The Central Provident Fund (CPF) was set up in 1955 to provide financial security for workers in their retirement or when they are no longer able to work. Over the years, it has evolved into a comprehensive Social Security scheme, which aims not only at catering for a member’s retirement, but also at taking into account home-ownership and health care needs.

A few years ago, the CPF underwent a fundamental review in order to make employment conditions more competitive in a new global environment. Important changes became effective in 2006 that will impact workers and consequently companies employing them. Can retirement benefits be a retention and attraction tool for your organization?

The changes

The table below summarizes the main changes to the CPF.

The impact

Reducing the amount of contributions paid to the CPF ultimately reduces the expected retirement benefits to the workers. The extent will depend on a number of factors including the workers’ salary progression and age at the date of changes.

The improvement in life expectancy and reduction of guaranteed investment returns also exacerbate the problem. The current default option provided by the CPF at retirement is a 20-year annuity. Pensioners increasingly risk outliving their retirement savings. If they chose a lifetime annuity, the level of benefits may not be attractive.

Figure 1 shows the estimated retirement benefit reduction at age 62 for a worker earning above $60,000. The figure also shows the reduction in employer cost since 2002.

What are companies doing?

Mercer recently conducted a snapshot survey covering 120 companies from various industry sectors. It appears that 12% of companies have already passed the savings from CPF contributions back to employees. A further 9% intends to do so shortly.

Of those companies who did or intend to pass back savings to employees, 25% intends to provide additional retirement benefits to local and/or foreign employees. It is also interesting to note that 59% of participants view the provision of retirement benefits as a good retention tool in Singapore.

Mercer can help

Organizations should ask themselves:

• Are our employees concerned about the reduction in their CPF retirement benefits?
• Are all our employees currently covered by CPF?
• Do we have a solution in place for non permanent residents who are not covered by CPF?
• Can retirement benefits be a retention and attraction tool for your organization?

Mercer can assist your organization in assessing the impact of recent changes and propose solutions for your employees in line with your Corporate objectives.

As a leader in delivering global solutions on retirement issues, Mercer is continuously monitoring developments affecting benefit trends, legislation and financial accounting for our clients.

For more information

For more information on how Mercer Human Resource Consulting can help you tackle these new challenges, please contact Marc Duguay.marc...@mercer.com