Committee of Supply (Speech 2) by Mr Gan Kim Yong, Minister for Manpower, 11 March 2010, 1:30 PM, Parliament
Mr Gan Kim Yong, Minister for Manpower, Parliament
FOSTERING INCLUSIVE GROWTH AND ENHANCING RETIREMENT ADEQUACY
(I) INTRODUCTION
1. Even as we strive for sustainable growth through the productivity drive, we must help every worker benefit from our progress and enjoy financial security when they retire.
2. One of the more vulnerable segments of our workforce is our older workers. Singapore’s population is ageing rapidly. By 2020, about one in six Singapore residents will be 65 years or older. Life expectancy has improved over the years and will continue to improve. A person retiring at 65 in 2008 can expect to live for another 20 years or more.
(II) ENCOURAGING RE-EMPLOYMENT OF OLDER WORKERS
3. We aim to provide opportunities for older workers by improving the employability of older workers and by introducing re-employment. Other agencies and self-help groups also offer a range of activities to cater to the social needs of our senior citizens.
4. The legislation for re-employment will be introduced in 2012. Re-employment allows able older workers to continue contributing to their organisations. It provides flexibility to employers and helps them retain their older workers beyond the minimum statutory age of 62 and continue to tap on their experience. A higher employment rate of older workers also benefits our economy as a whole by providing the much needed manpower resources to support our economic growth.
5. The abolishment of the retirement age to remove limits to employment was suggested. I think re-employment is a more flexible approach. Let us focus our efforts on implementing re-employment by 2012.
6. We were also asked if the Retirement Age Act will be amended to remove the provision for wage adjustment at age 60. This provision was introduced in 1998 in response to the seniority-based wage system which affects the employability of older workers. It gives companies the flexibility to make necessary adjustments in their workers’ salary, subject to a cap of 10% and taking into account various factors such as performance and experience of the workers. This flexibility should be retained as it helps older workers remain cost competitive and employable, as some companies still practise seniority-based wages.
7. However, employers should not implement the 10% wage cut at 60 automatically. Tripartite partners have been advising companies to exercise flexibility and fairness in adjusting the remuneration package of those reaching 60, taking into account the value of the job and the worker’s contribution. Based on a survey by SNEF in 2005, most companies did not make any wage adjustments when their workers turn 60 and only 15% of employers reduced the wages of their workers at age 60.
8. As part of our efforts to enhance the employability of older workers and encourage re-employment, we will continue to urge employers to move away from seniority-based wage systems and towards performance-based wage structures.
a) Updates on public consultation on the draft Tripartite Guidelines
9. The tripartite partners have been working closely over the last two years to help our companies and workers implement re-employment as early as possible.
10. The results so far have been encouraging. More than 800 unionised companies have already implemented some form of re-employment policies and practices. According to preliminary findings from a 2009 survey by MOM, nearly two-thirds (64%) of companies surveyed already allowed their employees to continue working past age 62. MOM’s Labour Force Survey in 2009 also found that the employment rate of older residents aged 55-64 has remained stable at 57.2%, despite the economic downturn. This shows that employers generally value older workers. We believe it is useful to monitor the progress of re-employment in Singapore. We will consider providing regular updates moving forward.
11. A set of draft Tripartite Guidelines on Re-employment was released in November last year. Feedback on the Guidelines has been encouraging. Key stakeholders have affirmed their support. There were a few useful and practical suggestions. Some employers said that it was more realistic to start engaging employees on re-employment issues, 6 months before they reach retirement age, rather than 12 months, as originally suggested. Some employers also suggested having greater clarity on the quantum for the Employment Assistance Payment or EAP. Tripartite partners have carefully considered these suggestions and addressed them in the revised Guidelines.
b) Addressing feedback on the Employment Assistance Payment
12. Let me take this opportunity to elaborate further on the proposed EAP, to be paid to eligible employees when employers are unable to offer re-employment.
13. While employees generally welcomed the concept of the EAP, they were concerned that employers might use it as a convenient way to avoid re-employing their older workers. Employers, on the other hand, expressed concerns about the possible cost implications.
14. As I had explained in Parliament earlier this year, we expect that the majority of the employers will be able to offer re-employment to eligible employees, given the flexibility re-employment offers. Nonetheless, we recognise that some employers may not be able to do so despite their best efforts. In such situations, employers should provide employment assistance to these employees, including career counselling, training, as well as an EAP.
15. The EAP should be carefully calibrated so that it neither imposes an undue burden on employers, nor becomes an easy alternative to re-employment. Feedback from the tripartite partners indicates that 3 months of salary could be a practical “reference point” for the EAP quantum.
16. To provide further guidance, the Tripartite Guidelines will stipulate a minimum EAP of $4,500 and a maximum EAP of $10,000. The $4,500 mark is roughly 3 months of salary for the 25th percentile of workers while the $10,000 mark would cover 3 months of salary for about two-thirds of our workforce. Employers and employees should exercise flexibility in determining the actual EAP amount, using these levels as references.
17. The Tripartite Guidelines will be released today. They will set the parameters and norms on how re-employment should be implemented. I strongly urge all employers and employees to adopt the recommendations in the Guidelines so that they can be re-employment ready by 2012.
c) Revised ADVANTAGE! to support re-employment legislation
18. A key tool companies can tap on for help in becoming re-employment ready is the ADVANTAGE! Scheme. Since its introduction in 2005, over 1,300 companies have signed up for the programme. They have committed to recruit nearly 5,400 older workers, retain 21,000 and re-employ almost 9,500 older workers. A total of $33.2m has been committed so far.
19. To encourage more companies to become re-employment ready ahead of the 2012 deadline, we will enhance the ADVANTAGE! scheme.
20. SMEs, in particular, may need more help. We will introduce a Capability Development grant of $10,000 under ADVANTAGE! for SMEs to develop HR systems to implement re-employment. They will first undergo the PREPARE programme by the Association of SMEs (ASME), which will guide them through the implementation of good re-employment practices. They can use the grant to defray some of the implementation costs.
21. All companies will continue to be eligible for up to $400,000 grants from ADVANTAGE! if they recruit, retain and re-employ older workers. They can also tap on the fund for job redesign initiatives targeted at enhancing the employability and productivity of older workers. Examples include automation as well as industry-sponsored projects like the Security ADVANTAGE! programme. Companies can refer to the case studies on the SNEF web portal for more ideas.
22. Companies can also use the ADVANTAGE! Grant to train their HR managers and older workers, including older PMETs. In addition to job-specific training, employers can also prepare their older workers for re-employment by sending them to the READY programme by the Centre for Seniors (CFS).
23. To further spearhead job redesign, we will set aside $5 million to fund industry-specific projects. We encourage companies from similar industries to work with their industry associations and partners like the polytechnics to use the fund to develop solutions that will enhance productivity across the industry.
24. In all, we will commit an additional $50 million for the enhanced ADVANTAGE! scheme from April 2010 till end 2011.
d) Moving beyond awareness to readiness
25. Awareness of re-employment legislation is already high amongst employers. We must now move our outreach programme beyond awareness to readiness.
Re-employment ready employers
26. Some employers are already re-employment ready. Toppan Security Printing is one such example. It has invested in more automation to aid their older workers. It has also organised a workshop to encourage employees aged 55 and above to remain relevant in the workplace. Their employees who have reached the retirement age will have their contracts renewed on a yearly basis, subject to health clearance. Wages of re-employed employees are reasonably adjusted, taking into account their workload and job responsibilities.
Re-employment ready employees
27. Besides the employers, we also need older employees’ commitment to re-employment. Mr Kunalan, a 69-year-old coach at NIE, shows that age is not a barrier as long as one has the passion and desire. Not content to retire at age 55, he extended his contract for 5 years and has continued working since then, way beyond the initial 5 year contract term. Mr Kunalan says he wants to continue working as long as he can contribute and share his experience.
28. To further promote re-employment, and up the readiness of all stakeholders, the tripartite partners will be kicking off a public campaign next month.
(III) HELPING SINGAPOREANS SECURE AN INCOME FOR LIFE
a) Updates on the implementation of CPF LIFE
29. Besides preparing for re-employment, the Government has also introduced changes to the CPF over the past few years to improve the retirement adequacy of Singaporeans, including the introduction of CPF LIFE.
Update on CPF LIFE opt-ins
30. In September last year, CPF LIFE was made available for older members aged 55 and above to sign up. About 37,000 members have signed up since, committing a total of $1.7 billion. More than $120 million top-ups were made into members’ Retirement Accounts to raise their LIFE monthly income. Of those who signed up, 72% qualified for the L-Bonus and 74% qualified for the V-Bonus. These members will receive a total of $96 million in bonuses from the Government.
31. On questions about those who have yet to sign up, let me explain that the early introduction of CPF LIFE was in response to public feedback that some older members would like to join LIFE ahead of the mainstream implementation in 2013. However, many older members would have withdrawn a significant portion of their CPF savings when they reach 55 and would have less savings in their CPF. Furthermore, those past their Draw-Down Age would already be receiving payouts under the Minimum Sum Scheme. Some of these older members could also have made other plans for their retirement finances such as buying private annuities. CPF LIFE may not be suitable for all of them.
32. Hence, I would advise members to consider their individual situation, such as their personal finances, family support available and other factors before deciding whether to opt into LIFE and which LIFE plan to select. To give members a sense of how such decisions were made, let me share a few examples.
b) Profiles of participants and choice of plans
33. Members would recall that CPF LIFE offers 4 plans, allowing members to choose their preferred level of monthly income and bequest. The most popular plans have been the LIFE Plus Plan and the LIFE Balanced Plan, with more than half choosing the former and about a third choosing the latter.
34. Mr Yesudason surrendered a private annuity plan to join CPF LIFE. He did the sums and found that he would get a higher payout from CPF LIFE because he could benefit from the L-Bonus. He approached CPF Board for advice before selecting the LIFE Balanced Plan which will provide him with a balanced level of payouts and bequest.
35. Another member, Mdm Lee, chose the LIFE Plus Plan, which provides a higher monthly income but a lower bequest compared to the LIFE Balanced Plan. She did not mind a smaller bequest, as her children are able to support themselves. As Mdm Lee’s Retirement Account balance was low, her children topped up her account to increase her LIFE payout and to maximise the L-Bonus entitlement, while taking advantage of the tax relief offered in the process.
36. Both Mr Yesudason and Mdm Lee had carefully evaluated their financial circumstances before signing up for CPF LIFE. I encourage other older members to do the same, if they have not already done so. To qualify for the L-Bonus, they would need to join CPF LIFE by 31st December this year.
37. We agree that public education is important. Since September last year, CPF Board has sent direct mailers to every eligible opt-in member with information on CPF LIFE. The Board has also reached out through various media channels, the CPF website, as well as regular talks and road-shows on CPF LIFE. Members are encouraged to approach the CPF Board for help and advice if neccessary.
c) Facilitating auto-inclusion in CPF LIFE
Second automatic inclusion point at draw-down age
38. From 2013 onwards, members turning 55 with at least $40,000 in their Retirement Accounts (RA) will be automatically included into CPF LIFE, and the amount enrolled in CPF LIFE would include additional savings in their RA that may receive between 55 and 65. CPF LIFE will provide them with a lifelong monthly income from age 65 onwards. Members with lower balances can still opt in to CPF LIFE. The National Longevity Insurance Committee had recommended that members who will receive a pension or annuity with benefits equivalent to CPF LIFE, and is either irrevocable or recoverable by CPF in the event of termination, be exempted from auto-inclusion. Such pension and annuity schemes will need to be approved by the CPF Board.
39. We are also helping members who are not auto-included in CPF LIFE at age 55. Between age 55 and the Draw-Down Age of 65, members’ CPF balances typically continue to grow. If a member has $40,000 in his Retirement Account at 55, he would have about $60,000 at 65, due to interest income alone. Members who have lower balances and are not auto-included at 55 may also be able to increase their CPF savings significantly by age 65, especially if he continues to receive CPF contributions from work or refunds from the sale of property. We will therefore also auto-include those with $60,000 in their Retirement Account at age 65. This will apply starting from the first auto-inclusion cohort in 2013 which will turn 65 in 2023.
(IV) OTHER MEASURES TO IMPROVE THE CPF SYSTEM
a) Tightening usage of CPF monies for investment
40. More will be done to improve the CPF system, besides implementing CPF LIFE.
41. First, we will refine the CPF Investment Scheme (CPFIS). Today, monies in excess of $30,000 in the Special Account can be invested under CPFIS. Given the higher interest rate on the Special Account and the volatility of CPFIS returns, we should take a more conservative approach. Hence, we will raise this threshold to $40,000 with effect from July 2010. This means that members can only invest Special Account monies in excess of $40,000. Existing investments will be unaffected until they are liquidated. This adjustment will affect 2.7% of all CPF members.
b) Enhancements to the Minimum Sum Topping-Up scheme
42. Next, we will enhance the Minimum Sum Topping-Up Scheme to further encourage top-ups to family members’ CPF accounts.
43. Some members have given feedback that our top-up rules do not allow payouts to be raised beyond the maximum cohort payout level, and may result in excessively long payout durations. This is because CPF Board has taken a more prudent approach and used top-ups beyond the cohort’s Minimum Sum to extend the payout duration rather than to raise the payout amount. However, some members would prefer to have the benefit of higher monthly payout after making top-ups, rather than stretch their payout durations out beyond a reasonable period.
44. We have taken on board their suggestions. From July this year, we will allow members to apply for an upward adjustment in their CPF monthly income provided that their payouts can last at least 20 years from their Draw-Down Age, or at least another 5 years from the time of application, whichever ends later.
c) Refining the CPF nomination rules
45. Another aspect of CPF policy which we will fine-tune is how CPF members may distribute their CPF monies following their demise. We have received feedback that some members would like to use their CPF monies to provide for the retirement needs of their dependents. To facilitate this, we will amend the CPF Act to allow members the option of transferring their CPF monies directly to their nominees’ CPF accounts when they pass on, rather than to pay their nominees in cash.
46. In addition, we will be introducing the Special Needs Savings Scheme announced by MCYS yesterday. This scheme will allow parents of children with special needs to stream out the CPF monies they bequeath to their children monthly, rather than as a lump sum. By leveraging on existing CPF infrastructure, we can keep the administrative cost low to benefit parents and encourage them to save for the long term needs of their children with special needs. Details of the scheme will be announced later.
d) Update on Medisave contribution for SEPs
47. Let me give an update on the CPF Medisave contributions by self-employed persons. On average each self-employed person contributed 12% more to their Medisave in 2009 compared to 2008. This has helped raise the average Medisave balance of self-employed persons to $15,900 as at end 2009, 6% higher than in 2008. The proportion of self-employed persons who have met their Medisave liabilities also increased from 78% in 2004 to 81% last year.
48. I must stress that it is the personal responsibility of self-employed persons to provide for their healthcare needs by contributing to Medisave. But the Government will help encourage them do so. Those with low wage can receive the Workfare Income Supplement if they meet their Medisave liabilities. There is even a Medisave Contribution Draw (MCD) where those who make Medisave contributions stand to win cash prizes of up to $5,000.
49. The Government will continue to work with our tripartite partners and grassroots leaders to reach out to the self-employed, and encourage them to save for their healthcare needs through Medisave contributions.
(V) PROVIDING OPPORTUNITIES AND INCENTIVES TO WORK AND TRAIN
50. I will now turn to Workfare, a key programme to help older low-wage workers.
a) WIS review
51. We introduced the Workfare Income Supplement or WIS scheme in 2007 to help older low-wage workers who are more vulnerable to wage stagnation. The WIS scheme rewards work by supplementing the workers’ incomes and building up their CPF savings. Since 2007, the Government has given out over $300 million in WIS every year to about 300,000 Singaporeans.
52. When WIS was introduced, we said that we would review it in three years. The ESC has also recommended that WIS be reviewed as it is an important part of our approach to bring about inclusive growth. My Ministry has completed this review and found that WIS has worked as intended by supplementing low-wage workers’ incomes while preserving work ethic through its emphasis on rewarding work. The design of WIS is fundamentally sound, but can be strengthened further.
b) Adjustment of WIS
53. The strong growth in 2007 and early 2008 has enabled the bottom 20% of workers to enjoy real wage growth over the past three years. However, they remain more vulnerable to economic shocks than other income groups. We can do more to help them.
54. First, we will increase the maximum WIS that a worker can receive. A low-wage worker aged 60 and above can now receive up to $2,800 in WIS, $400 more than before. We will also extend the income ceiling to qualify for WIS from $1,500 to $1,700.
55. It remains an important objective of WIS to help workers save through their CPF. With the increase in WIS payment quantum, the cash component will correspondingly increase. For example, a worker aged 60 with an income of $1,000 will receive $686 cash currently. With the adjustment under WIS, he will receive $800 in cash, $114 or 17% more.
56. On suggestions to pay WIS quarterly and shortening the work criteria, WIS is meant to encourage regular work. Hence, requiring at least 3 months of work for every 6 month period and making two WIS payments a year are more appropriate.
57. We will however adjust how the first payment is made. Currently, we make a provisional payment in the middle of the year based on work done in the first six months. However, once we assess the worker’s overall eligibility at the end of the year, he may qualify for lower WIS, or none at all, resulting in a need for us to recover the excess WIS payments. This is not ideal. Henceforth, the first six-month period will be assessed independently from the end-of-year annual assessment. This means that recipients will be able to keep the mid-year WIS payment they receive, regardless of their income in the second half of the year.
58. As WIS is a broad-based scheme, we have to keep the scheme and the criteria simple. Existing criteria are easy to administer and serve the purpose. There are other schemes available to help those who may have unique family profiles.
59. It was earlier suggested to exclude overtime pay from WIS eligibility. Basic salary, over-time pay or bonus are all income that helps support the worker and his family, and should be taken into consideration. We also do not wish to motivate employers to reduce basic pay and increase overtime. WIS is designed such that the sum of a worker’s pay and WIS will always increase if a worker earns more. Let me explain with a slide. Mr Huat is a 45-year-old pipe fitter. He earns $1,200 a month and will receive $1,283 in total average income, after adding an average WIS of $83 a month. If his salary increased by $200 to $1,400, his average WIS drops to $50 per month, but his total income of $1,450 is still higher than the $1,283 he used to receive.
60. The enhanced WIS scheme will apply to work done in 2010 onwards. The first payment for work done in the first half of 2010, will be made in September this year. Self-employed persons and informal workers who declare their income for the first half of 2010 and make their Medisave contributions by 31 July can also receive their first WIS payments in September.
61. Self-employed persons will receive WIS automatically once they declare their income and make the required Medisave contributions.
62. The enhanced WIS scheme is expected to benefit up to about 400,000 workers. This is higher than the 320,000 expected recipients for 2009. To fund the enhanced scheme, we will increase the budget allocated for WIS to $440 million a year.
c) Workfare Training Scheme
63. We need to ensure that older workers are included in the national productivity drive. For workers, productivity is about raising skills to take on higher value jobs which justify higher wages over time. Therefore, besides encouraging firms to develop productive work processes supplementing workers’ income, we must also help older low-wage workers move out of low-wage employment through training and upgrading.
64. Lower-income workers generally have a lower incidence of training. Of employed residents aged 35 to 64 in 2009, the training participation rate of those earning $1,700 and less was 14%, less than half the rate of 30% for those earning above $1,700. Training incidence also drops as workers age. There is thus a double whammy for the older low-wage workers when the effects of both age and income are combined.
65. This is due to various obstacles to training such as the lack of confidence, family and work commitments, or the lack of basic literacy and numeracy skills to take up vocational training. The opportunity cost may also be quite high for some low-wage workers who may depend on overtime income or two jobs. Their employers may not be motivated to send them for training in view of the costs involved.
66. We will make a bigger push to encourage this group of older low-wage workers to upgrade their skills, and to incentivise their employers to send them for training. We will introduce a 3-year Workfare Training Scheme, or WTS to complement WIS. To be eligible, the trainee must be a Singapore citizen aged 35 and above.
67. WTS will comprise three components.
68. First, to encourage employers to send their older low-wage workers for training, we will provide an Employer Grant to further subsidise employers’ net absentee payroll and net course fee outlay. Specifically, if an employer sends his worker who is earning $1,400 and less a month for training, he will receive 95% course fee subsidy and absentee payroll; and 90% in subsidy for a worker earning between $1,400 and $1,700 a month. This is higher than the usual course fee subsidy of about 80% funding at CET Centres and absentee payroll before SPUR was introduced.
69. Second, we will introduce the Training Commitment Award (TCA) which will encourage workers to attain a certain level of training. For every two Employability Skills (ES) or Workforce Skills Qualification (WSQ) Statements of Attainments (SOAs) that a WIS recipient obtains within a period of 12 months, he will receive $200. The time requirement of 12 months is meant to incentivise regular training. He can also receive an additional $200 TCA when he has completed enough modules for a full WSQ qualification. The total TCA he can receive each year will be capped at $400. The TCA goes directly to the worker.
70. To recognise low-wage workers’ recent training efforts, we will allow a one-off recognition of up to two SOAs completed in the 12-month period between 1 Jul 09 and 30 Jun 2010 for the first payout. WIS recipients need not apply for the TCA as it will be assessed and paid out automatically with their WIS.
71. Apart from the Employer Grant and TCA, we will be introducing a structured training component, Workfare-Skill Up, to further lower barriers to training for low-wage workers who lack the literacy and workplace skills to take on better paying jobs or go for further upgrading.
72. This programme takes a holistic approach including customized classes, mentorship, and structured training pathways. Training will be customized to address the needs of low-wage workers who may have difficulties taking time off work or have family commitments. To further lower barriers to training, Skill Up will provide milestone awards of $200 to specially reward low-wage workers for each advancement in literacy level that they attain, as this is typically an area of greater difficulty for them. In addition, to help offset the various costs associated with training, training allowances will also be provided. After training, e2i, CDC career centres and CET Centres will help to place the trainees into better jobs.
73. Low-skilled, low-wage workers have benefited from similar structured training arrangements in the past. Mdm Zarina is one of them. She only had Primary 2 education and was unable to find permanent employment. Upon seeking employment assistance from the CDCs last year, she took up the WSQ F&B Certificate. Owing to her work ethic and positive attitude, she eventually secured a permanent position with Dunkin’ Donuts which pays $1,000 a month. She also completed her literacy training. In total, she received about $2,400 in course fee subsidies and training allowances. Workfare Skill Up is introduced to formalize these structured training programmes so that more workers like Mdm Zarina can benefit.
74. Employers and workers, including contract and casual workers, can both receive significant benefits under WTS. Let’s take as an example a 60-year-old worker, called Mr. Yeo, who earns $1,000 a month and is a WIS recipient. His employer decides to send him for a WSQ Certificate course which takes 48 hours. If the cost of the 2 modules is $2,000, his employer will enjoy 95% course fee subsidies of $1,900, as well as absentee payroll of about $240, a total benefit of $2,140 for the employer. If Mr. Yeo obtains 2 SOAs and the full WSQ certification within a year, he will receive a total of $400 in TCA. Under the enhanced WIS scheme, Mr. Yeo himself will also receive $2,800 in WIS per year. In total, he will receive $3,200 this year. With better skills and qualifications, he will be able to move on to larger job scopes which can justify higher wages over time.
75. Various types of workers, such as self-sponsored, self-employed, casual and contract workers can benefit from WTS. They can benefit from highly subsidised course fees. They can also sign up for Workfare Skill-Up and receive training allowances. In addition, they are eligible for the TCA if they are WIS recipients. Workers who are not sponsored by their employers can also approach the various Self-Help groups (such as MENDAKI, SINDA, CDAC) under the Surrogate Employer Programme to qualify for higher course fee subsidies.
76. There was concern that low-wage workers will not know how to apply for such schemes. I would like to assure him that we will be reaching out to low-wage workers through mass media and community events. They can also approach the usual contact points such as CDCs, e2i and CET Centres to sign up for training. We will also be providing a dedicated toll-free number in all four languages, that they can call for more information.
77. The WTS will be rolled out from 1 Jul 2010. It will run for 3 years at an estimated cost of $190 million over the period. We are aiming for a stretch target to benefit an average of 30,000 low-wage workers annually over the 3 years.
(VI) CONCLUSION
78. It will be a significant challenge to shift our economy towards productivity-driven inclusive growth while at the same time addressing the issues of an ageing population. We will need to maximise the skills and potential of every single worker – including those who are older or earning lower wages so that they are not left behind. This will also help build up a sustainable pipeline of skilled workers so that businesses can continue to grow. We must press on with our efforts to enhance the retirement adequacy of Singaporeans by strengthening our CPF system. I am confident that with the strong support from our tripartite partners – NTUC, SNEF, SBF and other stakeholders – we will make good progress on all these important fronts.
Fact Sheet - "Add Value And Tap On Age!" (ADVANTAGE!)
Factsheet - Workfare Training Scheme
Factsheet - Workfare Income Supplement
Factsheet on Measures to Improve the CPF System