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Report of the Tripartite Committee on the Extension of the Retirement Age.

Implementation of the Retirement Age Act
The retirement age norm was raised from 55 to 60 when the Retirement Age Act was introduced in July 1993. The smooth implementation of the Act has provided employment opportunities for some 63,000 Singaporeans who would othewise have retired at the age of 55. This has led to the labour force participation rate for employees aged 55 to 60 to increase from 47% in June 1993 to 52.6% in June 1996. The higher retirement age has indeed enabled our econonmy to better utilise our indigenous manpower resources and reduce our heavy dependence on foreign workers.

Extension of the Retirement Age Beyond 60
How and when the Retirement Age can be progressively raised
In line with the Government's long-term objective of raising the Retirement Age to 67,the Committee recommends that the Retirement Age be raised from 60 to 62 with effect from 1 January 1999.It further recommends that subsequent extension of the Retirement Age should depend on the prevailing economic conditions and other relevant factories,as well as the experience gained from the first extension.

Measure to Address Employees' Concerns on the Extension of the Retirement Age
Moderating the Cost of Retaining Older Workers
The Committee recommends that in consideration of the statutory rights given to older workers to continue working up to the age of 62 and even earn a regular income,employers should be given the discretion to reduce the wage cost of retaining their employees when their retirement age is extended from 60 to 62.The reduction could be implemented through the following mea sure:-

a)Reduction in Employers' CPF Contribution
A reduction in employers' CPF from 7.5% to 4% in respect of employees above the age of 60 and not more than 65,and from 5% to 4% in respect of employees above the age of 65 (see table below):

Age Group of Employees (Years)	Current Employers' CPF Contribution Rates	Employers' CPF Contribution Rates as from 1 Jan 99
Between 60 & 65 Above 65	7.5% 5.0%	4.0% 4.0%

b)Up to 10% Reduction in Wages Costs
A reduction of up to 10% in wage costs.The reduction could be effected through a direct wage cut or a combination of the following wage cost items to be negotiated between employers and unions/employees at the company level:-

fringe benefits;
variable bonus;
AWS;and
basic wage.

Companies and unions may also introduce other measures such as shorter working hours with appropriate reduction wage and fringe benefits,as part of the total cost-reduction package.

The committee urges that employers should be judicious in implementing the cost-cutting measures.For employees whose salaries are reflective of their actual job worth and for those whose skills and performance justify their last drawn salaries,employers should take these into account when they decided to effect the reduction on their employees' salary/benefits packages.For employees whose contractual retirement age is already above 60,they should be exempted from the committee's recommendations on the reduction in wage costs except for the cut in employers' CPF contribution.

The Committee holds the view that when the Base-Up Wage System is well established and the salary structures are reflective of the actual job worth,the extent of reduction in wages cost of retaining workers above the age of 60 should be reviewed and reduced if appropriate.The committee therefore recommends that the discretion granted to employers reduce their wage cost of retaining older workers beyond the age of 60 be reviewed after the proposed Base-Up the System has been well implemented and the desirable salary ratio narrowed to about 1.5 within the recommended time frame of 4 to 6 years.

Payment of Retrenchment Benefits
The Committee notes that retrenched workers,especially the older ones,may have difficulty seeking alternative employment,particularly jobs that pay them a comparable salary.It is therefor necessary to ensure that redundant workers would receive sufficient retrenchment benefits to help them tide over their difficult periods during which they would need to support their families and look for alternative employment.While the Committee recognizes that due recognition should be given to the past services of retrenched workers in the computation of retrenchment benefits,there is also a need to ensure that retrenchment payments would not become excessive and impede employers' plans to restructure and upgrade their operations in order to remain competitive.The Committee therefore recommends the following:

(a)Retrenchment Benefits for Employees retrenched below the age of 60

that their service period for computation of retrenchment benefits be capped at 25 years and that retrenchment benefits be determined based on the formula below:

Quantum x Years of service (capped @ 25 years)

The norm on the quantum of retrenchment benefits as provided in most collective agreements is one month's salary for each year of service.This would enable retrenched employees to receive a retrenchment payment up to 25 months' salary.In situations where the quantum of payment is lower than one month,say two weeks' salary for each year of service, retrenched employees would still be able to received a payment of some 12 months' salary as retrenchment benefits.These levels of payment would help them tide over their difficult periods during which they would need to seek alternative employment and support their families.

(b)Retrenchment Benefits for Employees retrenched near the Age of 60

that the payment of retrenchment benefits be based on the formula prescribed under (a) but should not be greater than the salary payable for the remaining period of employment up to a age of 60.Where the salary for the remaining period of employment is payable as retrenchment benefits,the payment should not be lower than the retrenchment benefits payable to employees retrenched above the age of 60 as prescribed under (c) below.

c)Retrenchment Benefits for Employees above the Age of 60

that the service period used to compute the payment of retrenchment benefits for employees above the age of 60 be negotiated between unions and management and subject to a major discount.Where an agreement could not be reached,both parties could consult the Ministry of Labor with a view to resolving their differences equitably and amicably.

The above recommendations shell not apply to companies which have implemented a retirement age higher than 60.For such companies,they should continue to observe their existing arrangements on the payment of retrenchment benefits unless otherwise re-negotiated with their unions.

Base-Up Wage System
The Committee notes that there are inherent weaknesses in the current Seniority-Based Wage System in that the wage gap between the minimum and maximum salary is wide and that the salary structure does not reflect the actual value of the job.The Committee is of the view that the new wage system should be founded on the principles that the salary structure should reflect the actual job worth and that wage increase should be closely linked to productivity growth.Since the NTUC's proposed Base-Up Wage System embodies the principles stated above,and the implementation could help to narrow the average salary ratio to the desirable level of about 1.5 within the duration of 2 collective agreements (i.e. 4 to 6 years),the Committee recommends that the proposed Base-Up Wage System be adopted for implementation.

The Committee also recommends that the implementation of the Base-Up Wage System be guided by the following principles:-

Wages should reflect the value of the job.The desirable salary Max/min ratio should be 1.5 times or other appropriate ratios to be agreed between union and management,taking into consideration the nature of the job,earning curve,the skills and experience required etc.;
Productivity gains should be shared by all employees in the form of built-in wages increase;
Total built-in wages increase should lag behind productivity growth.Employees below their salary maximum will enjoy both the service and base-up increments,while those at their salary maximum will be granted only the base-up increment;and
Salary structure should be adjusted upwards only through the base-up component.In determining the base-up increment,management could,in consultation with the union,use company,industry or national productivity indicator to determine the total built-in wages increase.A moving average in productivity figures say 3 years or more could be used to moderate the possible wide fluctuation in productivity changes from year to year.

The Committee further recommends that the tripartite guidelines as shown in Annex D (available in the full report)be adopted for the implementation of the Base-Up Wage System.

Alternative Medical Benefits Scheme
The Committee notes that the Alternative Medical Benefits Scheme recommended by the Sub-Committee on Medical Benefits has incorporated the necessary built-in mechanism,i.e co-payment and additional Medisave contributions, to engorge employees to take individual responsibility for their own health and make responsible use of their medical benefits.

Under the proposed scheme,new employees will required to co-pay part of their outpatient expenses and be responsible for their inpatient expenses from the first dollar.To enable them to buy a sufficient level of medical insurance to cover their inpatient risks,they will receive an additional 1% CPF contributions from employers(or more subject to union-management negotiation),to be credited into their Medisave accounts.Existing employees will be given the options remain under the old scheme or join the new scheme.If they join the new scheme,they will be responsible for their own inpatient expenses from the first dollar and will receive a trade-off benefit equivalent to the average employers' inpatient expenses for the past three years (the average in patient expenses constitute some 40-50% of the national average medical expenses of 1.5% of total wage bill)plus 1% premium to be credited into their Medisave accounts.For outpatient expenses, they will co-share part of their expenses and receive a salary adjustment of 1% or other appropriate level of adjustment depending on union management negotiation,as a trade-off.As the proposed scheme has built-in mechanism to encourage employees to take responsibility for their own health and make responsible use of their medical benefits,it will go a long way to reduce overall medical consumption and improve employees' productivity at the company level.At the national level,it will help promote a healthy workforce and contain the long-term increase in medical cost,which is in line with the principles and policy direction of the 1993 White Paper on Affordable Healthcare.

The Committee therefore recommends that the Alternative Medical Benefit Scheme formulated by the sub-committee on Medical Benefits together with the implementation guidelines as outlined in Annex E(available in full report)be adopted for implementation.

The basic features of the Alternative Medical Benefits Scheme are shown below:

Basic Features:Inpatient Benefits
New Employees	Existing Employees
- Employers to contribute an additional 1% CPF contribution (or more depending on negotiation between employers and employees/unions) to be credited into their employees' Medisave account. The salary used for computation of the Medisave amopunt should be subjected to a minimum of $1,500 and a maximum of $6,000.	- Option to remain under the old scheme or join th enew scheme.
- Employees are fully responsible for the management of their own inpatient expenses from the first dollar.	- Those who opt into the new scheme will receive a trade-off benefit equivalent to their employers' average inpatient expenditure for each employee for the preceding 3 years plus 1% premium (or more depending on negotiation between employers and employees/unions) to be credited into their Medisave accounts. The salary used for computation of the trade-of benefit should be subject to a minimum of $1,500 and a maximum of $,6000.
	- Employees are fully responsible for the management of their own inpatient expenses from the first dollar.

Basic Features:Outpatient Benefits
New Employees	Existing Employees
- Co-pay 15% of outpatient/specialist expenses subject to an appropriate limit, say $5 for each GP visit and $15 for each specialist visit, which is in line with the NTUC Income Managed Healthcare System.	- Option to remain under the old scheme or join the new scheme.
- Alternatively, employees to pay a flat sum of say, $5 for each GP visit and $15 for each specialist visit to avoid the administrative inconvenience arising from a co-pay system fixed on a percentage basis.	- Those who opt into the new scheme will co-pay 15% of outpatient/specialist expenses or co-pay a fixed quantum of say $5 for each GP visit and $15 for each specialist visit, and
	- Receive 1% or other appropriate level of salary adjustment in lieu of employees' share of outpatient expenses. The adjustment could also be distributed in the form of a dollar quantum. The parties could also agree to set aside part of the adjustment to form a cash budget for the payment of existing employees' share of outpatient expenses. The cash budget, if adopted, should be extended to new employees to be funded separately.

Review of Tax Law
It is noted that under the Income Tax Act,the tax deductibility of additional Medisave contributions by employers will be subject to a maximum deduction of 1% of an employee's monthly ordinary wages,or $60 whichever is lower.In respect of overall medical expenses incurred by employers,which is inclusive of the additional Meddisave contributions,the tax deductibility is capped at 2% of the total remuneration of employees.If employers were to implement the proposed Alternative Medical Benefit Scheme,the additional Medisave contribution and the overall medical expenses incurred by employers would exceed the 1% and 2% limits respectively.As a result,employers will not enjoy tax deductibility on the additional Medisave contributions and the total medical expenses in excess of the prescribed limits in the implementation of the Alternative Medical Benefit Scheme.This would have a negative impact as employers will be discouraged from adopting the scheme.The committee therefore recommends that the relevant provisions of the Income Tax Act be review so that employers could enjoy tax deductibility on the additional Medisave contributions and the overall medical expenses in excess of the prescribed limits.

Outplacement of older workers
With the extension of the retirement age, it is recognized that certain jobs with stringing occupational requirements,e.g. high physical and mental demands,good vision,special attributes,etc.,may not be suitable for older workers.Employers should therefore be given the flexibility to redeploy such employees to other jobs within the organization.Where jobs are not available,employers should assist the affected employees to be outplaced to suitable jobs in other companies,taking into consideration their relevant skills and experience.Outplacement could be implemented with the necessary financial incentives provided by the existing employers.Such outplacements should be confined to employees above the age of 60 and be carried out only by mutual consent.The financial incentives could be used to help re-deployed employees transit to new jobs which are compatible with their specialization's,skills,experience and physical conditions.For example the financial incentives could be utilized to meet training expenses or as make-up pay to compensate them for their partial loss of income which may suffer in their new jobs.

The Committee is of the view that the Employment Service Department of the Ministry of Labour could be requested to help implement the Outplacement programmes.

Since outplacement prrogrammes could be implemented more effectively through tripartite effort,the Committee further recommends that the formulation as well as the implementation of the Outplacement programmes involve the NTUC and SNEF.

Mode of implementation of Committee's Recommendations
Having considered the question of whether its recommendation should be implemented through legislation or promotional means,the Committee holds the view that since the recommendations would introduce major changes to terms and conditions of employment,implementation should be phased-in gradually to enable employers and workers to have the opportunity to make the necessary adjustments.The Committee therefore recommends that a promotional approach be adopted and that the recommendations be implemented as tripartite guidelines except the statutory extension of the age of the retirement age from 60 to 62 ,and the cost cutting measures as stated in paragraph 2.1(a) and (b) above.

Legislation of the Alternative Medical Benefit Scheme will be considered if the response by companies and unions to the recommendations is not a satisfactory.

Though the mandatory retirement age of 62 will only be effective from 1 January 1999,unions and employers are encouraged to implement,as soon as possible,the retirement age of 62 and at tendant recommendations,based on tripartite guidelines on a voluntary basis.

Working Committee to Help Implementation
The Committee notes that since its recommendation cover many new areas,implementation has to be monitored closely to ensure that the committee's objectives could be achieved.Teething problems are expecting to arise in the implementation of the various recommendations and the Committee therefore recommends that a tripartite working committee be set up to monitor the implementation.The tripartite working committee could also help unions and employers to make the necessary adjustments,and iron out teething problems that may arise in the process of implementation.

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