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39.
Secondly, even assuming that support for a Central Provident Fund could be mobilized now, there could well be subsequent pressure for withdrawals from the scheme, especially in periods of political or economic uncertainty.
40.
The reaction of employees will also, of course, depend to some degree upon the level of benefits which might be expected from a CPF. Calculations have been made (see Annex) showing the size of the lump sum, in terms of number of months' final salary resulting from varying combinations of rate and period of contribution. Also shown is the size of the lump sum required to purchase an annunity equivalent to varying percentages of final salary.
41.
By way of illustration, a combined contribution rate of 10% would, after 20 years and assuming that the CPF achieves a real rate of return on investment of 2.5% per annum, produce a lump sum equivalent to 22.7 months'
final salary. After 30 years, the lump sum would be equivalent to 33.2
33.2 months' final salary.
These amounts would in turn be sufficient to purchase an annuity, based on a similar rate of return, equivalent to 15.6% and 22.8% of final salary respectively.
Employer reaction
42.
The coming into effect of the long service payment legislation has prompted many employers to think about their long-term liabilities and to examine the advantages of establishing private provident fund schemes (contributions to an approved scheme attract tax
tax relief and benefits payable may be offset against long-service payments). In general, however, employers appear to have very consider able reservations about a centralised and compulsory CPF scheme. Concern has already been expressed about the cumulative cost to employers of the various items of labour legislation introduced in recent years and while in the long term, as discussed above, the effect upon wage costs of a CPF scheme would tend to be adjusted out, the short to medium-run impact upon individual employers could be considerable. It is
is likely therefore that any proposal for establishment of
a CPF would be strongly resisted as a very significant addition to the burden of costs which the employer must
bear. This is especially So at a time of particular sensitivity to
cost increases.
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CONFIDENTIAL
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