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Worker’s Party seeks feedback on Redundancy Insurance scheme to help workers made redundant

The Worker’s Party (WP) proposes its Redundancy Insurance (RI) scheme to ease the financial pressure on workers who are made redundant, to provide them with a longer runway to find suitable re-employment and to minimise the toll of unemployment on the health and well-being of their families.

WP is seeking feedback from the public on the RI scheme, which calls for monthly contributions of 0.1% of monthly salary shared between employers and employees.

It said that contrary to popular belief, unemployment insurance (UI) and unemployment benefits (UB) are not confined to Western countries. Around the world, UI and UB schemes can be either taxpayer funded or based on an employee-employer funded insurance model.

The former is the case in the UK, Australia and New Zealand, whereas the latter is the case in Canada, Japan, Korea and some American states. Japan for example, provides unemployment insurance following a ‘user-pays’ system similar to that found in Canada and the USA.

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(Click on the chart to see the comparison in detail)

In a chart attached to its proposal, WP has clearly shown that its proposed scheme matches those that are offered by other countries.

Based on MOM figures, an average of 8,100 residents were made redundant each year from 2007 to 2015. Almost half of residents who were made redundant were unable to secure re-entry into the workforce within six months.

The Party said that it believes that the RI scheme should be introduced early when unemployment is low so that Singapore can build up a resilient system with healthy reserves that can be drawn upon in years of poor economic growth and high redundancy.

WP wrote that a sub-set of those who are unemployed are those who have become unemployed not through resignation but termination, redundancy or retrenchment. This is the normal constituency addressed by UI or UB schemes globally.

From 2007 to 2015, the number of redundancies among residents (citizens and PRs) has fluctuated from 6,000 to 15,000, with the highest number of redundancies recorded in 2009 at 14,510 residents.

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Table 1: Number of residents (citizens and PRs) made redundant
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Table 2: Proportion of workers made redundant by residential status

The re-entry rate into employment within six months of redundancy has fluctuated around 50% to 60%, which means that nearly half of residents are unable to secure employment within a reasonable period of time.

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Table 3: Annual average rate of re-entry into employment of residents made redundant (within six months  of redundancy) (%)

The RI proposal aims to generate risk pooling to reduce the financial pressure on workers who are made redundant, so as to provide them with a longer runway to become re-employed and thus to minimise the harmful effects of a spell of unemployment. It also seeks to reduce insecurity and worry among the vast majority of employed Singaporeans.

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Based on an average wage of $3,782 in 2014 (after employee CPF contribution), employees will contribute an average of $1.90 monthly to the Employment Security Fund; the other 0.05% or $1.90 will come from employers.

The RI scheme will be automatically triggered when an employer files for the termination of an employee due to redundancy or retrenchment with the CPF Board.

In the event of involuntary unemployment, the worker will receive a payout of 40% of his or her last drawn salary (up to a monthly cap of 40% of the prevailing median wage) for up to six months.

The RI scheme will also provide top-ups to workers who earn less than $1,000 a month. Workers who earned less than $500 a month before they were made redundant will receive RI payouts equivalent to their previous monthly salary (e.g. a worker who previously earned $250 a month will receive $250 a month for up to six months under the RI scheme, instead of $100). Workers who earned between $500 and $1,000 a month before they were made redundant will receive a top-up of $200 to their original RI payout (e.g. a worker who previously earned $750 a month will receive $500 in monthly RI payouts instead of $300).

The party proposes that this should also trigger other agencies such as SkillsFuture Singapore (SSG) and the Social Service Offices (SSOs) to write to the retrenched person with information on how they can make use of other schemes like the Career Support Programme and SkillsFuture.

Associate Professor Daniel Goh, who is a WP member, responded to queries by TODAY, saying that while the party did not have a formal advisory panel, it consulted professional economists outside the party, as well as experts in related fields at various stages when drafting the paper.

Speaking to Today, Pasir Ris-Punggol GRC Member of Parliament Zainal Sapari, deputy chairperson of the Manpower Government Parliamentary Committee, said that similar schemes in other countries ran into problems, including not having enough time to grow the fund such that it could cover the payouts during an economic downturn. He add that having such a scheme may also create a moral hazard, where workers would intentionally make themselves redundant to get the payouts.

Click here for the full proposal

Workers’ Party is not the first political party to come up with such an insurance scheme for the workers who are made redundant. Singapore Democratic Party had earlier also proposed a retrenchment insurance scheme, entitled “RESTART” for workers who find themselves laid-off from work. If a worker is retrenched, RESTART pays him/her 75% of last drawn salary for 1st 6 months, 50% for 2nd 6 months, and 25% for final 6 months. The payout stops once the individual is re-employed or 18 months after retrenchment.