With an ageing population, more attention is now being paid to help older workers in Singapore achieve career fulfilment in their silver years.

A key policy change in this regard was the announcement of the raise in retirement and re-employment age, and gradually increasing Central Provident Fund (CPF) contribution rates for those over 55.

Retirement age will be increased from 62 to 63 in 2022, and to 65 by 2030. Individuals who are willing and able can secure their employment for longer. The re-employment age will increase from 67 to 68 in 2022 and up to 70 by 2030.

Here, we discuss some implications of this for employers and workers that might not have been obvious and suggest some ways to better help senior workers achieve financial adequacy, given that this issue is expected to be addressed in the upcoming Budget.

WHAT ARE THE CONSIDERATIONS FOR EMPLOYERS?

As Singapore’s population growth declines, it is forecasted that by 2030, only 0.7 locals will enter the workforce for every one that exits. The need to retain effective older workers is thus pressing.

The extension in retirement age and re-employment age will require employers to consider, for a start, job redesign efforts to enhance age-friendly practices within the workplace.

To this end, companies can tap various government schemes to provide training or to use technology to help older workers stay relevant, maintain productivity or adjust to new roles.

When employers offer re-employment to eligible workers, they are required to ensure that any variation to the job scope and terms and conditions is reasonable.

However, employers may not know where to find guidance to get this right. The terms “reasonable efforts” and “reasonable role” — as advised by the Ministry of Manpower — are subjective and open to dispute.

For example, if the re-employment offer is for a role with lighter responsibilities and therefore lower pay, does it qualify as a re-employment offer?

Employers can refer to the tripartite guidelines when making their re-employment offers and stay up-to-date with the schemes offered by the Government to assist in planning for staff re-employment.

Companies should note that where there are no available roles for an older worker to move to within the organisation, the employer needs to identify an alternative employer for the individual.

If the employer is unable to do so, it should provide a financial payout in the form of an Employment Assistance Payment (EAP), recommended to be approximately 3.5 months’ salary (with a suggested cap of S$13,000).

To alleviate the added cost of reviewing, training and placing older workers, a 3 per cent wage offset is provided by the government to employers that voluntarily re-employ older workers under the Additional Special Employment Credit initiative announced in Budget 2015.

This, in addition to the various grants and schemes, can help employers to successfully place older workers in roles beneficial to both parties.

While keeping senior and more experienced employees for longer helps to retain institutional and tacit knowledge and experience within the organisation, this may create additional generational differences between the senior and the younger workforce.

Open communication channels and a concerted effort to tailor human resource practices for different employee groups will go a long way to manage the needs of the multi-generational workforce in the future.

ALIGNING RETIREMENT AGE WITH CPF PAYOUT AGE

Currently, the payout eligibility age (PEA) for the Retirement Sum Scheme or CPF Life scheme is 65, which is three years past the current statutory retirement age.

Individuals are able to withdraw up to S$5,000 from their CPF upon reaching the age of 55. Those who wish to withdraw more need to have sufficient monies in their CPF accounts to set aside the Full Retirement Sum of S$181,000, of which at least S$90,500 (the basic retirement sum) should be in cash.

Hence, those who turn 62 but are not offered or cannot take up re-employment must rely on savings for their living expenses until they reach the PEA of 65.

While the EAP of up to 3.5 months’ salary can alleviate the financial impact, aligning the statutory retirement age with the PEA will provide more certainty for lower income families, as their employment should be secured until the monthly CPF payout commences.

Under the proposed changes identified by the Tripartite Workgroup on Older Workers, CPF contribution rates (employer and employee contribution) for those aged over 55 are set to increase gradually as shown in the table below.

The increased contribution would be fully allocated to the Special Account which earns a guaranteed floor interest rate, currently at 4 per cent per annum, the highest among the CPF accounts.

The intention is to allow individuals to maximise the return on their CPF savings in their final working years and help them meet the rising costs of retirement with higher monthly payouts under CPF Life.

While this may be helpful, older individuals may also incur additional health care costs before reaching PEA, and if they have not yet met the full retirement sum, they would be unable to draw on these additional savings in the Special Account until their retirement age.

Hence, it would be beneficial to have the additional contributions allocated to a new separate fund, which is accessible for health-related expenses beyond the MediSave-allocated amount. Alternatively, relaxing limits on MediSave withdrawals for this age group may also help to alleviate the health care costs.

Although the tripartite guidelines suggest that the employer can provide additional MediSave contributions in place of medical benefits typically provided to employees under a group medical insurance, voluntary MediSave contributions are subject to a cap, thus limiting the benefit.

Therefore, relaxing limits on MediSave withdrawals or allocating the increase in contributions to a separate fund for health-related expenses would be more flexible and can help to meet increasing medical costs.

While increased CPF contribution rates would help older workers to save more for their eventual retirement, this long-term benefit is balanced by a reduced take-home income.

Increased employer CPF contributions will also raise the costs of retaining older workers.

To help individuals and companies manage the increased contribution costs, the Government proposed that rates could be raised gradually by 0.5 to 1 percentage points for both the employee and employer at each point of increase, with the possibility to defer the increase in the event of an economic downturn.

Overall, encouraging older workers to remain in the workforce is crucial to Singapore’s continued economic growth.

It gives older workers greater employment security, and encourages continued contribution to society and the economy, while employers can avail of government incentives to offset some of the costs incurred.

Proactively addressing areas of concern that could arise would ultimately make this a win-win for both employers and senior workers, and it is likely that Budget 2020 will continue to focus on measures to support this important initiative.

ABOUT THE AUTHORS:

Panneer Selvam is Partner, People Advisory Services at Ernst & Young Solutions and Alison McNicholas is Manager, People Advisory Services at EY Corporate Advisors. These are their own views.