment context has changed, so have pressures faced by firms. Firms now struggle with rising costs and the imperative to transform and go digital. Raising the employer's contribution rate would add a further burden, particularly for small and medium enterprises.
Objections to raising CPF rates usually stem from concerns about the impact on firms. This worry - unlike those about older workers' employability, arguably - stays relevant today.
Ironically, it is precisely for this reason that raising contribution rates might prove helpful for the transformation drive. By raising wage pressures on employers, firms will be pushed further away from labour reliance and towards automation instead.
In short, if older workers' employability is jeopardised, the transformation push benefits; if they remain equally employable, firms will bear the brunt of the change. In a sense, there are gains either way - yet also undeniable costs. Balancing these concerns is key if older workers' CPF contribution rates are to be raised, and any such move should be undertaken with the utmost caution.