Chris Kuan, a frequent commentator on finance and economics, wrote on Worker’s Party (WP) proposed Redundancy Insurance (RI) scheme, stating that the scheme is sensible although it could be more aggressive.

The RI scheme by WP, calls for monthly contributions of 0.1% of monthly salary shared between employers and employees.


Chris noted that even without the WP’s proposed 0.05% of salary contribution, the drain on government expenditures isn’t that big anyway and questions the worry about the scheme being not sustainable.

WP states that their 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.

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).

Click here to read the full proposal

Chris pointed that even assuming no means testing and that every redundant worker did not receive redundancy benefits from their employers, if 3% of the resident labour force are unemployed for 6 months or more – the net expenditure based on 40% of median salaries to the government is just $700m a year or 0.18% of GDP, 1% of total government expenditures.

And with means testing, and excluding those who received 6 months or more of redundancy benefits, the amount expensed will be lower. This in comparison to an average long term budget surplus of close to 10% of GDP and the most recent net investment return contribution from the reserves amounting to 3.7% of GDP.

He wrote, “Instead of thinking out of work benefits as making Singaporeans lazy, they should be thought about as the means of enabling far better job matches in that workers need not to reach for the first job that comes through for fear of not being able to pay their not inconsiderable bills.”

Arguing that this will improve productivity and morale and such a safety net also provide a lift to entrepreneurship by reducing by some degree the financial costs of failure.

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