Matching Employers' and Employees' Levels of Contribution to CPF

Assoc Prof Tan Kheng Boon Eugene asked the Acting Minister for Manpower what are the circumstances and conditions by which the employers' CPF contribution rate will return to being on par with that of the employees' contribution rate and whether this can be expedited to ensure retirement adequacy for CPF members.

Mdm Speaker, CPF contribution rates currently stand at 36%, with 20% from employees and 16% from employers. In a Ministerial Statement in 2003, then Prime Minister Goh Chok Tong explained that we would not be restoring CPF contribution rates to 40%, with equal contributions from employers and employees. The considerations then against raising employer contributions were to keep our wage costs competitive, and importantly, because we will price ourselves out of the competition. The considerations remain valid today.

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Ensuring retirement adequacy is important, especially as Singaporeans require more savings for retirement and healthcare because, obviously, we are living for a longer period of time. Raising overall CPF contribution rates further beyond the current 36% will make a difference and would certainly be one way of providing that adequacy. But, importantly, I think we also need to understand what that impact would be when we raise the contribution rate. It will have an impact on business costs and, importantly, a knock-on effect on employment opportunities. It is really about balancing the tensions between these two conflicting requirements.

Further increases in our CPF contribution rates will have to be carefully considered, together with our tripartite partners, and we need to do it in a calibrated and gradual manner – both wanting to address retirement adequacy, which is a valid concern, but at the same time, to make sure that employment opportunities are not denied as a result of the decreased competitive nature of our businesses.

Other than raising CPF contributions, there are different ways that we can address the issue of retirement adequacy. For example, in recent years, we have helped CPF members grow their savings. Since 2008, an extra interest of 1% is paid on the first $60,000 of a member's combined CPF balances. Workers earning lower incomes also enjoy a boost to their CPF savings via Workfare. We have also gradually been increasing the contribution rates for older workers, which are currently set below the 36% rate for workers aged 50 and below, while bearing in mind the need to maintain their employability. Again, it is the issue of employability that is at stake – we balance that off with increases in CPF contributions. The Government also makes top-ups to members' CPF accounts from time to time. We are continuing to explore with MOF other ways to enhance the system while at the same time keeping it sustainable.

Lastly, I would add that as we live longer, one of the issues at hand that we need to address is the ability of Singaporeans to continue to work longer if they choose to and if they need to. This is where we also need to bear in mind how we facilitate that because as we continue to work, that would also add to our CPF contributions and also would help our retirement adequacy. So, addressing retirement adequacy spans across a few different approaches, of which raising contribution rates is one.

Mdm Speaker, I do not think there is ever a good time to raise employer's CPF contribution rates. I would like to ask the Minister whether he would consider an incremental – bit by bit – increase. The alternative, perhaps, is to manage expectations by saying that we

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are never going to increase the employer's contribution rates. I think it has been quite a while since the rates were equalised. While I agree that there are other ways to provide for our retirement adequacy, I think the Minister would agree that it is the CPF contributions from both the employee and the employer who are the main contributors.

Mdm Speaker, as employees, all of us, prefer to have a higher employer's contribution. That goes without question. But the issue at hand really is not about that part alone. It is about the impact on business costs. Again, it is not just concern about business costs but the knock-on impact on employability.

The considerations, as raised by then Prime Minister Goh Chok Tong, remain valid today. We need to watch our competitive advantage. That is something that was of concern then. It remains a concern now. If anything, I think the competition has become more acute, especially with globalisation. The world has become a lot smaller. Competition is right at the door step even though it may not physically be so. We do need to watch that.

As explained, I think we will continue to review how we should look at the CPF contribution rates but, importantly, it is to look at retirement adequacy as a whole entity. Some of the measures highlighted earlier are areas that we can look at to improve to make sure that retirement adequacy is to be addressed in other ways as well. Addressing it purely by raising employer's contribution to CPF is one way but it has a very real impact on employability which is a big concern of ours as well.