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.