Between 20 and 30 companies in Singapore have set up private pension funds in the past year.
The boom comes from tax-law changes that allow tax-exempt private pension funds to be established, said David Richardson, managing director, Watson Wyatt Worldwide in Singapore.
Mr. Richardson would not name companies that set up the new funds.
Singapore's legal change permitting tax-exempt funds came into existence in 1993. But it wasn't until the end of 1994 that follow-up regulations were promulgated and funds could begin.
The resultant private pension market is now growing "very fast," said Mr. Richardson who estimated that, in 10 years, funds' total assets should come to "quite a few billion (Singapore) dollars." In comparison, private pension assets before 1994 amounted to less than a quarter of a billion Singapore dollars, he said.
According to Wyatt officials, employers could have several reasons for wanting to create a private pension scheme on top of their mandatory participation in the Central Provident Fund, Singapore's social security system.
In this city-state where unemployment is low and job hopping commonplace, the government and employers hope "pension funds with suitable vesting would help keep people in jobs," said Arpan Thanawala, actuary and consultant with Watson Wyatt Worldwide in Singapore.
And, because much of the job-hopping occurs among lower-paid employees, it's hoped the existence of company pension funds will induce workers to stay longer in their jobs. With longer job tenures, the government hopes such workers will upgrade their skills - and thereby contribute to the government's mission of generally seeking improved job skills in the Singaporean workforce.
Finally, the existence of private funds also could help correct some of the differences in benefits between higher- and lower-paid workers.
Today, for example, salary limits on contributions to the Central Provident Fund mean that, proportionately, lower-paid workers get a higher percentage of their salary set aside for the social security program. Therefore, "employers have seen an advantage in offering top-up pension schemes to address this unfairness," said Mr. Thanawala.
Both employees and employers must contribute to the Central Provident Fund.
Workers and employers each allocate 20% of a workers' salary up to a salary ceiling of $6,000 Singapore dollars (about U.S.$4,234) a month to the CPF; this requirement is not waived for companies that set up a private pension fund.
However, employees are not permitted to contribute to the new tax-exempt private pension funds.
Meanwhile, effective Jan. 1, neighboring Malaysia has raised employees' required contributions to the Employees Provident Fund (the mandatory retirement system) and allowed tax-deductions for slightly higher additional voluntary contributions to the EPF and private pension plans. The moves, which were stated in Malaysia's 1996 federal budget, are aimed at curbing inflation and excessive consumption while promoting savings, reports the consulting firm of A. Foster Higgins & Co. Inc., New York.
According to the new measures, employees' mandatory EPF contributions rise this year to 11% of salary from 10%. But employers' required 12% contribution remains unchanged, Foster Higgins reported.
In addition, "employers and employees may make additional, tax-deductible voluntary contributions to the EPF and approved private pension plans," the firm said in a report. Now, employers may contribute a total of 17% of an employee's income tax-free, up from the previous 16%. The amount includes the 12% mandatory EPF contribution.
According to Foster Higgins, employees may now contribute a total of 7,000 Malaysian ringgits (about U.S.$2,743), which includes EPF mandatory contributions. That figure is up from 5,000 ringgits (U.S.$1,959) previously.
According to the latest available figures from Foster Higgins there were 6.4 million members of Malaysia's EPF as of 1993, and they had average savings of 10,250 ringgits (about $4,032).
