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Call for more employer-sponsored retirement plans, on top of CPF

With rising concerns over retirement adequacy, some experts say it is timely for more firms to look into providing employer-sponsored retirement plans.

SINGAPORE: Amid the ongoing debate on retirement adequacy, some industry experts are calling for greater adoption of employer-sponsored retirement plans. These plans will allow employees and employer to make voluntary contributions on top of what is set aside in the CPF.

Swiss company Firmenich is one of the early adopters of private pension plans in Singapore. In 2003 - following a cut in the CPF employer contribution rate - the flavours and fragrances maker announced a company-funded private pension plan for its employees.

At the time, companies like Firmenich were concerned that employees might not have enough for retirement. It estimated that the CPF changes in 2003 had the impact of reducing their employees' nest eggs by between 19 per cent and 47 per cent.

With rising concerns over retirement adequacy, some experts say it's timely for more firms to look into providing employer-sponsored retirement plans.

Mr David Richardson, Principal Consultant of Actuarial Consulting Group, said: "The money is paid by the employer, into a trust fund - on top of the payments to CPF. It's paid into a trust fund, which is approved by IRAS, under Section 5 of the Income Tax Act. And these contributions go in, and just accumulate right up to retirement, and then the retiring employee gets the benefit of it when he hits retirement."

According to the Inland Revenue Authority of Singapore, there are currently 23 employer-sponsored retirement plans approved under Section 5 of the Income Tax Act. IRAS says this number has remained roughly unchanged since 5 to 10 years ago.

As CPF contributions are not allowed for foreign employees, many of these plans were initially driven by multi-national firms that want to allow their expatriate staff to make voluntary contributions for their retirement.

On average, employees contribute 5 per cent of their monthly salary to such plans, and this amount is matched by their employers. The contribution rate is set by the company and can vary, depending on the firm's financial performance.

Mr Marcus Kok, Principal Pension Consultant at PwC Asia Actuarial Services, said: "The advantage of having a pooled fund is - your resources now become bigger. You can actually go to the fund manager on a bigger fund portfolio and tell them to design something specifically for the co-opts. Now, by doing that, one of the other advantages is that you will cut down the expense loading compared to going out as an individual and hiring an individual investment manager. In that scenario, I don't think it's that cost-effective."

Still, some experts say the relatively low adoption rate is due to a lack of awareness among companies, and the time it takes for such plans to be approved. As an alternative, the Actuarial Consulting Group says some firms in Singapore have chosen to set up these retirement plans offshore, in jurisdictions like Brunei.

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