Pensions

The idea that we should save enough for the future and be encouraged to 'look after ourselves' during retirement is also a 'sensible' message. This has been a recurrent theme in recent Budgets - last year saw the reform of the Supplementary Retirement Scheme (SRS), for example.

This idea has been brought into even sharper focus in recent months as those nearing retirement are finding out that their net worth is considerably lower than they had expected due to the volatile markets. So can any more be done which may help the dual-policy objectives of encouraging hard work and attracting foreign talent? Yes, maybe.

Singapore employers are increasingly using a 'pension' as a means of attracting and retaining staff. Section 5 of the Singapore Income Tax Act allows for tax-free contributions to be made to an approved scheme and in turn, employers have the freedom to set their own terms around minimum service periods before contributions vest, and contribution rates. The only catch is that these contributions must be 'employer' contributions and so employees are not permitted to vary the contribution rates or to make additional contributions.

A simple tweak to the existing law here, to allow employee contributions with a corresponding tax deduction over and above the current CPF cap, may allow 'thrifty' employees to save in a tax-efficient manner as well as to remove some of the perceived 'barriers' for foreign employees who may compare the Singapore system with that from their home countries. For example, Employment Pass holders cannot make CPF contributions and so a Section 5 scheme may help to bridge the gap.

In addition, to further enhance the attractiveness of a Section 5 scheme, the 50 per cent tax exemption of distributions from an SRS could also be mirrored in the rules that apply to Section 5 plans. This may also be an opportunity to improve flows of capital within Singapore and to stimulate investment in Singapore-listed companies as new homes are sought for the new flows of cash.

Retrenchment & retraining

In the recently released Tripartite Guidelines on Managing Excess Manpower, employers are strongly encouraged to consider retrenchment only as a 'last resort' and instead, to consider sending their employees for skills training and upgrading under the Skills Programme for Upgrading and Resilience (Spur). However, there will inevitably be some retrenchments in the sharp downturn and so what more could be done to help?

Firstly, there is already a tax concession called 'course fees relief' and, with a similar intention as Spur, the aim here is to encourage retraining and help with employability. The current limit to the relief is $3,500, which was set under 'normal' economic conditions. Perhaps there may be room to increase this in the Budget speech?

At the more 'radical' end of the scale, perhaps a scheme to defer income tax payments for those who have been retrenched and who are actively seeking work would help alleviate some more short-term financial worries?

Focus on costs

Cost control is the 'order of the day' for many businesses. A package of measures at the personal tax level which helps, in a sustainable and targeted way, to remove any remaining cost barriers for employers, while also stimulating 'sensible' behaviours (for example, saving for one's retirement) may reward past hard work and, at the corporate level, to encourage new lines of business to relocate to Singapore.

Whatever the outcome of this year's Budget, the Finance Minister is going to be hard pressed to please everyone. As always, there will be winners and losers.

James Clemence is a partner and James Coleman is a senior manager, PwC International Assignment Services. The PwC International Assignment Services (IAS) practice provides a complete range of services for organisations deploying staff across international boundaries.

This article was first published in The Business Times on January 07, 2009.