Singapore Celebrates Its Independence by Extending Worker Retirement Benefits
By Dafydd Williams, Senior Director, Advisory Services
Singapore’s rise to global economic prominence is a fascinating tale even to those who have already heard it.
The 277-square-mile island nation broke from the Malaysian Federation only 50 years ago. At that time, Singapore had, in the words of a 2010 OECD education report, “few natural resources, little fresh water, rapid population growth, substandard housing and recurring conflict among the ethnic and religious groups that made up its population.”
Fast-forward to today: Singapore has a skyline ribbed with glass towers, transparent tax and legal systems, and a population that’s one of the best-educated in the world. The country is also a magnet for multinational corporations — 7,000 of which now have operations in-country — and is currently ranked number one in the world in ease of doing business by a World Bank Group survey. Foreign companies are attracted by Singapore’s low tax rates, comprehensible laws, skilled workforce, reasonable employment regulations and high standard of living.
Singapore’s rapid rise has not come without costs. The country is beset by income inequality — particularly affecting foreign migrant workers — and an astronomical cost of living. For the last two years in a row, Singapore has been ranked the most expensive city in the world by The Economist. According to a Yahoo survey , purchasing a new Toyota Corolla in Singapore would have set you back a scarcely believable USD$135,988 in 2014.
In 2015, Singapore is in full self-assessment mode, in between celebrating the 50th anniversary of its independence and mourning the recent passing of former prime minister, Lee Kuan Yew. Lee is known as the nation’s founding father and is credited with the country’s remarkable transformation. Lee was a staunch supporter of bringing in outside businesses to help the country prosper and keep residents employed. Over time, Singapore has attracted not only manufacturers but data storage and pharmaceutical companies among other industries. And the country in turn has grown to have a tight labor market (unemployment was just 2.9% last year) and steady incomes for many of those who live there.
Lee’s son and current prime minister, Lee Hsien Loong, oversees a much larger number of Singaporeans, many of whom are nearing retirement and will need access to more medical care as they age. And those multinational corporations operating in Singapore will soon have to shoulder more of the costs. Starting in 2016, employers will need to set aside more funding for their employees’ retirement savings.
Unveiled this past February, the country’s fiscal year 2015 budget raises the amount employers contribute to the Central Provident Fund (CPF), Singapore’s compulsory social security system. The increase will be used solely for health-care costs. The CPF applies to citizens and permanent residents who work in the private sector; it does not affect expatriates.
The budget raised the salary ceiling (the monthly ordinary wages subject to the CPF contribution) from $5,000 to $6,000 and also increased the contribution rates for workers between 50 and 65 years old, who contribute less overall to the CPF than their younger colleagues. The changes mean multinationals with a large number of employees in Singapore will see their employment costs jump next year.
The amount employers contribute per employee varies, depending on the employee’s age, base salary, and bonuses and commissions. The latest change applies to their salary. For example, an employee under age 50 who makes at least $6,000 per month will see his or her employer contribute $850 to the CPF every month this year, but next year that monthly amount will rise to $1,020. Companies will receive a temporary credit to offset the increased contribution rate.
Calling the latest changes to the program a “key plank” in the budget, Finance Minister Tharman Shanmugaratnam said in his budget statement in February that the changes will “provide Singaporeans with greater assurance in retirement.” There was also some good news for multinationals operating in Singapore, as Shanmugaratnam added that the government is unlikely to raise the CPF contribution rate again anytime soon.