EMPLOYERS yesterday acknowledged the need to review a 23-year-old official policy that cuts their Central Provident Fund (CPF) contribution rates for older workers.

But they also cautioned against implementing any changes too soon that might end up hurting the competitiveness of businesses here, especially amid the global economic uncertainty.

This position was outlined by three major employer groups: the Singapore National Employers Federation (SNEF), Association of Small and Medium Enterprises (ASME) and Singapore Business Federation (SBF).

They were responding to Deputy Prime Minister Tharman Shanmugaratnam's remarks on Sunday that the Government was reviewing the CPF policy.

Now, employer contribution rates are cut from age 50, and again at 55 and 60. Employee rates are cut at ages 50, 55, 60 and 65.

Employers agreed that higher contribution rates would coax more older workers to stay employed, which could help employers facing a tight labour market and the rising cost of hiring foreign workers.

ASME president Lawrence Leow said: 'We believe there is room for upward adjustment. A change will help companies hold on to older workers as they would feel less disadvantaged compared with younger workers.'

But some bosses, like those who belong to the Singapore Chinese Chamber of Commerce and Industry (SCCCI), are opposed to any tinkering with the policy, saying it could lead to higher fixed manpower costs for businesses already feeling the pinch from higher foreign worker levies.

SCCCI president Teo Siong Seng said: 'Let the market decide what it can do to keep older workers, instead of making a mandatory adjustment that could make Singapore's business environment less flexible and less competitive.'

Mr Tharman, who holds the Finance and Manpower portfolios, disclosed the Government's decision to review the practice in an interview with Chinese daily Lianhe Zaobao, published on Sunday. He said unionists and employers are being consulted.

His comments followed calls in July by the National Trades Union Congress (NTUC) for a rethink of the practice. It began in 1988, in the wake of a recession, to encourage firms to employ older workers.

Yesterday, NTUC deputy secretary-general Heng Chee How welcomed the news of the review, saying that formal consultation with tripartite partners - employers and Government - will start next week.

He reiterated that there is less need to cut older workers' CPF rates now as more companies are moving away from a seniority-based wage system - which makes older workers more costly to hire and vulnerable to job layoffs - to one that is pegged to workers' performance.

Higher CPF rates would also help older workers save more for retirement, as people live longer and housing and medical costs climb, he added.

Said Mr Heng: 'NTUC agrees that it is timely to take stock of the facts and see if the rates still need to be reduced at the current age-points and to the current extents without endangering employment.'

The total contribution rate for workers aged below 50 is 36 per cent, with 16 per cent coming from employers. For those who turn 50, the rate drops to 30 per cent, with 12 per cent from employers. For workers above 65, employers contribute 6.5 per cent and the worker himself 5 per cent.

In the interview, Mr Tharman said he saw 'some merit' in the unionists' position. He said with more firms adopting a performance-based system, there is a need to 'make sure that the older workers are not disadvantaged in the job market'.

Employers said they too saw the importance of paying older workers a fair wage.

SBF chief executive Ho Meng Kit said 'healthy and productive Singaporeans who can hold their own in a performance-based wage system should not lag behind younger workers in CPF contributions'.

But he stressed that the review has to be 'carefully balanced' between providing sufficient incentives for older workers to take up employment and ensuring that employers are able to manage their wage costs, which include CPF contributions.

SNEF vice-president Alexander Melchers urged a holistic approach for the review, pointing out that higher CPF contribution rates could lead to higher overall wage costs. This could affect the employability of older workers if employers are deterred from hiring them, he added.

But Mr Leow said older workers could be cheaper to employ than foreigners, who are set to cost more as Singapore seeks to cut reliance on foreign manpower.

On the changes that employers would welcome, he suggested moving the age at which the lower CPF rates kick in from the current 50 to 55: 'Many at 50 are still productive and healthy. Cutting the contribution rate at this age might be too early.'

Mr Melchers said any changes should be delayed till after the Retirement and Re-employment Act kicks in next January. The law mandates the re-employment of eligible retired workers beyond 62.

'We think it is best to wait to see the impact of these changes on the employment of older workers first,' he added.