CONFIDENTIAL
XCC(91)159
Arguments For and Against Compulsory Retirement Schemes
7
The arguments for and against a CPF or some other compulsory retirement schemes are set out in paragraphs 6-13 of the Annex. While we remain of the view that the balance of arguments is still against the establishment of a CPF, there is a case for further examination of alternative options.
8
Hitherto we have tried to tackle the problem of retirement protection through enhancing social welfare provision, improving Long Service Payments, encouraging the establishment of more retirement schemes on a voluntary basis and tightening control over the operation of retirement schemes. While the number of voluntary private schemes has doubled over the period 1987 to 1991, from 5 469 to 10 906, the fact remains that two- thirds (or 1.7 million) of our working population do not receive any form of financial security or protection upon retirement. Some ninety percent of our business establishments employ less than 20 persons, and there is a natural resistance among small employers to the setting up of provident funds or retirement schemes despite the efforts of the banking and insurance sectors in marketing pooled schemes for small employers. Thus, reliance on a voluntary approach seems insufficient to provide a safety net for the majority of workers who, on retirement, want to maintain a reasonable standard of living without having to rely on public assistance.
9
A viable scheme of retirement protection would have the advantage of reducing the demand for social welfare provision in the long term. It might also, in the short term, help tackle inflation by withdrawing some of the spending power of employers and employees (assuming that both are required to contribute). However, it could be argued that it would be wholly or largely offset by the higher prices caused by increased production costs. We shall also need to address the problem of the adverse impact on the economy and on the financial market.
The Way Forward
10
While the decision not to establish a CPF should still stand, we propose that we should explore alternative options to enable workers to secure better retirement protection in their old age.
Executive Council
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Private notes are available after approval.