Debated in Parliament on 20 Jan 2015.
Mr Yee Jenn Jong asked the Deputy Prime Minister and Minister for Finance whether the availability of corporate retirement plans will be widened, given the low level of such plans in Singapore which contributes to Singapore's low score on retirement adequacy in the Mercer Melbourne Global Pension Index.
The Senior Minister of State for Finance (Mrs Josephine Teo) (for the Deputy Prime Minister and Minister for Finance): Mdm Speaker, Mr Yee has asked about the relative absence of corporate retirement plans, which he believes has contributed to a low score for Singapore in the Mercer Melbourne Global Pension Index.
Madam, in this study, Singapore was ranked overall ahead of other Asian countries as well as developed countries, such as Germany and the United States (US). Mercer described our system as one with "a sound structure, with many good features, but has some areas for improvement."
Given that employers in Singapore make mandatory contributions to their local employees' Central Provident Fund (CPF) savings, the observation in the study about corporate retirement plans is relevant mainly to foreigners working here, for whom the CPF
Page: 23
is not applicable.
The Income Tax Act already provides tax deductions to employers if they wish to provide corporate retirement plans for all of their employees, including foreigners. In addition, foreigners who wish to save on their own may tap on the Supplementary Retirement Scheme (SRS). They will enjoy tax benefits on the SRS contributions they make. We will continue to review the SRS scheme from time to time.
For the majority of Singaporeans, the CPF remains at the core of our social security system. Beyond mandatory contributions, both individuals and employers can make voluntary contributions to the CPF accounts and enjoy tax benefits. For the less well-off, the Government provides support through top-ups to their CPF accounts, such as through Workfare and housing grants and the enhanced interest scheme.
Madam, I would like to thank the Senior Minister of State for the reply. Yes, I am aware that Singapore did overall score quite well in the Mercer Index, but the point was that on the adequacy requirement side, we actually scored 56.4, which is below the global average of 63, and adequacy requirement is something that is very important to Singaporeans, given rising costs.
I would like to ask specifically about section 5 of the Income Tax Act which provides for this sort of corporate retirement plans. There are reports saying that there are only about 20 companies in Singapore that currently implement such plans. I would like to know, given that this scheme was there since 1994, why is the take-up rate so low, and is there a way to use corporate retirement plans to supplement our CPF and SRS schemes? And is there a study to see whether our companies are not taking up these section 5 plans? Is it because maybe the tax benefits are not good enough or it is not widely known and publicised to the companies?
Mdm Speaker, since the Member Mr Yee had talked about Singapore's specific score on retirement adequacy, with your permission, I would like to take a step back and I do not mean to be technical or to suggest that the index is unhelpful in any way. But I think each time we look at such indices, there is some value to investing the time to understand how they are constructed and what they actually measure.
As far as we know, where corporate retirement plans are concerned, the index assigns a higher score to countries which provide tax advantages for such private plans. In other words, there is a particular item in this index and if a country provides tax advantages for providing private plans, then you would score higher on it. It does not matter whether there are, within that country, schemes like the CPF or even the fact that there are tax benefits for
Page: 24
voluntary contributions to the CPF, for example, through the Minimum Sum Top-Up Scheme; none of those things matter.
In fact, if we think about it, even in the absence of private plans on a large-scale basis, employers in Singapore are already required to contribute 17% to an employee's retirement savings through CPF. That is our CPF contribution rate. And you compare that to Australia where the mandatory contribution is 9.5%, and Denmark which came up tops in this study, the mandatory contribution is between 6% and 11%. If you look narrowly at this score, then you could be led to draw a certain conclusion and forget the fact that even in the absence of large-scale retirement plans – private plans, corporate retirement plans – actually, employers in Singapore are already contributing quite a lot to employees' retirement savings through CPF.
Putting this aside, the key question is whether the so-called shortcoming is something that should be a major concern to us. I would like to reiterate the point, Madam, that it is relevant mainly for foreigners working here for whom the CPF is not applicable. Members would agree with me that our primary concern should be for Singaporeans, unless Mr Yee thinks otherwise.
PAPERCUTS