Temporary cut to CPF contributions will not be done lightly given impact on retirement savings: Teo

Teo said the Jobs Support Scheme is a better way for employers to reduce costs.

Sulaiman Daud | June 04, 2020, 02:03 PM

A temporary reduction in CPF contribution rates by both employers and employees would be an unlikely step for the government to take, given its long-term implications.

Minister for Manpower Josephine Teo said this, acknowledging that the job market has been hit hard by the Covid-19 outbreak, but noted that the Jobs Support Scheme is aimed also at reducing cost burden to employers with fewer drawbacks.

"Given this backdrop, it is understandable that Mr Seah Kian Peng asks if the government would consider a temporary reduction of CPF contributions.

If the objective is to reduce the cost burden to employers, the Job Support Scheme has done so with fewer drawbacks. For example, those who depend on CPF contributions to meet housing, and healthcare needs can continue to do so."

She added that employers could reduce their costs in other ways, such as using the SkillsFuture enterprise credit to train their workers.

What about employees?

Teo was responding to Seah, who asked in Parliament on Thursday (June 4) whether the government would consider a temporary reduction of CPF contributions by both employees and their employers until after the economy has recovered from the Covid-19 crisis.

In a follow-up question, Seah said he agrees that there is "enough support" on the employer's side, but asked if the option was still on the table to help employees out.

He said he feels the government should act "more proactively", given the likelihood of more job losses and wage cuts in the future, and said that he hoped that Teo would make it a "high priority" item.

He added:

"So every little bit that we could put on the table for them is something which will certainly help them in the battle in the current climate."

Cut in CPF rates is hard to recover

In response, Teo said that while they are mindful of such concerns, and the government won't rule any measures out at this point, she cautioned that such rate cuts may be temporary in nature but the loss to an employed person's retirement savings is permanent.

"Once that savings rates have been cut, and certainly for the individual, there is very little likelihood that they can make up for what they were not able to grow in their CPF savings."

She said that this was a decision they would "not take lightly", given the long-term implications and the fact that Singaporeans are living longer lives. Teo added that the government was moving proactively to help workers in its push for "pathways to jobs".

"Nonetheless, we will continue to monitor and assess the situation and consider whether other measures, including adjusting CPF contribution rates, may be necessary in future."

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Top image: screenshot from CNA video.