Tuesday, May 08, 2007

Civil servants wanted to return to pension scheme

There was a news report that several civil servants failed in their legal action to return to the pension scheme. They had opted into the Central Provident Fund scheme some 30 years ago and wish to reverse their decision now.

Here are my views.

Generally, I am in favour of a provident fund scheme. It is transparent, fair and flexible. If the employee changes job, the accumulated savings in his account remains with him.

A pension scheme, especially with life long medical benefits, looks attractive to the employee who works an entire career with one employee. But it has several disadvantages:

* if the employee leaves the service, the "transfer value" is usually at a deep discount
* the cost to the employer is highly volatile and difficult to manage
* the cost of providing the life long medical benefits can be very high

In recent years, there were reports about how General Motors in the United States had been extremely uncompetitive in the global markets due to the high cost of providing pension and medical benefits to employees.

If we were to look at what is best for the economy, and not from the perspective of any specific party (ie the employee or employer), it is better to move to the provident fund system. Under this system, each employee keeps his savings in his own account and earns interest on the savings.

1 comment:

Edwin said...

It is a good thing that Singapore is not a socialist. These types of benefits will only bleed the company, the state, the country and then come back to hit the people - the citizens.

I just attended a dialogue session yesterday at One Marina Bld with Tpt Minister Mr. Raymond Lim.

There were many unions there, from SMRT, Comfort Delgro etc,... had wanted more benefits, or rather help, to defray the rising costs of transport.

Anyway, I do not want to go out of topic here...

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