Does it make sense to pay for redundancy insurance to receive total payouts ≤ 2.4 months salary?

Under WP's proposal, payout is CAPPED at 40% of the prevailing MEDIAN salary.

Essentially this means getting a total payout (for 6 months) that is LESS THAN OR EQUAL TO 2.4 months of salary. (0.4 x 6 = 2.4)

WHAT IF YOU EARN MORE THAN MEDIAN SALARY?

You do not get 40% of your last drawn salary. Your payout will be 40% of the prevailing median salary.

This means for those earning more than the median salary, your total payout is less than 2.4 months of your last drawn salary.

It gets progressively smaller as salary gets bigger. Thus, if your salary is $10k a month at the time of your retrenchment, your total payout for 6 months will be less than one month of your last drawn salary.

ASK YOURSELF：

Why do you want to pay for redundancy insurance that gives you a total payout that is less than one month of your last drawn salary?

With a $10k per month salary, you have no problem saving one month of your salary on your own at no cost - that is, without paying for any insurance.

Similarly, why do you want to pay for a redundancy insurance that pays you 2 months of your salary in total or less than 2 months salary?

Pay for it or save for it?

Instead of paying from your salary for such a redundancy insurance, why not create your own private, personal 'redundancy saving account' and set aside money every month to save in this account? You can earn interest even.

If you never get retrenched, that money you save can be used for retirement, or for a holiday upon retirement.

Remember, after 6 months, if you still don't get a job, you're on your own. So why not save for rainy days?

Prudent to save for rainy days

In fact it is good discipline and good financial planning to save at least 6 months of your salary for rainy days. It is good to start young when your commitments are not so great and build it up gradually.

Low wage worker subsidizing high wage worker or vice versa?

One may argue for lower payouts for the high wage worker by saying that the high wage worker is helping to subsidize the redundancy benefit for the low wage worker.

In reality, most people retrenched are PMETs. In the third quarter of 2016, 73% of people made redundant were PMETs, higher than their workforce representation. Those with tertiary qualifications also form the bulk of the layoffs in the third quarter of 2016. (See here: http://bit.ly/2gVtOPF)

So in this risk pooling, the low income workers are actually subsidising retrenchment benefit for the high wage workers.

WE HAVE TO UNDERSTAND WHAT PROBLEM UNEMPLOYMENT INSURANCE IS MEANT TO SOLVE: Walter Theseira

SIM University economist Walter Theseira said there are already schemes to help those in need.

"If the problem is subsistence for low-income households, unemployment insurance isn't necessary because we have a framework of providing them cash assistance, although we can debate whether that assistance is enough.

"If it's giving people a buffer between jobs, is unemployment insurance the best way, or should we encourage people to set aside their own savings?" he said.