NTUC asks for boost in CPF rates and flexibility in withdrawals

AHEAD of the government's expected announcement of changes to the Central Provident Fund (CPF) system, the labour movement has asked that the system be kept flexible, yet not to the point it becomes a "benefit scheme".

The National Trades Union Congress (NTUC) on Wednesday unveiled a slew of tweaks to the CPF system, including allowing greater flexibility in withdrawals and improving the returns on CPF savings. These ideas, drawn from focus-group discussions among more than 250 participants (including union leaders and workers) over two months late last year, were submitted on Tuesday to the CPF Advisory Panel, which was formed last September to look into enhancements to the CPF system.

The NTUC suggested that CPF members get an additional one per cent interest on at least the first S$120,000 of their combined CPF savings - double the current S$60,000.

It also suggested that the government raise the total CPF contribution rate for workers aged 51 to 55 from 35 per cent to 37 per cent, on par with that for workers aged 50 and below. Additionally, the total contribution rates of workers above 55 could be raised; for example, those aged 61 to 65 to have a total contribution rate of 25 per cent instead of the current 16 per cent, and those aged above 65, 16 per cent, up from 12.5 per cent.

Another suggestion involved the CPF Ordinary Wage Ceiling. Currently, the maximum amount of CPF contributions payable is based on a monthly salary ceiling of $5,000, but the NTUC calls for this to be raised by S$500 to S$1,000; it also suggests that this ceiling be adjusted progressively thereafter to match the 80th income percentile.

The labour movement also homed in on the Workfare Income Supplement (WIS) initiative, which pays cash into the CPF accounts of low-wage workers aged 60 or more to induce them to continue working. The highest payouts now go to such workers drawing an average gross monthly wage of S$1,000; NTUC calls for this to be raised to S$1,200.

On CPF draw-downs through CPF Life, the national annuity scheme that pays out a monthly income for life, the NTUC suggested releasing a schedule showing how the Minimum Sum will be raised over 10 years, together with the corresponding CPF monthly payouts, to give members greater certainty.

It also suggested that the government let CPF members - even those with less than the Minimum Sum - to withdraw a "percentage" of their Retirement Account balances.

Cham Hui Fong, NTUC's Assistant Secretary-General, asked what the percentage was, said: "We don't want to specify the percentage, but don't think it will be anything lower than 20 per cent."

To encourage CPF members to keep their total amount in their Retirement Accounts intact, NTUC further proposed a substantial one-time "non-withdrawal" incentive.

As for CPF Life monthly payouts, NTUC suggested letting members receive escalating payouts, and to offer perks to those who opt for lower initial monthly payouts or those who defer their draw-down age.

Ms Cham said union members hope that after the enhancements, the CPF scheme would be sustainable, offer good interest rates and provide some certainty in terms of contribution rates and interest rates.

Acknowledging that the suggestions would raise business costs, she said employers need "to find more creative ways" to turn this into their advantage.

Asked by reporters how hopeful the NTUC was that its suggestions would be taken up, she replied that the focus groups had yielded "meaningful conversations", and that since the government had initiated a review of the CPF scheme, "it's an opportunity for us to really feed back to the government the voices from the ground". She added that the NTUC had also had its own internal deliberations and hoped the government would consider the suggestions seriously.

Kurt Wee, president of the Association of Small and Medium Enterprises (ASME) urged the delay of some of the proposals, saying they were coming at a time when businesses were already struggling to cope with "years of escalating wages and rent".

There has not been real productivity growth, and whatever nominal productivity growth achieved had been eroded by inflation, he added.

The Singapore National Employers Federation (SNEF) also flagged concerns that raising employer CPF rates would raise overall wage costs and eat into the more moderate wage increases expected over the next few years, amid a slowing global and Singapore economy.

"Furthermore, as a built-in fixed wage cost, raising the employer CPF rate will also be out of alignment with the languishing productivity trend," it said.

Against such a backdrop, it said it would approach suggestions for any CPF contribution rate increases in the short- to medium-term "with some caution".


@ClaireHuangBT Singapore

This article was first published on January 22, 2015.
Get The Business Times for more stories.