S'pore adjusts social security system to stay competitive

S'pore adjusts social security system to stay competitive

Martin Abbugao, Agence France-Presse, Singapore

Singapore on Thursday announced an overhaul of its social
security system, slashing workers' pensions in a bid to stop jobs
and investments from migrating to cheaper countries like China
and India.

"Our priority must be to save jobs for our people," Prime
Minister Goh Chok Tong said in a televised speech in parliament
on the keenly awaited reforms of the Central Provident Fund
(CPF).

The CPF, a mandatory savings scheme, is at the core of the
social security system in Singapore, which has no welfare
policies. It is used for retirement pensions as well as paying
housing mortgages, medical care and education.

While providing domestic stability, the CPF has also made
local workers as expensive to hire as those in some western
countries.

Employer contributions to the CPF were lowered, bringing down
the monthly total from 36 to 33 percent of workers' salaries from
October 1. This will save employers some S$1.3 billion (US$740
million) a year.

Salary scales on which contributions are based will also be
lowered, while withdrawal rules will be tightened, all resulting
in less money for workers.

"The changes I have announced are the most drastic we have
ever made to the CPF system," Goh said.

"They are necessary because we are seeing the most drastic
changes yet in our external environment," he said, citing the
"formidable competition" posed by emerging economic giants China
and India.

"We have to lower our cost to remain attractive to investors
even as we embark on a wider exercise to lift our economy to a
higher plane," he added.

Company contributions to the CPF were lowered to 13 from 16
percent, while workers will continue contributing 20 percent of
their salaries.

In the longer term, Singaporean workers who are 50 years or
older -- who are seen as less competitive -- will get less in
their CPF funds than younger counterparts.

"The CPF is Singapore's most important social safety net," Goh
said, but he warned that because of globalization, jobs are now
moving to cheaper places and "the process has accelerated in
recent years."

Jobs in the semiconductor industry, a crucial sector of the
city-state's economy, are moving to places like China, Goh said,
and even white-collar positions are shifting to countries like
the Philippines, Thailand and India.

Goh said the government had abandoned its goal of restoring
CPF contributions to the high of 40 percent of salaries during
the economic boom years, and will now stick to a flexible band of
30-36 percent which will be adjusted based on economic
conditions.

But relief will be given to affected workers, including
measures to help homeowners cope with loan repayments drawn from
their CPF balances.

"I think the message being sent out to foreign investors is
that we are willing to be flexible to ensure that it is still a
competitive environment for foreign investors," said economist
Low Ping Yee of United Overseas Bank.

She had expected the rate to be slashed immediately to 30
percent, but "I guess they are trying to strike a balance between
wanting to reduce the wage costs and how people's purchasing
power will be affected, especially with mortgage repayments."

Opposition leader Chee Soon Juan criticized the cuts, saying
the government should carry out other reforms like opening up the
political system and slash ministers' salaries which are
"completely bloated out of proportion."

Singapore has some of the best-paid cabinet ministers and
civil servants in the world, but authorities say this has also
made the government one of the cleanest by attracting talent and
discouraging corruption.

Opposition MP Chiam See Tong accused the government of "taking
the easy way out" with the CPF cuts, stressing other business
costs like high rentals and utility charges should also be
lowered.

Chiam also said the government should draw from its surpluses
which he estimated at $150 billion.

"The surpluses are supposed to be national savings for rainy
days, but we have now seen black clouds and showers thundering
down on us and still the government wants to accumulate wealth at
the expense of our workers," he said.