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FROM THE VALLEY TO THE HIGHLANDS
Keeping Older Workers Employed
Lim Boon Heng wants to revamp our seniority-based
wage system to help older workers keep their jobs. I fully support
him. Boon Heng has spent 22 years with NTUC. He has seen how difficult
it is for older workers who are retrenched to get re-employed. He
has seen companies axing older workers first, whenever they have
to cut costs.
But it will take more than flexible
wages to keep older workers employed. It also requires employers
to keep an open mind. Many older workers have told me that they
are willing to take lower pay. But companies do not give them a
second look.
The employers explain that if they
pay older workers less, the workers will not be happy. They think
this will affect the workers' morale and productivity, and they
will not stay around long. Once the economy picks up, they will
make a beeline for a higher-paying job. So the companies prefer
to hire younger workers.
I am deeply concerned about the predicament
of older workers. If they insist on their previous wages, you say
they are too expensive. If they accept a pay cut, you doubt whether
they will stay. This gives them no chance at all!
I urge employers: do not pass over
workers simply because they are above 45. If older workers are prepared
to adjust, give them a fair chance to prove themselves.
CPF Reform
Wage reforms alone are not enough to
ensure our long-term competitiveness. CPF forms a large part of
wage cost. Therefore, we must also make changes to the CPF system.
The CPF has served us well. Its basic
philosophy is to require workers to save for old age. Later, we
added other social objectives like saving for housing and medical
expenses.
These objectives remain valid today.
In fact, Singaporeans now need more in their old age. They are living
longer, and medical costs are going up. And with smaller families,
they are less able to count on support from their children.
From this social perspective, the higher
the CPF contribution rate, the better.
But from the viewpoint of keeping our
economy competitive, the CPF should be as light a burden as possible.
High CPF contributions increase employers' wage costs. To them,
the CPF is a statutory burden, unrelated to the performance of the
company or the worker.
We maintained a CPF rate of 40 percent
for a long time, when incomes were rising rapidly. But looking ahead,
Singapore's growth rates will be lower, while competition will be
keener. We need to strike a better balance between economic competitiveness
and social objectives.
That is why the Economic Review Committee
recommended changes to the CPF scheme last year. We trimmed the
use of CPF for housing. We are lowering the CPF rate for older workers.
And we are reducing the CPF salary ceiling from $6,000 to $5,000.
But these changes do not go far enough.
We have to make further changes in four areas.
Contribution Rates
First, CPF contribution rates.
Our CPF rate is now 36 percent. The
Government had earlier committed to restore it to 40 percent when
economic conditions permit. I have reluctantly come to the conclusion
that this commitment is no longer realistic or wise. In today's
competitive environment, it would price us right out of the market.
I propose, therefore, that we give
up the 40 percent target, so that we can save jobs. We should find
a lower contribution rate for the long-term, one which still gives
the majority of Singaporeans enough CPF to pay for housing, healthcare
and retirement expenses.
It is hard to settle on a single number
as the long-term CPF rate. Economic conditions nowadays are too
unpredictable. I would, therefore, want the option of cutting CPF
in bad years, and conversely, putting more into the CPF in good
years. This will give us greater room to manoeuvre, to respond to
the competitive environment. So instead of trying to decide on a
fixed CPF rate, I am thinking of setting a range of rates.
For older workers, the range of rates
will have to be lower than for younger workers. This is a principle
that has already been accepted by the Economic Review Committee.
It is to help older workers stay employed.
And while we think about a long-term
target for the CPF, we must also ask ourselves: in the immediate
future, is our current CPF rate of 36 percent appropriate? If not,
what should it be lowered to?
I think we should be prepared to go
down to as low as 30 percent, if necessary.
Minimum Sum
Second, as we lower the CPF rate, we
have to ensure that Singaporeans still put aside enough for their
retirement. Today, Singaporeans can expect to live till about 80.
In this context, the current Minimum
Sum of $80,000 is not very much. You may think it is a tidy sum
of money. However, most CPF members have pledged their property
to make up half the amount. So they only have $40,000 in cash in
the Minimum Sum. $40,000 can give you only $252 a month, from retirement
at 62 until you are 80 years old.
$252 is a small fraction of the last
drawn pay of most workers. We need to increase the Minimum Sum.
There is also the Medisave Minimum
Sum, which is $25,000. Right now, even though we call it a Medisave
Minimum Sum, we do not actually make people top it up to $25,000
before they withdraw their CPF savings at 55. We need to change
this too.
50% Withdrawal at Age 55
Third, we have to tighten the rules
for CPF withdrawal at age 55.
Currently, at age 55, Singaporeans
can withdraw at least half their CPF money , even if they have less
than the Minimum Sum in their balances. This leaves them very little
in their CPF accounts to meet their retirement needs. If we lower
the CPF rate, that will leave them even less money.
We should, therefore, phase out the
50 percent withdrawal rule. Eventually, CPF members who reach 55
should keep at least the Minimum Sum and Medisave Minimum Sum in
their CPF accounts, before they withdraw any CPF balances.
But we can only implement this gradually
over several years. Many Singaporeans who are approaching 55 would
have made plans to use their CPF money. We should not disrupt their
plans.
Salary Ceiling
Fourth, the CPF salary ceiling. The
CPF scheme is meant to meet the retirement needs of the 10th to
80th percentiles of the population. The top 20 percent of earners
should be able to plan and provide for themselves. If they want
to save more for their retirement, they should do so on their own,
and not through the compulsory CPF scheme.
The CPF salary ceiling is now $6,000,
and we are lowering it to $5,000 by January 2005. In other words,
any income above $5,000 will not be subject to CPF contribution.
But $5,000 is still way above the 80th percentile income, which
is $3,700.
To focus the coverage of the CPF on
our target group, we should further lower the salary ceiling, to
below $5,000.
Impact of CPF Changes
I am aware that the CPF changes we
are thinking of may be hard to swallow. For some of you, a cut in
the CPF rate may be the difference between meeting and failing on
your mortgage payments. Others may have been looking forward to
a big holiday when you withdraw your CPF money. I know that you
are also disappointed that the Government might not restore the
CPF rate to 40 percent, as we had earlier intended.
I am afraid that we have to consider
these severe measures. Our choices are: adjust, or lose more jobs.
For me, the choice is clear. I have looked carefully at the situation
and all the options. I am 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, especially jobs
held by older and lower skilled Singaporeans. We will also store
up problems for the future. Singaporeans will retire and find that
they do not have enough savings for their old age.
But if we make these tough choices
now, we will put right a major weakness in our CPF system. We also
signal to investors that we are realistic and long-term in our thinking.
We show that we are willing to bring down our costs, and are actually
doing so. This will help us attract more investments and more jobs.
Indeed, our key problem in the next
few years will be the loss of jobs to lower-cost countries - blue
collar jobs, white collar jobs, skilled jobs. China is "the
factory of the world". Manufacturing? The Chinese can make
many products, at lower cost. India is gaining a reputation as "the
world's back office". IT jobs? Indians can do them, at lower
cost. Where does that leave us?
To replace the jobs we are losing,
we are creating new jobs in new areas. Many Singaporeans will be
able to do these jobs, and earn good pay, especially those graduating
now from our ITEs, polytechnics and universities. But other Singaporeans,
especially older Singaporeans, lack the necessary skills. So we
have to trim the CPF rate to keep costs competitive, and keep some
older jobs here.
Personally, restructuring the CPF will
be one of the more difficult decisions I have to make. But it would
be irresponsible of me to duck it and leave the problem to my successor.
It is not in my character to shirk responsibility. It is not the
character of the PAP Government. The Ministers and I bear the burden
of trust you have put on our shoulders, by electing us to office.
We will have to do what is necessary for the country's future, no
matter how unpleasant.
I am convinced that it is better to
take the bitter medicine now, than to let our sickness get worse.
We will draw up special measures to ease your pain, and help you
adjust to the changes. In the long run, I believe that the upside
of the changes - lower business cost, a more competitive economy,
and less unemployment - will more than make up for the present pain.
The changes are crucial for us to beat
a path out of the current slump, and sustain our growth later. I
do not recommend putting off the changes.
I will present the proposed CPF changes
in Parliament in the next few weeks.
Increasing Self-Reliance
I know that some of you are getting
breathless trying to keep up with the changes around you. You may
even be confused. But unfortunately, there is no emergency button
that we can press, to stop the world from changing. We will have
to adjust to its pace. Otherwise, we will fall by the wayside.
Adapting to the rapid changes requires
a mindset change. We can no longer expect life to progress steadily
upwards on an escalator. Instead, we must be prepared for life on
a roller coaster. Also, our mindset change must go beyond the economy,
to other aspects of our lives.
Above all, we must be more self-reliant.
The Government will create the framework and the environment for
you to thrive. But it should not and cannot micro-manage your life
to guarantee you your job and your wealth. You must create and seize
the opportunities yourselves. To become a vibrant society with a
strong entrepreneurial streak, the Government will have to cut loose
the apron strings.
The irony is, western journalists decry
Singapore as a nanny state. But many Singaporeans want it that way.
They are worried that we are shifting the burden of responsibility
and decision-making back to them.
But to survive the rough and tumble
of our uncertain world, Singaporeans will have to make more decisions
for themselves. They will have to do more for themselves. And they
must take responsibility for their actions and decisions.
We have been making changes in this
direction over recent years. We are allowing greater risk-taking,
experimentation, diversity, choices and decision-making.
Three weeks ago, we lifted the restrictions
against bar-top dancing. We also gave the green light to a New Zealand
company to introduce reverse bungee jumping here.
Now, when I allowed bungee jumping
and bar-top dancing, it is not because I encourage these activities.
You will never find me dangling from a bungee cord, or dancing on
a bar-top. But you may find me watching a bungee jump, and, I don't
know, perhaps one day, I may go and see why dancing on a bar-top
gets some people all excited. What I had done was to signal a shift
in our mindset to being more relaxed and open-minded, and less strait-laced
and Victorian. I want Singaporeans to be self-reliant and robust.
So I have to let you decide for yourselves the level of excitement
and risk you want.
As for my comments on gays, they do
not signal any change in policy that would erode the moral standards
of Singapore, or our family values. In every society, there are
gay people. We should accept those in our midst as fellow human
beings, and as fellow Singaporeans. If the public sector refuses
to employ gays, the private sector might also refuse. But gays too,
need to make a living.
That said, let me stress that I do
not encourage or endorse a gay lifestyle. Singapore is still a traditional
and conservative Asian society. Gays must know that the more they
lobby for public space, the bigger the backlash they will provoke
from the conservative mainstream. Their public space may then be
reduced.
I am glad that conservative Singaporeans
and religious leaders have made known their views on the matter,
clearly but responsibly. I hope we will now move on and focus on
more urgent challenges.
I think football fans will welcome
my next example of mindset shift. We will be easing the rules on
the use of the National Flag and National Anthem. Our present guidelines
spell out exactly when and where you can use them. This is very
restrictive. Our Flag and Anthem are powerful, rallying symbols
for Singaporeans. We will now allow the Flag to be flown, and the
Anthem to be sung, on non-official occasions as well, such as football
matches. In future, we will specify only the conditions under which
the Flag and Anthem cannot be used.
This relaxation is not earth-shaking
in itself. But it signals another mindset shift. In the past, we
operated largely on the principle that "everything is not allowed
unless we say it is". Now, we will give greater room for experimentation.
Increasingly, it will be "everything is allowed unless we say
it is not" … well, almost everything!
HOPE Programme
Now, self-reliance is equally important
for less able Singaporeans. But we may have to give them a leg up,
to help them become self-reliant. You see, many poorly educated
Singaporeans have fallen into a poverty trap. They tend to have
more children than they can afford. And because they cannot provide
enough for each child, the next generation remains poor. MPs see
many such cases turning up for financial help.
We have to counsel these Singaporeans
to keep their families small, and give them the incentives to do
so. Then they and their children will stand a much better chance
of staying above the poverty line. That is why I am introducing
a new programme called HOPE. HOPE stands for Home Ownership Plus
Education. It will help these families build up their self-reliance
and break out of the poverty trap. HOPE will replace the current
Small Families Improvement Scheme.
HOPE will help beneficiaries pay for
their HDB flats, their children's education, and skills training.
The mothers will be encouraged to work, and stand on their own feet.
In total, families on this programme
will each receive $100,000 in benefits.
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