Speech on CPF and gig economy by Mr Lim Swee Say, Minister for Manpower at Committee of Supply 2017

Mr Lim Swee Say, Minister for Manpower

CPF enhancements

1. Over the years, our CPF system has served Singaporeans well in supporting the retirement, housing and healthcare needs of Singaporeans.
2. Retirement adequacy has been improving. In 2013, about six in 10 active members turning 55, met the Basic Retirement Sum. We expect this proportion to increase to seven in 10, for members turning 55 in 2020.
3. With wage growth and higher labour force participation rate, especially among older workers, we can expect CPF balances to keep improving in the years ahead.
4. To help CPF members to save more for their retirement, we made several enhancements last year.
5. We raised the CPF salary ceiling from $5,000 to $6,000. About one million CPF members benefited. A member who is 40 years old and earning $6,000 a month will save $370 more per month. And with interest, it will grow to $149,000 by the age of 65.
6. We are also helping older workers to save more. About 570,000 workers aged 50 and above benefited from increase in our CPF contribution rates. Another one million CPF members aged 55 and above benefited from an additional extra interest of 1% on their first $30,000 savings in CPF.
7. For an older worker earning a median salary of $3,400 from age 50 to 65, the increase in CPF contribution and additional extra interest of 1% would add $14,000 to his retirement saving by the time he turns 65.
8. Last year, we’ve also made it easier for members to transfer CPF savings to their spouses’ account. This is an area that Ms Foo Mee Har is concerned about.
9. Now they need to set aside only the Basic Retirement Sum instead of the Full Retirement Sum. About 2,700 members did some transfers, and this is 70% more than the year before. About one-third of the increase was due to the enhancement in our rules. In fact, one in five of the spouses who received transfers now have at least the Basic Retirement Sum.
10. We also saw more cash top-ups last year to members’ own accounts or for their family members. 49,000 members received cash top-ups of $860m. This is 27% more recipients than 2015. So more members are now doing cash top-ups either for themselves or for their family members.
11. Now, beyond the Basic Retirement Sum and the Full Retirement Sum, we introduced the Enhanced Retirement Sum (ERS) last year. About 9,000 members exercised this new option to top up beyond the Full Retirement Sum. Those with ERS at age 55 will receive $1,900 per month for life when they reach the withdrawal age of 65.
12. Last but not least, CPF members now also have the option of deferring the starting age of their CPF LIFE payouts, up to the age of 70. So they don’t have to start at 64 even though the payout eligibility age now is 64. If they want to, they can defer up to the age of 70.
13. Last year, about 900 CPF LIFE members did that, and about 70% of them are still working. Half of them would have received payouts of more than $500 per month, and they will receive higher payouts by starting later.
14. Mr William Wong turned 65 just last week. Under CPF LIFE, he would have received about $500 a month for life. But Mr Wong chose to defer his payout for as long as he is healthy and working. So if he defers till 70, his payout would increase to $680. Instead of $500, it will go up to $680, an increase of about $180 per month for life.
15. On the whole, these recent CPF changes help both younger and older members to save more for retirement. I hope more members will make good use of these options to better meet their own needs.
16. Ms Kuik Shiao Yin asked whether we could allow members to use their CPF savings for overseas training courses because, as she put it, some of these training courses are just too expensive. But in fact, it is for the same reason that we are hesitating. Now, Madam, CPF can only be used to support basic tertiary education at the local approved Institutions. With longer lifespans, we are doing more to safeguard members’ retirement adequacy. We need to be careful about expanding the use of CPF for other expenses. Therefore, we have no plan to open up the CPF Education Scheme for overseas programmes.
17. But let me emphasise that I do agree with Ms Kuik that upgrading is very important. It is not that we are not supportive of upgrading, but skills upgrading is not one of the main purposes of CPF. Upgrading is important, but CPF savings is not the right channel. Later I will explain why.
18. Madam, this year, we will introduce two more enhancements. First, a review of CPFIS. The CPF Advisory Panel observed that CPFIS is not designed for members who lack the time and knowledge to manage their own investments. So there is nothing wrong with the CPFIS as an investment scheme. You must be of the right profile of investors. If you have the time and the knowledge, CPFIS is the right scheme for you. But if you have no time, no knowledge, it means CPFIS may not be the best scheme for you. For those who have no time no knowledge, they could be better off leaving their CPF money to earn the risk-free CPF interest rates.
19. Now, to better serve the interest of CPF members, we are working on three areas of improvement to the CPFIS.
20. First, the introduction of a self-assessment tool to help members to determine for themselves whether CPFIS is suitable for them. At the end of the assessment, if they still decide to proceed to invest through CPFIS even though the self-assessment tool actually helps them to discover that the scheme is not for them. It is still their decision. Basically, what we are going to do is to help them to at least understand whether they are suitable.
21. Second, the lowering of the cap on sales charge. This is to discourage financial intermediaries from proactively selling products to CPF members because the investment churning could actually erode investment returns.
22. Third, we are going to review the types of asset classes offered under the CPFIS, to see if they are appropriate for growing retirement savings. This is to encourage members to invest for the long-term, and provide members with a diversified portfolio.
23. We will announce these changes after we have finalised them later this year. For CPF members who prefer a simpler investment option, they can look forward to the CPF Lifetime Retirement Investment Scheme (LRIS) that we are working on. As recommended by the CPF Advisory Panel, the LRIS will have low fees, simple investment choices, investments that are passively managed, and mechanisms to encourage long term investment.
24. So, when we put together these schemes, CPF members will have three ways to grow their CPF savings in future.
    • Risk-free CPF interest rates;
    • CPF Investment Scheme; and
    • CPF Lifetime Retirement Investment Scheme.
25. Madam, we will also introduce an additional option for the CPF LIFE plan as recommended by the CPF Advisory Panel. This is to allow members the option of starting their CPF LIFE payout with a lower initial pay-out which then escalates at 2% a year.
26. With this new option, from January next year, CPF members will have three options. Standard and Basic Plans, and now the Escalating Plan. So, those who are already on the Standard and Basic Plans, they will have 1 year to switch into this new option if they want to. CPF Board will provide further details later this year.
27. Mr Ong asked if we should make company medical plans portable for individuals with pre-existing illnesses who have left the company. Madam, I think we should leave this to the market to decide because it will have an impact on the premium for all members on this scheme, not just those with the pre-existing illnesses. The MOM has no intention to intervene in the market.
28. Madam, with these planned enhancements, we would have strengthened our CPF system into what we called the “1, 2, 3s of CPF”.
    • Three basic needs: Healthcare, housing, retirement. Education is not one of them.
    • Three contributors: Employer, employee, and CPF Board.
    • Three ways to grow your savings: CPF risk free interest, CPFIS, LRIS.
    • When you turn 55, three options for your retirement sum: Basic, Full, and Enhanced.
    • And when you reach the age of 65, three options for CPF LIFE pay-out: Basic, Standard, and Escalating.
29. To help public understand these enhancements better and make more informed choices as they plan for their retirement, we have stepped-up our communications and outreach efforts to the CPF members. We revamped the Yearly Statement of Accounts last year and adopted a pictorial format. We also provided customised tips for each member. We are glad that the members find the new format easier to understand.
30. CPF Board will also continue to reach out to members in the community through CPF retirement planning roadshows and mobile service centres, as well as through mainstream and social media. Last year, CPF Board piloted a CPF Retirement Planning Service for members who are reaching 55, in other words, the age of 54. We invited 1,200 members to test out this service, and 95% of them would recommend this service to their friends. These 1-on-1 sessions helped members to understand better the CPF schemes and the options available to them.
31. Therefore, we will expand the CPF Retirement Planning Service to all CPF members turning age 54 this year. We estimate that about 20,000 of them will be invited.
32. In conclusion, the Government has and will continue to strengthen our CPF system to help members improve their retirement adequacy. We hope that members will make good use of the options available to better meet their retirement needs, as well as that of their loved ones.
    
    Gig Economy
33. Madam, I will now move on to touch on the gig economy.
34. There is no official definition of the gig economy worldwide. However, OECD and several international studies commonly refer to workers in the gig economy as workers on the platform economy. These are online labour-sharing or capital-sharing platforms.
35. These online platforms serve as intermediaries to match or connect services buyers with workers who take up these short term or piecemeal jobs. So, there is matching of supply to demand.
36. From the economic angle, such online platforms create opportunities for businesses, for workers and for customers. They allow businesses to tap on workers who are available on-demand, to serve customers more flexibly and responsively, so as to reduce costs and increase revenues. They also allow the individuals to market their skills and provide their services to earn an income, under a more flexible working arrangement.
37. Now, from the employment angle, my Ministry is monitoring closely their potential impact on the long-term well-being of the workers.
38. Common questions and concerns raised, including those raised by Mr Alex Yam, Ms Foo Mee Har, Mr Chen Show Mao and Ms Jessica Tan are: how different is gig work from traditional employment? Are gig workers adequately protected under our labour laws? Will they be able to save enough for their housing, medical, and retirement? 
39. Madam, first of all, I want to point out that not all gig workers are gig freelancers. Gig workers can be employees or freelancers. For example, if a private car driver joins a transport company with an employment contract and takes on jobs offered via apps, he is in the gig economy, but is still an employee protected by labour laws because there is an employment contract with the car rental company, even if he is on a short-term employment contract with the car rental company. There is no difference from other workers who are employed under what we call “contract of service”.
40. But if he provides a service in return for a fee without entering into any employer-employee relationship with any party, and at the same time, he is not overly constrained by conditions imposed by the “platform” owner or service buyer, then this is no different from any freelancer that we know today under “contract for service”.
41. So if you are a gig worker, providing a service under a contract for service, you are a gig freelancer. But under a contract of service, you are a gig employee. Gig freelancers, are known as own-account workers in our labour force surveys, and they are considered as self-employed persons by the CPF and IRAS. In short, gig workers can be gig employees or gig freelancers depending on their work arrangement.
42. Madam, reliable and internationally comparable data on gig workers are currently not available. So to better understand the freelancer landscape arising from the rise of the gig economy in Singapore, we supplemented our annual comprehensive labour force survey with a more detailed survey on freelancing last year. I shall now share some interesting findings with this House.
43. First, the total number of primary freelancers remains flat at about 167,000 in 2016¹. These are workers who freelance as their main job. This is within the range of 8% to 10% of employed residents in the past ten years, based on our previous surveys.
44. Second, if we add the secondary freelancers, then the total number of freelancers in Singapore would be about 200,000. Secondary freelancers are those who freelance part-time alongside other jobs. They have a primary job, and freelancing is a secondary job. This would include students, housewives or retirees who take on side jobs for additional income.
45. Third, about 81% of freelancers do freelancing as a preferred choice. So they are actually in freelancing because they prefer to be freelancers. Of this 81%, 67 percentage points are primary freelancers and14 percentage points are secondary freelancers. The main reasons for choosing to freelance are (i) more freedom, (ii) earning extra income and (iii) spending more time with their family.
46. The remaining 19% freelanced, even though it was not their preferred choice. 16% of them are primary freelancers while 2% are secondary freelancers. The 16%, which is about 32,700, were doing primary freelancing but not as their preferred choice. This is the group that I’m most concerned about. Under the Adapt & Grow initiative, we hope that we will be able to reach out to as many of them as possible and help them to move into full-time employment. After all, freelancing is not their preferred choice.
47. Fourth, the top freelancing occupations are still the traditional occupations. In fact, the top three are: taxi driver, real estate agent, and working proprietor - such as provision shop owners and other business owners with no employees. The other major freelancing occupations with more than 10,000 freelancers are insurance agent, private hire car driver, hawker or stall-holder, and private tutor.
48. Fifth, freelancers who use internet platforms, also known as online intermediaries, to find work in the gig economy are still a minority. The largest group is private hire car drivers – such as UBER and GRAB, about 10,500 of them. So 10,500 of these gig freelancers are working for the private hire car service. The rest are largely small and among those with more than 1,000 gig freelancers,, we have (i) professional services: consultants, accountants, book keepers, (ii) creative services: graphic designers, interior designers, product designers, (iii) media & communications: producers, editors, photographers and finally, delivery services; like Foodpanda and Honestbee. All these add up to another 10,000. So, 10,000 private hire car drivers, plus 10,000 of the rest, about 20,000 gig freelancers we have today.
49. Many of us may have the impression that there are many more gig freelancers out there than the number reported in this survey, which is only 20,000. I wish to point out that these 20,000 are those who freelance regularly, both part-time or full-time. But it does not capture those who freelance occasionally or once in a while.
50. Also, traditional freelancers who do not actively make use of online intermediaries to find work are not considered as gig workers, even though they may have an online presence to market themselves. For example, sports coaches and music instructors.
51. So, our future annual surveys will enable us to track if the number is growing and in which occupations.
52. Finally, we also asked our freelancers about their concerns. Their top concern is whether they can find sufficient customers. As freelancers, customers are very important to them. They also have concerns over the lack of income security, for example, arising from work injuries, or when attending training or going for skills upgrading. Some of them are also concerned about timely and complete payment from their clients. Last but not least, they are also concerned about their savings for housing and retirement.
53. Madam, while these concerns may not be new to freelancers, yet, we are taking them seriously. This is because the number of freelancers may grow in our future economy, in tandem with the growth of the platform economy.
54. Mr Ang Hin Kee has asked how MOM will gather views of relevant stakeholders and safeguard the interests of freelancers. Ms Foo Mee Har has also offered her four suggestions in terms of how we can take care of the wellbeing of the freelancers better. I thank both of them.
55. Now, in consultation with our tripartite partners, we will form a tripartite workgroup to study these issues, address the concerns of the freelancers, and come up with workable solutions for the wellbeing of the freelancing workforce in our future economy.
56. Mr Patrick Tay asked about reviewing the Trade Unions Act to allow freelancers to become NTUC Union members. The Trade Union Act, together with the Industrial Relations Act and the Trade Dispute Act, regulate industrial relations between employers and employees. Hence, this set of legislations is not applicable to freelancers because there is no employer-employee relationship. But this does not mean that freelancers today cannot join NTUC as members, for NTUC to champion their interests.
57. A good example is that many taxi drivers who are freelancers with no employer, are today NTUC U Associates members. So, we support NTUC in reaching out to more freelancers in more occupations including the Gig freelancers. And we will be happy to work with NTUC and the SNEF to pursue this issue further through the tripartite workgroup on freelancing.
58. Madam, facilitated by technology, we can expect the gig economy to keep growing. There is potential upside, there is potential downside too. So our challenge is to maximise the upside and minimise the downside. This first survey is a good starting point for us to get better insights into the freelancer landscape in Singapore. We will continue to monitor the developments, and together with our tripartite partners, we will find practical solutions to address issues faced by the freelancers.