Central Provident Fund (Amendment) Bill

Order for Second Reading read.

5.22 pm

The Acting Minister for Manpower (Mr Tan Chuan-Jin): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill will amend the CPF Act to effect changes to the Minimum Sum Topping-Up (MSTU) Scheme, refine the CPF housing refund policy, introduce a minimum age to make CPF nominations, as well as streamline the administration of CPF matters. These changes have been made in response to feedback or in response to the operational experience of the CPF Board. They will keep the CPF system efficient and relevant to the needs of Singaporeans.

Let me begin with the changes to the MSTU Scheme. This is a scheme that was introduced to help Singaporeans contribute to the retirement savings of their loved ones by topping up their CPF Special Account (SA) or Retirement Account (RA). Singaporeans who wish to save more for their own retirement can also make voluntary contributions to these accounts under the MSTU Scheme. Tax relief is given to those who make cash top-ups to their own CPF accounts or that of eligible recipients.

To encourage more support within families, we widened the group of eligible recipients over the years. The MSTU Scheme now covers parents, grandparents, spouse and siblings. With a wider reach, the number of MSTU top-ups has increased from about 8,800 in 2007 to more than 38,000 in 2011. The total top-up amounts have also increased from $69 million to $216 million over the same period.

Many members have found this scheme useful in boosting their retirement savings or those of their loved ones, and we have received many suggestions to extend it so that they can also provide for their parents-in-law and grandparents-in-law.

We have taken on board this request. In April this year, I announced that we would expand the MSTU Scheme to include parents-in-law and grandparents-in-law. We will make a provision in section 2 of the CPF Act so that the Minister may specify through regulations who are eligible to receive top-ups from CPF accounts under the MSTU Scheme. We will then amend the CPF regulations later this year to specify that parents-in-law and grandparents-in-law will be amongst this list of eligible recipients to receive CPF top-ups.

The Income Tax Act will also be amended later this year to extend tax relief to members who make cash top-ups to the SA or RA of their parents-in-law and grandparents-in-law. Members who make cash top-ups to eligible family members will qualify for tax relief of up to $7,000. Members who make cash top-ups to their own SA or RA as well will qualify for an additional tax relief of $7,000.

With these changes, Singaporeans will be able to make cash or CPF top-ups to their own SA and RA, to those of their spouses, siblings, parents, grandparents, and now parents-in-law and grandparents-in-law as well. This change will take effect on 1 January 2013.

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Another enhancement we are making to the MSTU Scheme is to simplify the channels for making top-ups to a member's own SA and RA. Currently, a member may top up his RA under the MSTU scheme. He may also top up his RA by making what is classified as a Voluntary Contribution or VC for short. For top-up to the SA, a member can do so using his Ordinary Account (OA) savings under the OA-to-SA Transfer Scheme, or he could make a top-up using cash through the MSTU Scheme.

Members have found the multiple channels confusing as they essentially achieve the same purpose. What makes things even more complicated is that the various schemes have actually different top-up limits for recipients and varying terms and conditions for the use of these top-ups.

Therefore, to simplify the processes for members making voluntary contributions to their own SA and RA, we will merge the following channels, namely, the VC to the RA, and the OA-to-SA Transfer Scheme, into the MSTU Scheme.

The merger of the schemes, in itself, will not require an amendment to the Act. However, we will amend the Act and the regulations to align the top-up limits and the terms and conditions of the various schemes.

Specifically, changes will be made to section 18A of the Act to provide for the top-up limits for top-ups to the RA to be specified in the regulations instead of in the Act. We will then amend the regulations later this year to align the top-up limits and terms and conditions for all top-ups to the RA. The same will be done for all top-ups to the SA.

With these changes, all top-ups to the SA or the RA, whether it is made to oneself or to one's family members, and whether it is made via cash or CPF, will now be made under the MSTU Scheme. This will simplify the topping-up process for members.

For members above 55, they may receive top-ups to their RA up to the difference between the prevailing Minimum Sum and the amount they have in their RA, excluding amounts such as the interest earned and any Government grants received, and excluding amounts that they have withdrawn. For younger members receiving top-ups into their SA, they will be able to receive top-ups up to the difference between the prevailing Minimum Sum, and the sum of their current SA cash balance and any SA investments that they have under the CPF Investment Scheme.

Sir, with these enhancements, the MSTU Scheme becomes an even broader and more accessible avenue for Singaporeans to boost their retirement savings. We certainly hope more Singaporeans will take advantage of the scheme.

Sir, I will now move on to the next amendment that will give effect to refinements that we are making to the CPF housing refund policy. CPF members may use savings in their CPF Ordinary Account (OA) to purchase a property. When members sell their property, we require them to refund the CPF savings that they have used for their property.

Members who sell their property before age 55 are required to refund into their CPF account the principal amount that they had withdrawn for the property, including the prevailing Ordinary Account interest that would have accrued on this amount, or what we call P+I in short. This refund aims to restore the member to the position as if he had not withdrawn his CPF savings for the property. Members may still use the refunded amounts towards the purchase of any next property.

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The current housing refund requirements change when a member is past age 55. At age 55, a member is required to set aside the Minimum Sum (MS) from his existing CPF balances, and he may withdraw his CPF savings in excess of the Minimum Sum after having also set aside the required amount in his Medisave Account for his healthcare needs. So, when a member sells his property after age 55, only the amount needed to bring the member up to his MS must be refunded, since amounts above the Minimum Sum can be withdrawn anyway. In other words, for a member who sells his property after age 55, he will refund his Minimum Sum shortfall or his P+I, whichever is lower. Remaining proceeds from the sale of his property is received in cash.

While the current refund rules for members over 55 avoid collection of housing refunds in excess of MS, there may be certain scenarios involving more than one owner, where the refunds required of the co-owners may not match the amount of CPF each co-owner used to pay for the property. When this arises, co-owners can decide to distribute the cash proceeds among themselves such that the total of the cash proceeds and CPF refunds for each co-owner matches the amount that each co-owner had contributed towards payment of the property.

However, where the co-owners are no longer on good terms, the distribution of these cash proceeds becomes significantly more contentious and the co-owners may not always be willing to consider the amount that the other party has contributed towards the property. In cases where the property is sold at a loss, there may not be any cash proceeds for distribution at all. So, this is when the current housing refund requirements may create some unhappiness among members. Some of the Members of this House would have received appeals of such nature.

We are, therefore, refining the housing refund policy to address this issue. We will now require members aged 55 and above to refund their P+I. This means that the same refund rule will apply to all members regardless of their age. This refinement will ensure co-owners receive CPF refunds that are commensurate with their usage of CPF savings for that particular property. Sections 21, 21A and 21B of the Act will be amended to give effect to the new housing refund policy.

Where the P+I refund exceeds the Minimum Sum shortfall for members aged 55 and above, they need not worry that the new refund rule makes them retain in their CPF a higher amount than what is necessary. The refunded amount will first be used to set aside their cohort Minimum Sum in their RA and the required Medisave amount in their MA, and then the excess can be withdrawn. This is no different from the existing requirement that applies to all members past age 55 who wish to withdraw their OA and SA savings in excess of the Minimum Sum.

Under the new housing refund rule, for members aged 55 and above, any remaining housing refunds after setting aside the required amounts, in the RA and MA, will be automatically disbursed to the member in cash, unless he chooses to retain it in his CPF accounts. Changes will be made to section 15 of the Act to give effect to this policy. The majority of members can expect to receive the disbursed funds within one or two weeks of the crediting of the housing refunds into their CPF accounts.

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Sir, the new housing refund policy will ensure that the distribution of proceeds from the sale of property reflects the CPF usage among the co-owners, while at the same time not require older members to retain in their CPF more refunds than are necessary. The new housing refund policy will take effect on 1 January 2013.

Let me move on to the next amendment relating to the introduction of a minimum age for making CPF nominations.

CPF members may make nominations to have their CPF savings disbursed to their nominees upon their demise. CPF savings belonging to members who pass away without having made a nomination will be distributed to their next-of-kin in accordance with intestacy laws.

CPF Board has, in the past, allowed CPF members of any age to make nominations. The absence of an age restriction meant that even very young CPF members could make a nomination. This is not common, since young CPF members would not have started work and would generally not have any CPF savings. But there were young CPF members who had CPF savings as a result of top-ups made by their parents, and thereafter made nominations.

CPF members should be of sufficient maturity when they make decisions with regard to their CPF savings. We have, therefore, decided to set a minimum age of 16 years for making CPF nominations. This is in line with the minimum age to work under the Employment Act. Section 25(1) of the Act will be amended to give effect to this change.

The amendment will take effect in the later part of this year. As for members who had previously made nominations when they were still minors, a related amendment will be made to ensure that their nominations remain valid, such that they need not come forward to make a new nomination. Nevertheless, should they wish to do so, they may approach CPF Board to make a new nomination anytime as all of them are already above the age of 16.

Sir, the amendments in this Bill will encourage members to make voluntary top-ups into the CPF for themselves and their loved ones. And we are encouraged to see the numbers growing. We also look at refining our CPF housing refund policy to ensure that CPF housing refunds are consistent with the amounts contributed by each co-owner to the property, and introduce a minimum age for making CPF nominations. Several other changes intended to clarify and streamline the administration of the CPF Act will also be made. Altogether, these represent our effort to ensure that the CPF system continues to be relevant in meeting the needs of Singaporeans. Sir, I beg to move.

Question proposed.

5.35 pm

Mr Zainudin Nordin (Bishan-Toa Payoh): Mr Speaker, Sir, I had already and often iterated the importance of CPF savings to our workers. Similarly, I had also voiced my support for the proposed amendments to the CPF Act that are meant to benefit workers and their families. First, I am happy to note that the Ministry has given considerable thought to the implementation aspects of the proposed amendments. The enhancement and streamlining of the top-up scheme that was mentioned by the Acting Minister just now is timely and necessary.

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Sir, I think it is appropriate that a wider definition has been applied when identifying those who could benefit from the CPF top-ups. By including parents and grandparents-in-laws as beneficiaries of CPF top-ups, CPF members, especially those who are married, are more able to decide how to support both sets of parents and grand-parents. This goes some way in building familial bonds, and helps in the cash-flow of members who may have excess CPF savings, but not so much cash.

As for the proposed amendments to refunds on property transactions, I am also glad that the CPF Board will once again focus on its role as a custodian of members' CPF contributions. I think that the CPF is correct in proposing to return CPF savings used for mortgage and interest payments in accordance with the actual payments by individual members. I do not think that the CPF Board should take on the role of arbiter in case of disputes between joint owners of property. We can leave that role to our very capable legal system.

Sir, still on the subject of the primary role of the CPF Board, I wish to reiterate that CPF savings should be seen primarily as savings for retirement. While there is some merit in tapping on CPF savings for housing, investment and education purposes, we must constantly remind CPF members that for the majority, it is their CPF savings that will support them in their retirement. While there may be temptation to invest CPF savings through various schemes, the results, we all know, are hardly consistent, and certainly nowhere near as consistent as the returns guaranteed by the CPF Board.

Here, I once again urge the CPF Board to look for ways to enhance returns on CPF savings for two reasons: firstly, so that members can enjoy compound interest over the years to build up their CPF savings to fund a reasonable retirement; and secondly, a higher return would also serve to stave off the temptation among many, who today have suffered losses, instead of gains by investing their CPF savings. If the CPF Board could offer even a couple of percentage points higher than it does today, it will match the so-called target returns of many of the instruments under the CPF investment scheme. That would make it an absolute no-brainer, that is, leave your money in the CPF account and watch it grow!

Mr Speaker, Sir, allow me to speak a few words in Malay concerning the CPF.

( In Malay ): [Please refer to Pg 689 for Vernacular Speeches.] Mr Speaker, I would like to take this opportunity in this debate on the CPF Act amendments, to remind workers with CPF accounts, that the main role of their CPF savings is to take care of them during their old age as well as the retirement needs of Singapore workers.

I understand there are those who want to use their CPF savings for other purposes, including purchasing a bigger home. We should realise that any utilisation of our CPF savings comes with risks. If we have a job and stable income, it is all right for us to think of a bigger home or a second home. We need to assess and evaluate it better and more carefully. Do not rush into it.

I would encourage our workers to be careful when using their CPF savings. Every opportunity that we wish and hope for will carry a risk.

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My experience at the MPS sessions shows that there are workers who commit themselves to purchasing bigger and more luxurious homes using their CPF funds. Sadly, they then faced all kinds of problems, such as health problems of their own or among their family members. And there are those also who lost their jobs or have some other problems.

If this happens, the problems facing the worker will be very complicated. It will put their homes and also their CPF savings at risk. It will be worse if this happens during an economic downturn. Many will be trapped in a very tight spot, even to the point where they lose their homes and most of their CPF savings.

Therefore, we must remind our workers that they should continue to be careful as well as think long term and thoroughly, before making the move to use their CPF savings. It is an important nest egg, built over the years through hard work, that takes care of us during old age and retirement.

( In English ): With that, I would like to support the Bill. I think it is timely that we do these changes as they will benefit our workers in the long run.

5.40 pm

Mr Patrick Tay Teck Guan (Nee Soon): Mr Speaker, Sir, I support the Amendment Bill which will help to expand the Minimum Sum Topping-Up (MSTU) Scheme to cover parents-in-law and grandparents-in-law, to fine-tune the top-up process for members and to have the CPF housing refund policy regularised to ensure equitability. These are good measures that will help to enhance the CPF system for Singaporeans and to improve their nest egg for retirement.

With longer life expectancies and a greying population, there is an urgent need to review whether the present CPF scheme is sufficient to meet retirement needs. Only about 45% of active CPF members turning 55 in 2011 met the Minimum Sum requirements. In response, we have developed the CPF Life Annuity scheme and Silver Housing Bonus taking into cognisance that Singaporeans may not have enough CPF savings to cope with their future retirement needs. With a better educated populace and increasing number of PMEs (Professionals, Managers and Executives), there should be a fundamental rethink of how CPF funds can be further boosted for all Singaporeans.

Many ideas have been offered before. Financial experts will point out that building up investments is the positive route to grow savings in such a way that will beat inflation. While we have the CPF Investment Scheme (CPFIS), the majority of investors did not manage to exceed the risk-free rate from their returns. It is time that additional financial instruments be created for our citizens to participate in. For example, more sovereign funds can be further developed by the GIC or Temasek that will allow our citizens to invest from their CPF Special Account. This will allow each and every Singaporean to have a stake in our country's long-term success. Since this amount is drawn down from the Special Account, we can be sure that it will be mainly for meeting retirement needs.

One group of Singaporeans that I would like to specially highlight for future fine-tuning of the CPF system would be the home-makers and caregivers. As they have to take care of their children and/or the elderly, they are unable to work either for the short term or on a longer term basis. Hence, they would not be able to build up their CPF savings. This also has a direct impact on our young people's willingness to settle down to marry and to have children. At present, the maximum amount of top-up which qualifies for tax relief stands at $7,000. For husbands to provide a nest-egg for their wives who are home-makers and who have to stay at home to care for the young and/or aged parents, can I suggest that the maximum amount of top-ups for spouse's accounts which enjoy a tax relief be raised much higher than the current $7,000 limit?

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I recently met a housewife in her 50s during my weekly house visits. I was sharing with her on the Community Health Assist Scheme (CHAS) and she retorted and lamented on her huge hospital bill that very day while seeking outpatient treatment at one of the restructured hospitals. She shared that she incurred a bill of about $300 after the subsidy for her consultation and a huge bag of medication. She told me that the CHAS did not help as the bulk of her charges were on medication. I then asked her whether she had Medisave to use as she was having a chronic illness. She said she has been a homemaker since many years ago, and as such she has no CPF or Medisave for the longest time, except for Government top-ups which help in some ways to pay for her DPS and MediShield premiums. There is, therefore, a need to re-look at how we can better protect this group in our future policies and programmes. Perhaps, in future, the Government should consider an annual top-up to recognise their role in society and especially so when they have given birth to children and are looking after them.

Then, however, there is another female resident who is 49 years of age who had mortgage repayment difficulties for her HDB loan. In our desire to ensure a minimum sum in the Ordinary Account, she was told by HDB that she had reached the CPF withdrawal limits and not allowed to utilise her monies in her Ordinary Account to finance an HDB loan. HDB suggested for her to use cash and to sublet her extra bedroom to generate rental income to fork out that cash.

To conclude, I welcome these changes to be made to the CPF. However, I hope the Government can do more to allay the fears and worries of its citizens on the sufficiency of their CPF funds, come 20, 30 years down the road, taking into account the higher costs and standard of living.

5.45 pm

Mr Seng Han Thong (Ang Mo Kio): Sir, I support the Amendment Bill and will comment on the MSTU for in-laws and the minimum age for making CPF nominations.

First, the MSTU for the in-laws. With these amendments, members will be allowed to make CPF transfers to parents-in-law and grandparents-in-law and to make cash top-ups. And as we know, for any policy changes, there are always positive and negative views depending on one's perception of the policy and one's personal circumstances and preferences. For one who does not know about the changes, one, of course, has no views.

I support this amendment as it helps more seniors build up their CPF savings for their old age and, at the same time, promote family values. It also provides tax incentives if the top up is in cash. This is what I call positive views. However, we know that there are CPF members who belong to the middle and lower income groups and do not need to pay taxes. So, even if they top up a small sum for their in-laws, there is no incentive for them. Thus, if the CPF Board can provide other incentives to encourage the lower income group to also top up the Minimum Sum for their in-laws in cash, the amendment will be seen as more inclusive. Can the Government also top up a token sum to their in-laws for those who make cash top-up but do not enjoy tax incentive? I would also suggest that CPF Board steps up its marketing activities and be more focused in its communications to the target audience whenever there are policy changes. Thus, for this amendment, we may not need to inform those who are not married yet but to those who are married, the message can be more informative and creative.

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Two, the Minimum Age for making CPF nominations. Sir, the Act is amended to specify that members who have attained 16 years of age can make a CPF nomination. We know that members can change their nomination from time to time and CPF Board does notify them that they have made their nomination. I would suggest that CPF Board take a more proactive approach by updating them of their nominations when they reach 21 years, at the time they get married and when they reach 55. It will serve as a reminder to them that they can review the nomination and make changes, if need be, to avoid future disputes.

Sir, CPF touches the life of every Singaporean in every aspect – be it housing, education, medical, retirement or investment. The agency can be more member-centric to different groups of members by engaging them and informing them and even educating them of the changes affecting them in different aspects so as the CPF Board is seen as a friend in need and also a friend indeed.

5.48 pm

Mr Tan Chuan-Jin Mr Tan Chuan-Jin: Mr Speaker, Sir, let me thank Mr Zainudin Nordin, Mr Patrick Tay and Mr Seng Han Thong for their thoughtful speeches and for their support for the Bill. Some of the issues that have been raised pertain to general CPF policies. These are important points that they have raised.

Mr Patrick Tay shared with us several stories which we are familiar with. There are concerns or issues raised amongst them – returns to the CPF, providing more for those who have not saved enough, or, in some of the cases, for those who have not really been working, and housing withdrawal limits. These are important and we are looking into how we can better address these issues to continually improve the CPF system. But we will take these up separately at other forums as appropriate.

I will now address the specific comments that have been made on various aspects of the Bill. First, the expansion of the MSTU scheme. Now, all three Members who spoke on this topic have voiced their support for the changes to the MSTU scheme. We believe that this is the right way to go. An increasing number of members are tapping on the MSTU scheme to boost their family members' as well as their own retirement savings. I mentioned earlier that the number as well as the amount of top-ups made under MSTU scheme have increased over the years. This is encouraging and we hope that this continues.

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But, more importantly, it also means that Singaporeans do see the CPF as a good way to save for their retirement. As Mr Zainudin has said, the interest rates offered by the CPF are higher than what you can find in the market, and also more stable and lower in risk. Furthermore, we pay an additional 1% extra interest (EI) on the first $60,000 of a member's combined CPF balances, which means that MSTU top-ups can earn up to a total of 5% interest. So while our lower income members who make MSTU top-ups may not be able to benefit from the tax relief offered as Mr Seng Han Thong mentioned, because they do not pay taxes, they can be assured that the top-ups to their loved ones' CPF accounts will go a long way in boosting their retirement savings through interest accumulation over the years.

Aside from benefiting disproportionately from the extra interest I mentioned just now, lower income members also receive larger GST Vouchers and various Government grants. Their CPF savings are also boosted by Workfare. This is the Government's way of helping the lower income build up their retirement nest egg.

Next, let me move on to another point that Mr Seng highlighted on the importance of actively reaching out to members in a targeted way, so that they can benefit from the improvements that we have made to policies such as the MSTU scheme. Let me assure you that the CPF Board is fully engaged in its member education efforts. Taking the MSTU scheme as an example, the Board taps on a range of channels to reach out to members to make sure that they understand how they can tap on this scheme. Through regular talks with members and outreach events in the community, CPF Board promotes awareness of the MSTU scheme. There is extensive information on the CPF Board website as well as brochures which are freely and widely distributed.

Over the years, we have also learned to tailor our communication to members. For instance, the Board's website carries comprehensive information packaged in bite-sized chunks for members going through different life events – for example, when they start work, when they get married, when they buy a house, when they turn 55 years old, and so on. Last year, the Board also launched the "Are You Ready?" campaign to encourage Singaporeans to kick-start the financial and retirement planning. As part of this campaign, the Board provides information through talks, webcasts, and other tools to help Singaporeans at different stages of their lives make better financial decisions.

I encourage all CPF members, young and old – it is never too young to start financial planning – to take full advantage of the information and tools provided by the Board. And the website itself is useful, comprehensive and has received a lot of good feedback from members. So, do use it.

On CPF nominations, Mr Seng Han Thong suggested that the Board should take a more proactive approach in informing members of their nominations when they reach certain important junctures in their lives, for instance, when they get married or when they approach old age. This would serve as a reminder to members, should they wish to review and revise their nominations when their individual or family circumstances change. I think it is a very good suggestion raised by Mr Seng. In fact, currently, when members get married, the nominations that they have made prior to marriage become invalid automatically due to the change in the family circumstances. We could explore whether it is possible to reach out to members at these significant milestones in their lives to get them to come forward more proactively to re-make or update their nominations, as the case may be.

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Today, members are already informed yearly through their annual CPF Statement of Account, which is mailed to their homes, that they have made a nomination. While the Board promotes awareness that members may make or revise their nominations, they do not actively encourage members to do so. If a member does not make a nomination, his CPF savings will be distributed to his loved ones through the intestacy laws upon his demise. It is the personal choice of the member whether he prefers his CPF savings bequeathed to the nominees or distributed to his loved ones under the said laws.

While we work on educating members on the various aspects of CPF, we also listen keenly to members' feedback and make improvements to our policies. Hence, the changes made today. Many of the amendments we are making arose from members' feedback – the refinements to our housing refund policy, expansion of the MSTU scheme to include parents-in-law and grandparents-in-law and the merging of various channels for voluntary contributions to simplify the topping up process for members – just to name a few.

We will continue to listen to members' feedback on ways to improve our CPF policies and, indeed, appeals from Members of Parliament for their residents also play a big part. As we investigate these particular cases, we would also learn and see how best we can improve the process.

Sir, in closing, I would like to reiterate Mr Zainudin's thoughtful points on exercising prudence in the use of CPF savings. For the majority, the CPF will be an important source of savings for their old age. We must be careful not to over-extend when we decide how much CPF savings to use for housing, be drawn into investing them for higher returns if we are unable to bear the higher risks involved, or expect to dip into this nest egg when we find ourselves urgently short of cash. It takes discipline and careful planning to ensure a sufficient nest egg in retirement. On our part, the CPF Board will make sure that the system will do its best to support all our Singaporeans in their retirement needs. With that, Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [ Mr Tan Chuan-Jin ].

Bill considered in Committee; reported without amendment; read a Third time and passed.

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ADJOURNMENT MOTION The Deputy Leader of the House (Mr Heng Chee How): Mr Speaker, Sir, I beg to move, "That Parliament do now adjourn."

Question proposed.

Proposal for Transforming the Childcare Sector: ###### 6.00 pm

Mr Yee Jenn Jong (Non-Constituency Member): Mr Speaker, may I request for the printouts to be distributed?

Mr Speaker: Yes, please [ Copies of handout were distributed to hon Members ].

Mr Yee Jenn Jong: Sir, I would like to add my suggestions for reforms to the childcare industry, even as the Government is looking at how to boldly transform this sector. I wish to declare that a part of my business supplies products and services to pre-schools. I have also previously managed and owned childcare centres, but have no longer been doing so for the past seven years. This proposal is to improve the industry to benefit consumers. It will not benefit my business. I will first speak in Mandarin.

Mr Yee Jenn Jong: ( In Mandarin ): [Please refer to Pg 690 for Vernacular Speeches.] Childcare centres in Singapore first started in the 1970s. Back then, there were only a few private and non-profit operators in the business. Children between the age of four and six could be enrolled in childcare centres or kindergartens. However, because kindergarten school fees were much lower, kindergartens became the primary choice for parents looking for pre-school education for their children.

Then in the 1990s, childcare centres started to flourish because more double-income families appeared. In the past 10 years, the childcare industry has expanded at a very fast pace. Childcare centres became a common sight at the workplace.

In the beginning of the year 2004, there were 651 childcare centres. This number has increased to 987 by June this year. During this period, the number of children who enrolled in childcare centres increased from 38,000 to more than 75,000. So, you see more and more childcare centres in housing estates. There is a lot of demand for childcare centres in housing estates. In fact, the demand for childcare centres outstrips supply.

Inclusive of children under infant care, childcare centres currently take care of 90,000 children. This number is similar to 93,000 who are enrolled in kindergartens. Enrolment for kindergartens has been decreasing steadily over the past few years. If this trend persists, there will be more children enrolled in childcare centres instead of kindergartens. In fact, childcare centres now play a very important role in our society.

At the start of 2004, the average fee for full-day childcare services was $572, but this has increased to $699 by the end of 2008. Currently, the average fee is $831.

In 2008, the Government increased childcare subsidies. The monthly subsidy for full-day childcare services increased from $150 to $300. Now, based on the above statistics, we can see that average fees for childcare services has increased in tandem with the increase in Government subsidies. If we were to look at the fees of private childcare centres, I am sure that the fees have increased much more than the increase in Government subsidies, because their labour and manpower costs have gone up rapidly. Today, an article in Lianhe Zaobao reported on the rental woes faced by private operators of childcare centres.

According to a recent survey by Lien Foundation, 90% of users of childcare services feel that pre-school education is expensive or very expensive. The survey also pointed to a serious problem: childcare fees are so high that it is deterring many married couples from having more children.

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Is it possible for us to have good, affordable childcare services for the masses? I believe it is possible. Now, let me elaborate in English.

( In English ): In the childcare industry, there are many private operators, most with one or a few centres, while several run chain stores. We also have non-profit operators, dominated by NTUC First Campus and PCF Sparkletots. They are called Anchor Operators, so determined after an exercise in 2009. The criteria used included: (a) $5 million paid-up capital, (b) non-profit, and (c) without any religious or racial affiliation.

Anchor Operators function mostly from HDB void decks, at rents of between $2 and $4 per square metre, as disclosed by MCYS. For a typical centre of 400-500 sqm, this means monthly rent of $1,000 onwards. They receive generous set-up and furnishing grants for each new centre. In addition, they get recurrent grants for manpower development and learning programmes, estimated to go into $30 million per year.

MCYS publishes upcoming new centres from HDB and SLA. From its website, I see just a few centres available to private and non-profit operators. Yet, at the opening of the 100th NTUC centre in October last year, NTUC declared it will open 50 new centres over the next two years, which is one every fortnight. PCF, too, had been growing just as rapidly in the last three years. Just five years ago, PCF was a small childcare player. Today, it is number two with 90 centres, just behind NTUC. The many new centres by these two operators do not match the small number of published centres available to non-profit operators. Are they given unpublished quotas?

We are told that the role of non-profit and Anchor Operators is to bring cost down while maintaining quality. Sir, there is no magic in non-profit or in Anchor Operators. The lower fees they provide can be matched by private operators. I will now demonstrate that if private operators get the same benefits as non-profit and, indeed, Anchor Operators, they had shown that they could match the fees of non-profit peers.

Financial modelling for childcare is straightforward. The main start-up cost is renovation, fitting out, and investment in resources. Set-up cost can be high, running into a few hundred thousand dollars per centre.

In a typical centre paying competitive rents, manpower and rent account for some 80% of all on-going operating costs. Private operators function from landed houses, commercial and Government-owned buildings or purpose-built HDB void decks. Tenancy is often subjected to bidding. When tenancy expires, there is usually open bidding or adjustments to market rent. Competition has caused rents to be in excess of $10,000 to even as high as over $40,000 per month in recent tenders.

Anchor Operators get choice new sites regularly at highly subsidised rents. They receive start-up, furnishing, maintenance and recurrent grants. These give them huge operating benefits over competitors.

The difference in monthly rent between non-profit and private operators can be $15,000 per month or more. Divide $15,000 by a typical centre enrolment of 75 children, that works out to around $200 cost advantage per child per month. With setup grants, Anchor Operators need to provide less for amortisation of investments. They get ongoing grants to defray costs. Yet, with these cost advantages, non-profit's median fee is currently just two hundred over dollars lower than that of private operators. We can find private centres whose fees are not much higher than that of the Anchors. Are the Anchors, with these cost advantages, really doing enough to keep fees affordable?

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Sir, there are other industry data to support my claim. In a parliamentary reply this year, MCYS disclosed that EtonHouse, a premium operator whose fee is $1,500 per month, charges only $728 at its Hampton Preschool. The centre is a collaboration with PCF. PCF secured the site at low rent, and can enjoy other grants. EtonHouse is responsible for programme delivery, set-up and pedagogy. According to a speech by Mr Wong Kan Seng in 2009, EtonHouse manages the centre and was selected because PCF wanted to work with a private operator who could deliver "high quality programmes". While there could be variations in operations compared to a typical EtonHouse centre, the fact is, EtonHouse could deliver "high quality programmes" at less than half of its usual fees when it operates in a void deck that enjoys subsidised rents and grants.

In the 1990s, Government buildings started to provide for workplace childcare. There was an interesting practice then to charge $1 or other token monthly rent for purpose-built childcare facilities which catered to children of staff working in the building. Bids were called. I noted that in open competition, these sites went to established private players whose own centres charged in the mid to upper price range. The condition for low rent then was that the fees for children of staff in the buildings must be kept low. Premium private operators could match the prevailing fees of non-profit operators.

Today, costs are escalating due mainly to rent and manpower. Manpower cost affects all in the industry. Anchors with recurrent grants can better retain staff, head-hunt from other centres and deal with rising costs. Rent is steadily rising in our competitive market. This has caused fees to rise. Out-of-pocket payments by parents in many private centres today are higher than before subsidies were increased in 2008. MCYS has no control over fees. Centres just need to give "ample" notice to parents, which MCYS recommends as three months, and then fees will go up.

The Government has announced new measures for the industry. While they may be initiated with good intent, I fear it could end up creating more unfair competition, destroying the diversity and innovation in our current system.

I have a proposal to bring costs down while pushing for quality and diversity – childcare as a public good with private partnership through contestability.

I noted that in delivering public goods such as transport, the Government has pumped billions in rail and bus investments without expecting payback from private operators or charging infrastructure at market rent to them. We are told this is to bring the cost of public transport to a level that the public can accept. If we wish for young working couples to be able to afford childcare and be encouraged to have more children, then we have a case to use a public good's approach for childcare.

Government can build and lease out centres at managed low rent. All existing centres can come under this model. Based on answers in Parliament, there are 290 void deck centres for non-profit and 176 for private operators in void decks and JTC buildings, and another 52 in Government buildings. That is 518 centres, roughly 52.4% of all childcare centres in Singapore. With 200 more new centres to be built mostly in Government-controlled spaces, the share of sites under Government control will rise.

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Old schools, disused community centres and other SLA spaces can be purpose-built by the Government into mega childcare facilities, even housing different operators under one roof. Childcare generally should be within 2-3 km of workplaces or homes. Many small void decks in new HDB blocks are not ideal for childcare, limiting options in new towns. We can have mega childcare sites as long as we ensure it is within easy access by parents, with roads and parking well planned.

We can utilise unused land parcels next to primary schools. There are small plots around some primary schools which are not big enough for meaningful commercial projects. We can tap on the infrastructure of the schools to add new pre-school facilities. This will make use of unutilised space, save on infrastructure costs and cultivate exchange between Primary school and pre-school.

The Government can negotiate as main tenant with large private landlords for sites as a bloc to supplement their bank of childcare sites. It can work with property developers who get additional Floor Area when they set aside pre-school space at cheap rents and let the Government use the space for any type of operators. We should actively pursue all options to increase the State's childcare bank to cater to the mass market.

How do we allocate these centres? Rather than have more Anchors, I have another suggestion. The Anchor concept has skewed the market. It is like giving a boxer super gloves and energy boosters while tying the hands of the competitor and asking them to fight each other. The stated objective of the Anchor Operators was to "develop childcare operators that would set the benchmark for quality and affordable childcare services."

It may have allowed Anchor Operators to achieve higher quality as they get resources, economy of scale, and certainty of their leases. Is it fair to expect other operators to keep pace? Other operators get little or no state funding. They hesitate to invest, worried if others will outbid them for their centres at each renewal, which will wipe out sunk investment. New HDB sites are so few compared to unannounced sites for Anchors. Anchor Operators could lure their staff away with scholarships. Instead of encouraging other operators to step up, it can cause some to think short term and extract as much out of their investment while they can.

We can apply contestability. Contest clusters of sites openly based on concept rather than on rent. This was done before, when Government building sites charged token rent and selection was on other factors, such as quality and fees.

There is no need for a one-time selection of new Anchor which will only strengthen a few selected ones and weaken everyone else. Worst, it may become impossible for new operators to enter the market, killing off future innovation. We need active and fair competition to raise standards and to continuously drive innovation.

Recurrent and other grants should apply to all qualifying participants as long as they meet strict selection criteria on fees and quality. There should be no differentiation between private and non-profit operators. We already know what the current Anchors can do with the support they had been given. Why have we been limiting ourselves to think only selected non-profit players can bring cost down? Let us open up and see how all others, including private operators, can benefit from that in terms of price and quality, if given similar support. I believe fair competition may even force current Anchor Operators to better their pricing, ultimately benefiting consumers.

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New operators can surface from time to time. Small operators may band together into economic groups to better compete. Contestability will drive diversity and quality. Operators cannot increase fees without approval. The Government will regain control over the fee process to ensure affordability.

Government can better direct its key programmes. MCYS had found it hard to get private operators to go along with some of its programmes, such as SPARK. Last month, we were told only 115 pre-schools had attained SPARK accreditation, of which just 39 were private operators. This is way, way below the target of 85% of all centres to be SPARK-tested by 2013, a figure established by Minister of State for Education, Mr Masagos in November 2010. We can allow only SPARK-accredited operators to contest these sites.

There may not even be a need for state-run pre-schools. The call for nationalisation was made by many frustrated with differing standards and high costs. We can improve quality even at the low-cost segment by having a critical mass of centres available in this public-good model, and the state regulates to steer quality and pricing. It can designate some centres for the low-income group by packaging centres for different market segments in each tender exercise. While this proposal is in the context of childcare, it can also be used for kindergartens.

In summary, I am calling for childcare to be a public good with fair contestability of sites at managed rents for all types of operators, with tighter control of fees and quality by the state. This will benefit all Singaporeans as fees will drop industry-wide while preserving diversity and driving up quality and innovation. I hope the Government can carefully consider this proposal.

Mr Deputy Speaker: Mdm Halimah Yacob.

The Minister of State for Community Development, Youth and Sports (Mdm Halimah Yacob): Mr Deputy Speaker, may I get your permission to distribute the handout? [ Copies of handout were distributed to hon Members ]. Mr Deputy Speaker, Sir, I would firstly like to thank Mr Yee for his views and suggestions for the childcare sector.

Obviously, this is an issue close to the hearts of Singaporeans. It is also an area where the Government – especially MCYS and MOE – has paid close attention and made significant efforts. Over the last few years in particular, we have invested in significant initiatives to provide parents with more accessible, affordable and quality childcare and kindergarten options. I think these are the three points raised by Mr Yee in his statement just now.

Allow me, Sir, to briefly share some examples. Through the Child Care Masterplan introduced in 2008, we have improved accessibility. More than 200 new childcare centres were set up. Today, we have close to 1,000 childcare centres across the island, providing up to 90,000 places. This is an increase of about 40% over four years. Over the next five years, we will be providing another 20,000 childcare places to meet the increased demand.

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To make childcare more affordable, we raised the universal childcare subsidy in 2008 from $150 to $300. Sir, if Members could refer to the handout that I have distributed, they will get details of the enhancement that we have provided in supporting families for their childcare fees.

More recently, we have enhanced childcare financial assistance for families with household incomes up to $3,500 and we introduced a per capita income criterion to allow larger families to receive more subsidies. Parents can also utilise funds from the Child Development Account (CDA), for which Government provides a one-for-one matching grant, to offset the cost of childcare fees. With this combination of subsidies and financial assistance, a family earning $2,000 a month for example, may pay as low as $15 per month out of pocket at a typical childcare centre at a HDB estate.

Mr Yee's reference to the trend in average fees in the industry may not provide a very good picture of affordability for the majority of low- and middle-income families since average fees are skewed by high-end centres. May I, Sir, point to the handouts, which show the trend in median fees for the industry and for childcare centres that operate in HDB estates. As you can see, we raised subsidies by $150 in 2008, the industry median fee for childcare increased by $120. So, parents are still $30 better off. If they use a centre in the HDB heartlands, they are about $80 better off even after taking into account fees over the years. For the lower income groups, Sir, they would have received additional subsidies.

Nonetheless, we acknowledge that families face rising costs and there is room to do more. There is always reason for us to do more, whether in terms of accessibility, affordability or quality. This is not a sector where we want to say we have reached the peak. This is a sector where we want to seek continuous improvement, just like the education sector. As the Prime Minister has mentioned in his National Day Rally speech, we will look into ways to make childcare and infant care more affordable for low- and middle-income households.

Let me come to the issue of quality, Sir. To improve quality, we raised the qualification requirements for kindergarten-level teachers and edu-carers of younger children. We worked with training providers to increase training courses and places. Generous scholarships and bursaries were given out. Today, more than 80% of childcare centres have at least three out of four of their N2, K1 and K2 teachers with a diploma in pre-school education.

We have also extended curriculum and systems support to pre-school providers. MCYS' Early Years Development Framework, together with MOE's Kindergarten Curriculum Framework, provides guidance to centres on designing quality programmes. MOE's Singapore Pre-school Accreditation Framework (SPARK) also helps centres evaluate and improve the quality of kindergarten-level programmes.

Sir, Mr Yee has raised some concerns on our Anchor Operator scheme. Let me also take this opportunity to explain to the House how the Government extends support to the different operators in the childcare sector. Broadly, we adopt a three-pronged approach as follows.

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First, significant support goes towards the entire sector as a whole. We support all centres with measures to help raise quality and to develop a steady supply of trained manpower. These come in the form of programme and curriculum guidelines, quality standards, subsidised consultancy, training and scholarships, and resources on good employment practices.

At the second level, Sir, we provide additional support to non-profit operators. We do this because non-profit operators have a social mission to provide affordable services to families and children and, in particular, extra help to those who have greater financial or other needs. This is in line with our objective of greater support for these groups of children and families. We do this through providing development grants to non-profit operators to set up centres in the HDB heartlands. Rental rates for these sites are also subsidised so that the operators can offer more affordable fees.

Third, we have an Anchor Operator Scheme – a point alluded to by Mr Yee – where we provide additional support to non-profits who meet additional criteria and who commit to stringent terms and conditions. The additional support is to enable them to significantly increase childcare places that are both of good quality and affordability for the mass market, that is, those from low-to middle-income families.

The basic entry criteria to the scheme are made known. In addition to development grants and subsidised rental rates, Anchor Operators also receive a recurrent grant to defray the costs of recruiting and developing good quality teachers for their new centres. In other words, whoever wants to take advantage of the Anchor Operator scheme and wants to receive additional grants and support, is entitled to do so. It is open to them, even if you have a commercial entity who feels that it wants to do that, can always set up a non-profit arm. And if they qualify and fulfil the conditions, they are also eligible to become an Anchor Operator and receive the additional support from the Government.

In return, Sir, Anchor Operators are held to higher quality targets than the rest of the sector, and must commit to delivering their childcare programmes at affordable fees. Anchor Operators also need to be inclusive and secular, not catering to any one ethnic or religious group. They must also be financially able to sustain their operations and achieve sufficient scale, in order to meet Government's objectives over the long term.

Since the scheme was introduced in 2009, there are now close to 200 childcare centres operated by the two Anchor Operators across the island. This is a three-fold increase and many of the centres are spread out across all the HDB estates. All Anchor Operators charge fees that are below the market median. Few of these would have been possible without the scheme.

Overall, Sir, this tiered approach has enabled us to improve the childcare landscape significantly. Today, we have a diverse range of operators, providing parents with choices. At the same time, we have a strong core of non-profit providers offering affordable, good quality services. We want to grow this core over time so that we can reach out to more low- and middle-income families, and ensure no child is denied access to good quality childcare.

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Moving forward, the Implementation Committee for Enhancing Pre-school Education is reviewing the design of the scheme. We intend to expand the coverage of the scheme by attracting and admitting more operators so as to bring benefits to more parents and children. That is one point that Mr Yee raised, and that is with regard to the fact whether having Anchor Operators affects the ability of the commercial operators to grow.

Based on the statistics that we have, Sir, we have seen growth in both the Anchor Operator market, as well as growth in the commercial sector. But the Anchor Operator scheme is very important because we are using tax payers money. We have to make sure that we award it to those who are non-profit and provide a public service, who are able to contain fees and yet at the same time provide good quality childcare services to the public, particularly the low- and middle-income families.

Sir, I want to say that notwithstanding these improvements, we know we can always do better. And we want to do better, so as to provide even better support to parents and to better prepare our children for the future.

The Prime Minister's announcements at the National Day Rally are indeed a concrete reflection of this. They represent a new stage of development for our pre-school sector; a new milestone on a continuous journey which we have started years back. In navigating this journey, Sir, we value and take seriously feedback, and we will continue to do so. This includes inputs from parents, pre-school professionals, parliamentarians, members of the public and Mr Yee himself. We study and take them into account in setting directions, developing policies and implementing programmes.

Often, however, such feedback and views, including those from experts, are mixed. Just over the past few weeks, we can see that some Singaporeans are of the view that the Government should nationalise and standardise the provision of pre-school, while others prefer a diversity of programmes and players so that parents have more choices. Some parents want more structured curriculum and programmes, while others feel quite the opposite.

There is, Sir, no unanimous agreement on what is the best approach for Singapore. It is not an easy issue with clear solutions. We will consider the diverse feedback we receive and study other systems. We will decide based on our circumstances and the stage of development of the sector, and especially the interest and well-being of our children. That is of paramount consideration. This is what we have done in the past and will continue to do.

6.30 pm

Mr Deputy Speaker: Order. Mdm Halimah, the time of 30 minutes allowed for this debate has expired.

The Question having been proposed at 6.00 pm and the Debate having continued for half an hour, Mr Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned accordingly at 6.30 pm.