Company bosses say higher employer Central Provident Fund (CPF) contributions for all workers will put an even tighter squeeze on their profits.
They add that the resulting rise in labour costs could eventually drive up the prices for consumers.
While the move will help workers feel more secure about their savings, it might affect Singapore's overall business competitiveness, bosses told The Sunday Times.
In last Friday's Budget, the Government unveiled a 1 percentage point hike in the employers' CPF contribution rate for all workers from January. This will be channelled into the Medisave Account.
Also, workers aged above 50 to age 55 will get an additional 1.5 percentage point increase in CPF contributions - 1 percentage point from the employer and 0.5 percentage point from the worker. Workers above 55 to age 65 will get a 0.5 percentage point rise from employers.
Mr Paul Lim, chief executive of security firm Soverus, said the move "will not turn my company from profitable to loss making", but will still eat into margins.
He said about three-quarters of its costs are for labour, so the rise "will be significant". The firm employs about 500 security officers, and about a quarter of them are aged 50 and above.
Still, Mr Lim supports the policy, and said the company has already factored the higher costs into new contracts.
"Security officers are still in the low-wage realm, and giving them this extra 1 percentage point for their Medisave will give them peace of mind that they're well taken care of," he said. "But businesses will eventually have to pass these costs to end consumers."
Mr Chiou Lid Jian, general manager of integrated circuit design and development company ASE Singapore, said it is already feeling squeezed by labour costs, especially with high foreign worker levies, but "we will just have to manage it".
The firm has about 1,000 employees here, about 45 per cent of whom are Singaporeans or permanent residents. "Labour costs in Singapore are already very high compared with that of our counterparts in Malaysia, Taiwan and some parts of China... This might affect overall business competitiveness in the long run," he said.
He said higher labour costs can be offset by better productivity but the technology industry is nearly at "the point of diminishing returns".
Ms Grace Fu, Minister in the Prime Minister's Office, said the policy aims to address the issue of longer life expectancies. The Budget tackled not just "immediate needs but many long-term needs".
While some small and medium- sized enterprises may have to worry about additional costs, Ms Fu said she is confident that they will find a "sustainable level" of wages. She was speaking to the media on the sidelines of an event at Funan DigitaLife Mall yesterday.
Mr Ho Meng Kit, chief executive of the Singapore Business Federation, said rising operations costs and manpower issues continue to be a challenge for businesses.
"The increase in employers' CPF contributions will not help and will impact small businesses as they employ more older workers proportionately," said Mr Ho. The association welcomes the Government's one-year cost offset to help firms with the transition, he added.
Employers will receive a one- year Temporary Employment Credit to offset 0.5 percentage point of the increase, for wages up to the CPF salary ceiling of $5,000.
Last Friday, National Trades Union Congress president Diana Chia said in a statement that the labour movement is "heartened that the Government has heeded our call" to enhance CPF contribution rates.
CIMB analyst Kenneth Ng said the rise will mean "more headwinds for companies that hire a large number of staff" in labour-intensive sectors such as retail and hospitality.
DBS economist Irvin Seah said the rise in CPF contribution rates, like higher foreign worker levies, will "raise business costs and force companies to enhance productivity to reduce their reliance on workers". However, "higher CPF contribution rates is a better measure, as it benefits Singaporeans more directly".
Additional reporting by Joanna Seow