Saturday, October 18, 2014

Suggestions on CPF changes raised at LKYSPP conference


By Olivia Siong

17 Oct 2014 22:36

Raising the CPF income contribution ceiling for employees and adopting social principles rather than commercial ones were some of the suggestions offered at a session on inequality and social security reforms.

SINGAPORE: Raise the CPF income contribution ceiling for employees - that was one suggestion raised by an economist at a session on inequality and social security reforms that was part of the Lee Kuan Yew School of Public Policy (LKYSPP) 10th Anniversary Conference held on Friday (Oct 17).

During the session, LKYSPP’s Associate Professor Hui Weng Tat said to help improve retirement adequacy, in particular for the middle-income group, the issue should be addressed early and when people are working.

"The amount of contribution that they are putting into CPF accounts is decreasing in real terms. That has to do with the fact that the income contribution ceiling has not kept in step with inflation. It has remained at S$5,000,” he said.

He pointed out that between the 1980s and 2011, "the real value of the income ceiling has actually been halved. As a result, our real contribution to CPF for those who had exceeded the ceiling has actually been declining over time. What is needed is an increase in the income ceiling, especially for those who are contributing on the employee side.

[Should we worry about the high-middle income (or whatever social strata those earning over $5000 are) earners? These income earners have other ways of ensuring their retirement adequacy. And no, it has not "remained" at $5000 from the 80s to 2011. It was $6000 prior to 2004, and was reduced to $4500 in 2006, before being re-adjusted to $5000 in Sep 2011. The rationale was explained here. The CPF is targeted at the 10th and 80th percentile income earners. Hence the ceiling. Why isn't this Assoc Prof who has commented on the CPF frequently, not au fait with the policies relating to the CPF? Even if he has a point, shouldn't he addressed the original intent of the policy?]
"In other words, we can raise the income ceiling for the employee contribution, not necessarily the employer contribution, so that it does not add to the employer's cost. For the employee, it is just increased savings which they can therefore use in retirement, and that will ensure an improvement in their retirement adequacy."

[Because a) CPF members already prefer not to put their money in CPF (despite the better rates), and b) Higher income earners should not have to depend solely on the CPF to meet their retirement needs, and c) there is already the SRS - not exactly the same, but it provides tax relief, and SRS savers can use the funds for investment to gain better returns perhaps than CPF.]

Another speaker, Professorial Fellow Mukul Asher, also noted that currently, schemes like CPF Life and MediShield adopt commercial principles - for example, with premiums varying by age and sex. He said this has not helped with ensuring retirement adequacy, and social principles should be adopted instead.

He noted: "Women live longer than men, so women are going to have to pay higher premiums or accept lower CPF Life amounts for a given capital sum. But women have a lower labour force participation rate than men. They also, as a group, on average, earn less than men. But they live longer, so they need more.

"So what we are doing with the commercial principles is making it very difficult for half of the population to have adequate retirement."

[Bravo! Thank you for making this point. This is very true and very correct. Social principles, and looking out for women, are two very important points.]

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