Last night, the Prime Minister spoke about the need for changes to the CPF. This is not a new subject. The CPF system has been under review in the past two years. Last year, the Economic Review Committee started it. It was in the report of the ERC. It was highlighted in DPM Lee's speech in parliament during the debate on the ERC report. DPM Lee again, spoke of it at the recent Pre-National Delegates' Conference of the National Trades Union Congress in July 2003.
I have put together the relevant parts of the ERC report, DPM Lee's speech in parliament and at the Pre-National Delegates' Conference. Quite a bit has been said on the subject in these forums and I would not repeat them here. You can get copies of the extracts from your union, if you wish to read them.
What I would like to point out is that the message has been a consistent one. We need to refocus and retune our CPF system. This is a delicate and difficult decision. However, it is a necessary one, if we want to remain competitive. We have to do it if we want to make sure that jobs stay in Singapore and more jobs can be created.
PM's Eve of National Day Message
On the eve of National Day, in his message the Prime Minister said: "The CPF should be retuned."
PM's National Day Rally Speech
Last night, at the National Day Rally, the Prime Minister outlined what the Government has in mind.
Firstly, the target of 40 percent contribution is to be given up. The appropriate CPF contribution rate could be a range of rates. We should be prepared to go down as low as 30 percent. This means the CPF contribution rates could vary between 30 and 36 percent.
Secondly, the Minimum Sum should be increased.
Thirdly, the Medisave Minimum Sum should be maintained.
Fourthly, we should phase out withdrawals of CPF balances for those who do not have enough to meet the Minimum Sum.
Fifthly, the CPF ceiling should be brought down, closer to the 80th percentile wage.
Prime Minister was convinced that we have to adjust and reform our CPF system. "And the sooner we do it, the better. Otherwise, we will lose our competitiveness and many jobs held by older and lower skilled Singaporeans."
We have a menu of difficult measures before us. Some have wondered why there is a need for these changes. Isn't the flexible wage system, and monthly variable component (MVC) supposed to take care of the very problems we are now using the changes in the CPF to do?
The flexible wage system allows us to deal with cyclical problems. The changes in the CPF are to deal with structural problems. A structural problem arises when new competitors come on the scene, and they have the advantage of lower costs. That is why we have to keep fixed costs down. The CPF is fixed. What PM has outlined is to make our CPF more flexible - and ensure that the core objectives of the CPF system are met.
NTUC's Response
What is the NTUC's response to the CPF changes?
The NTUC Central Committee met in a special session on 15 August 2003, two days before PM made his speech. I briefed members on the key points that PM would make on possible changes to the Central Provident Fund, at the National Day Rally. The Central Committee's views were generally as follows.
First, job security is the most important issue today. Unemployment has still not come down. Workers continue to be retrenched as more companies relocate and others trim costs to regain competitiveness. Although the economic statistics show signs of a recovery, on the ground most workers do not feel it yet. Therefore something has to be done to bring down unemployment. Jobs have to be preserved, and new ones created.
Second, cost of doing business is the issue. As such, all costs should be tackled, not just wage costs.
Third, if employer's contribution to CPF is to be cut, then the higher income should bear the bigger share. This is because two-thirds of wages in Singapore go to the top one-third of income earners. As such, unions urge that if a cut is necessary, the across-the-board cut be kept as low as possible, but the CPF ceiling be brought down, lower than from $6,000 to $5,000 presently planned.
Fourth, for companies that are doing well, the extraordinary gains from a cut in employer's contribution to CPF should not go to shareholders. The employers should pay the CPF cut to employees in cash, such as through special bonuses.
Fifth, the objective of cost cutting is to enable companies to do better. If companies do better because of the cut in CPF, they should share the gains in profits with employees in bonuses.
Sixth, employers should do their part to lower other costs and to raise productivity. At the same time, employers should not forget the revenue part of the profit and loss equation. They should do more to grow their business.
Seventh, help should be given to those who are affected by the CPF cut,
especially those facing problems servicing their mortgage payments.
Lastly, the Government should take steps to lower the cost of living for workers, especially in public transport and healthcare.
At the meeting on 15 August, Central Committee members did not comment on the proposed phasing out of withdrawal of CPF balances at age 55 years, for those who could not meet the Minimum Sum. However, in the workshop discussions at the NTUC's Pre-National Delegates' Conference on 22-23 July, at least two delegates of the unions spoke up to suggest that such generous withdrawals be disallowed. This will protect the Minimum Sum, so that retirees can get a steady annuity stream. They urged this step because they had seen some workers withdrew half their CPF balances, exhaust their money quickly, sometimes through unwise spending, and end up in greater hardship!
As Secretary-General of the NTUC, I am proud of the resolve shown by union leaders to play their part in tackling the jobs problem, on the basis of fair play.
Change will be the something that we have to deal with constantly. How well we are able to change and adapt and would affect how well we are able to cope with the shifts in competition in the world. We have heard from the Prime Minister that one Singaporean worker costs as much as three Malaysian workers, eight Thai workers, thirteen Chinese workers and eighteen Indian workers. That is the reality of the competition. We should not despair. As long as we are prepared to adapt to the stronger competition, we will be able to maintain a premium.
I believe that it would be easier for people to change if they know that if they fall, there is a net to catch them. This is basic human nature. If every small change we make could result in serious consequences, very few people would be receptive to changes and experiment with new ways of doing things. Very often we resist changes, consciously or sub-consciously, because we are worried about coping with the unknown.
I have highlighted the trend of pre-emptive retrenchment, not because I endorse it. As a responsible leader, I have to point out the reality that we have to deal with. What is important is what are we going to do about it? We cannot stop a global trend. My intention is to point out that we need new features in our social safety net. We need to have ways to help workers cope with the changes.
The NTUC has been pushing for benefits that workers can carry with them from one employer to another. We push for portable medical benefits so that workers do not need to rely entirely on the employer for their medical benefits. Workers can still compete for another job, even if they have a pre-existing illness. There is still medical coverage when we are in-between jobs.
We advocate savings schemes so that they can cushion us in between jobs or when there is a sudden loss of income. As the period of employment with each employer becomes shorter, workers would not be able to get the kind of retrenchment benefits that they could get in the past. They would need savings to help them tide over the periods in-between jobs.
We drive very hard for skills training because that is the best bet for workers to get into new jobs, with better wages, which will be created. We cannot be competing for the same jobs we have in the past. Many of the jobs that we lose would never come back again. New jobs will be created and these jobs will require higher level of skills in order to pay higher wages. Therefore, our workers need to be trained.
Let me conclude my speech by quoting from a national day song that we sing so very often. "There was a time when people thought that Singapore would make it, but we did. There was a time when trouble seems too much for us to take, but we did."
Our country may not have the natural resources that many others have. However, we have a solid track record of being able to get things done. The leadership of Singapore is a strong one. We do not dodge from difficult but necessary measures. The people and the workers of Singapore have proven, time and time, that we are able to face up to challenges squarely and emerge victorious.
Thank you.
CPF Review
The CPF system has been under review in the past two years. Last year, the Economic Review Committee started it.
Extract of ERC Report
"Since its introduction in 1955, the CPF system has provided Singaporeans with sound framework to save for their own retirement, reflecting our strong emphasis on individual responsibility. The role of CPF, however, has grown over the years, and it needs to be refocused to keep the statutory burden on employers as light as possible. This will contribute to labour market flexibility.
Key Recommendations:
To be sustainable over the long term, particularly in view of demographic trends, the CPF structure and contribution rates have to balance the need to save enough for these basic financial requirements, with the need to keep employer costs to a minimum. The lighter the statutory burden on employers, the easier it will be for Singaporeans to be employed and the lower our unemployment will be.
Singapore economy has not fully recovered. It is critical to maintain cost competitiveness, even as we implement longer-term strategies to restructure our economy. This will avoid adding to the statutory burden on wages for employers at a nascent stage of our recovery, and help reduce further job losses. It will also send a strong signal to investors that Singapore is acting decisively to strengthen its competitive position. The timing and pace of the restoration should take into account economic conditions, especially Singapore's cost competitiveness vis-à-vis other countries.
Overview
On CPF Changes, DPM's Lee highlighted the following:
CPF Salary Ceilings
Employee Contribution Rates for Older Workers
Contribution Rates for Special and Medisave Accounts
In addition, DPM Lee also said that CPF members need not worry that these changes will leave them with less savings in their CPF Ordinary Accounts to service their mortgage payments. The changes will be implemented over several years, during which we expect wages to increase. In addition, the Government will give those who purchased their properties before 1st January 2004 continued access to their Special Accounts to top up their CPF mortgage payments, to the extent that these payments are affected by the changes.
CPF Restoration
An extract of DPM remarks on CPF - 22 July 2003, Pre-NDC
CPF
"First, the CPF. Our CPF system, based on individual savings and self-reliance, has worked well. But even so we have needed to improve and update the system, to stay in step with changing circumstances.
Until the Asian Financial Crisis, the basic philosophy of the CPF was to compel workers to save more. During the high economic growth in the early 80's, we raised the CPF as high as we could. Incomes were rising, so rather than letting workers spend the extra money and leave nothing for a rainy day, the Government channelled it into their CPF to fulfil social objectives such as home ownership, healthcare, and retirement.
But since the Asian Financial Crisis, with fiercer competition and cost pressures, increasingly we feel the opposite need to keep the CPF contribution rate as low as possible. This is because high CPF contribution rates are costly to businesses, a drag on our competitiveness, and can drive investments and jobs away. So more and more going forward, the CPF system will need to take into account wage competitiveness.
We cannot abandon our objective of adequate compulsory savings. Singaporeans need the CPF system, and its benefits, more than ever. Medical costs are going up, and we must save for them. People are living longer. In 1990, workers who retired at 62 could live on average for another 18 years, until 80. Now, 62 year olds live on average for another 20 years, two years longer than before, until 82. In 10 years time, life expectancy will have gone up some more. Remember that on average someone aged 80 spends 3 to 5 times more on medical expenses than someone aged 62. So we must expect heavier retirement expenses, and make sure that we provide enough for our old age.
So on the one hand we want to keep our wage costs as competitive as possible, but on the other hand we have social objectives to meet. That is why we must keep the usage of CPF sharply focussed. We cannot afford to draw down the CPF for extraneous purposes, such as overseas study or unemployment welfare. The CPF should be used only for essentials, i.e. retirement expenses, healthcare and housing. Furthermore it should cater to the bulk of Singaporeans, and not over-provide for the high income earners, the top 20% who can look after themselves.
Last year, we started making significant changes to the CPF scheme. We are cutting back on the use of the CPF for property purchase, and raising the contribution to the Special Account, to safeguard more savings for retirement expenses. We are reducing the salary ceiling from $6,000 to $5,000. We are also lowering the contribution rates for the 50-55s, to help offset the seniority based wages and make older workers more employable. These changes will help adapt the CPF scheme to our changing circumstances."
