The move to bolster retirement savings of Singaporeans will see both employers and employees paying for the hikes in the Central Provident Fund (CPF) contribution rates for older workers from Jan 1, 2021.
The additional money will go into the Special Account, which accrues the highest possible interest among the CPF accounts.
These are among 22 recommendations made public yesterday by the Tripartite Workgroup on Older Workers, all of which have been accepted by the Government.
The group released its report a day after Prime Minister Lee Hsien Loong said at the National Day Rally on Sunday that CPF contribution rates for older workers will be raised over the next decade or so, so that the full rate of 37 per cent is extended to those aged up to 60 before it tapers off. The rate for workers between 55 and 60 currently stands at 26 per cent.
The retirement age and re-employment age ceiling will also be raised to 65 and 70, respectively, by 2030. They will first go up from 62 to 63, and from 67 to 68, respectively, from July 1, 2022.
PM Lee added that a support package to help businesses adjust to these changes will be announced in next year's Budget.
The workgroup recommended that the Government provide wage offsets to accompany the higher age benchmarks. It also called for one-off wage offsets to mitigate the higher CPF contribution rates.
Manpower Minister Josephine Teo said that the timeline for the changes took into account the changing economic conditions and the need to provide businesses with some certainty.
The tripartite partners agreed that "fundamentally, Singapore is labour constrained, and that is not something that is cyclical in nature", she had told reporters last Saturday.
The workgroup noted that the number of Singaporeans aged 65 and above is projected to almost double and reach 900,000 by 2030.
Giving more details, it said that subsequent increases in the retirement and re-employment ages should be in one-year increments.
For the first increase in CPF rates in 2021, employers and workers will each increase their contribution by either 0.5 percentage point or 1 percentage point for workers aged 55 to 70, based on the worker's age.
For someone who was 55 in January this year and earns $3,000 monthly, both he and his employer contribute 13 per cent, or $390, a month to his CPF savings.
In January 2021, the contribution rates for each such party would go up to 14 per cent, or $420 a month. That works out to $360 more in contributions each per year for employer and employee.
Each further rise in CPF rates will not exceed 1 percentage point for either workers or employers.
The 10-member workgroup heard from over 1,500 people and undertook study trips before making its recommendations.
The workgroup also called on employers to provide part-time re-employment opportunities.
Singapore National Employers Federation (SNEF) president Robert Yap welcomed the proposals, but noted that they come with cost pressures on businesses.
"Hence, on behalf of employers, SNEF calls on the Government to provide some form of support to employers during the decade of the planned changes," he said.