CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL

CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL: Question proposed.

6.09 pm

Mdm Halimah Yacob: Mdm Deputy Speaker, I rise in support of this Bill.

This Bill is a significant piece of legislation and the substance of it has already been very widely debated last month in this Parliament. For the first time in our history, we now have a long-term income supplement scheme to support low-wage workers, ie, the WIS. Stretched incomes, with income stagnation or decline for the bottom end of our wage earners, are not peculiar to Singapore. Globalisation and technological change have often been cited as the reasons for

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this income gap. While this is true, inequity can also be partly controlled through the right policies designed by Government, instead of leaving everything completely to the free market. The WIS is clearly one example of a proactive policy, which will benefit our low-income earners while not weakening self-reliance.

Madam, there are three comments that I wish to make with regard to this Bill, specifically on the WIS scheme. First, currently, the WIS applies only to those who earn not more than $1,500. However, in computing this quantum, the current definition of salary under the Employment Act is used. Hence, instead of just using the basic pay as the basis for computation, overtime pay is included in the computation of the $1,500 salary ceiling.

I would like to ask for this to be reviewed, as it is very common for low-wage workers to work overtime, which can on average come up to about 20% to 30% of the monthly wages. For example, in the security industry, it is common practice for workers to work fixed overtime of about four hours a day, which pushes their salary beyond $1,500. Without the overtime element, their basic pay will be less than $1,000 in most cases. Including the overtime pay acts as a disincentive for workers to work overtime which is difficult to avoid in the current tight labour market where there is a shortage of workers but which means that quite a number of them will not qualify for the WIS.

If the intention is really to encourage our low-income workers to work, then those who work harder doing overtime work or who work on their rest days or public holidays should not be penalised. I request the Minister to revisit this point and to consider the possibility of

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excluding overtime in determining the salary ceiling of $1,500 under the WIS.

Second, Madam, as payment of the WIS now depends on regular contributions to CPF, it is important to ensure that employers pay their workers CPF. In this regard, the CPF Board should step up its enforcement efforts to ensure that low-income workers under contracts of service are paid CPF. Could the Minister enlighten this House on the kind of effective enforcement mechanism that is in place today to ensure that employers comply with their obligations to pay CPF? As the CPF contributions are already quite low for our low-income workers, there is no reason for employers not to pay their CPF contributions.

Finally, Madam, the Workfare Bonus was introduced last year. Could the Minister enlighten this House how many people had claimed the Workfare Bonus and what measures will be taken to educate and inform low-wage workers that they can claim the WIS and how successful has this message been in reaching out to the low-wage workers, bearing in mind that the first instalment will be payable soon?

On this note, Madam, I support the Bill.

6.12 pm

Ms Sylvia Lim: Mdm Deputy Speaker, I would like to seek clarification from the Minister on four aspects of the Bill. The first concerns nominations made by CPF members as to who is to receive their monies upon death. The current section 25 provides that after the nominations are made, they are considered revoked if the member thereafter gets married which makes sense since the circumstances have changed. Clause 12 provides that there may now be other circumstances where a nomination is considered revoked. However, these new circumstances have not been spelt out in the Act

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but will be prescribed by the CPF Board later.

Madam, the revocation of a deliberate nomination by a member is a drastic outcome as it involves inheriting a major asset of the member. Earlier, the Minister mentioned that these other circumstances would actually put into effect what is already in the regulations. I would like to ask the Minister whether there are any new circumstances for revocation of a nomination being contemplated.

Secondly, Madam, clause 15 touches on the Dependants' Protection Insurance Scheme. The current section 43(2) provides for the situation where a member takes out the insurance and the Board has reason to believe that he was already incapacitated or suffering from a terminal disease before he took up the insurance. In such an event, his insurance will be cancelled and all premiums he paid using CPF funds will be refunded to his account with interest. Clause 15 will change that to give the Board the discretion only to return part of the interest to the member. I would like to ask why the Board needs to change this position which would seem somewhat heartless in the circumstances as the member is already incapacitated or terminally ill. And I believe that this would include members who are not fraudulent because there is already a provision within section 43 itself allowing the Board not to refund the premiums at all in such circumstances.

Madam, the last two clarifications concern the new Part VIA providing for the payment of benefits under the Workfare Income Supplement Scheme. Under the new section 57C(2), the Government can recover any WIS payments

from members in three circumstances: if the member made a statement false or misleading in any particular, if the member contravened any regulation or if the money was paid by mistake of the Government. However, Madam, there

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could be circumstances where it is unjust to recover the monies, for instance, if the monies were paid due to the Government's mistake. For example, the member did not qualify for WIS or was overpaid, and the member may have used the money, not knowing about the mistake as well. Another situation could be the member making a technical error in his application which is not material at all. Should the Government consider refining this provision in order to be fair to innocent members?

Lastly, the new section 57F allows the Minister to make regulations concerning how WIS payments given to members in cash may be utilised. Madam, WIS is supposed to help members cope with living expenses, and since each person's immediate needs may differ, will restricting the use of WIS cash be a helpful move?

6.17 pm

Dr Ng Eng Hen: Madam, thank you for the opportunity to clarify some aspects.

First, let me deal with Mdm Halimah's questions. She is quite right that we have structured the system where we have set the cap at $1,500 and she has asked for this to be reviewed. The $1,500 is the gross salary, which basically means it can include overtime pay.

Madam, I would like to approach this, first, from a larger picture to say what we have put in place and to say that, in principle, nothing is cast in stone yet. We are on the front edge of the envelope in having a nationalised income supplement scheme, first among developed countries and, certainly, very few, if any, developing countries do this. And we do this recognising that there is a wage disparity and globalisation is acting on certain wages of our low-wage workers. I say that, both as a mark of our progressiveness but also to sound a

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cautionary note that any scheme with the best of intentions can degenerate into something which you never conceive. This was what happened to pension schemes worldwide. So we wanted to be careful when we first did it. We did it in a selective manner, and the Workfare Bonus Scheme, which we introduced in 2005, gave us confidence that it could be implemented on a wide scale. Other Workfare schemes, for example, in the States, are for selected populations, not general, and certainly not based on just incomes, including all and sundry under their schemes.

I would say that this can be reviewed, and we have said that we would review it in three years. We have used $1,500 a month, which is about the 30th percentile. And this scheme is meant to target specifically those who are older, actually those who are above 45 and earning $1,000, which is about the 15th percentile. I think that is still the correct target to give maximum support. But we also wanted to help those who are earning more and even those who are younger. As recently announced in September, we decided that we would give even more to those who are older, aged 55 and 60, so that, in essence, somebody who is aged 60 earning $1,000 gets $200 a month, a 20% wage supplementation. It is a sizeable contribution.

Because it is targeted, it allows us to put more money where we think help is more needed. I think that is also a fundamental implementation principle. We do not want to spread the help too wide because then it becomes difficult. Every time we raise it, we have to give more and certainly there will be a fiscal impact. So, as it is, we think that it will cost us $400 million a year, every year, a fiscal cost, and we have to factor that in. And we want to see how it works because it

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has not really started. The real scheme, I remind Members, will start next year, and the last two years was the Workfare Bonus Scheme. So I would say that, in principle, we are not closed to reviewing where the wage parameters are, what are the margins we need to help. But I would say, let us review what happens, whether it supplements the income, it incentivises work and that it can match, and whether it helps those we want to help, in terms of their daily livelihood and living expenses.

Mdm Halimah asked how many have benefited. From 2006, it was about 340,000. This was the Workfare Bonus Scheme. And from 2007, it was about 362,000. So this was real money going into a large portion of our workforce. If you consider only our Singapore workforce, resident workforce, it is less than two million. We are supporting a group across-the-board, a sizeable group, over 300,000 workers and their families, with Workfare support.

Mdm Halimah also brought up a very important point - that the CPF is such an integral part of our structure that we ought to make sure that people make contributions. It is not to approach it in a legalistic manner to say that you have to put it in, but because we all recognise that this is really a core system which enables our housing, medical and retirement, and that if you do not do it regularly and early, sooner or later you will have to pay the price of not putting the money into it. And I agree completely with her that we want to put in as much resources as we can and involve as many stakeholders as we can to be able to accomplish this. And that is why we set up the Tripartite Committee for Low-Wage Workers which the Minister of State Gan Kim Yong chairs, and SNEF and NTUC will facilitate this. But the way to do this also has to be customised. There will be groups that we want to take a very hard line. And these are employers who

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systematically or basically cheat and do not pay their employees CPF. Even those who say that they are the contract workers, but if it is proved in practice they are the employees, we will take action. So there will be a group that we will use the law and we will send a very strong signal and, from time to time, we will do that to make sure that the employers know that they are liable to pay their employees CPF. I think that there is a place for that, and indeed we will do that.

There is a group, on the other hand, which we do not want to use the stick but carrot, and this is where the Medisave Contributions Draw comes in. And this is where we need persuasion by unions to get these self-employed to put in money so that they can benefit from Workfare. Then there is a group that is in between where we use both measures and we will need all stakeholders to persuade them. Some of these are self-employed, some of these are daily-rated, and we have to explain to them why it is good for them. So I would not underestimate the challenge. There may be 100,000 or 150,000 such employees. It is right to focus on them. It is right for MPs to continue to ask what the progress of this is. And I think that we have to expand resources to slowly step this up because it is an important component of social security. So I thank her for bringing this up.

Ms Sylvia Lim asked about certain questions of revocation. They were very specific. Let me answer what I know and, where there are lapses, I will encourage her to file a specific Question and we will have more time to address them. She asked about new section 25(5). The reason is not that we are trying to change the rules for revocation. They stand as they are. But, previously, the processes and the circumstances of the revocation were in a sense implicit and we wanted to make it explicit because we agree with her that this is a very important point.

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Who are you giving your money to or nominating? So, basically, the amendment is to make it explicit. The Board's power is to make rules prescribing the manner and circumstances, but the manner and circumstances are not changed from this Act itself.

She asked about the circumstances in which a nomination is revoked. As they stand, one of the circumstances now is marriage. She has quite rightly pointed out that it can be revoked by a member's marriage and this makes sense. Death of a nominee - it will be revoked when a nominee dies before the member, and this is so that the member's CPF monies may be distributed under the intestacy laws or Muslim inheritance certificate when the member's intended nominee has predeceased him. It can also be revoked on a written notice of revocation. The member should have the right to revoke his nomination at any time as this is his money, so he can complete the notice of revocation. If a nomination is revoked and no subsequent valid nomination is made, the member's CPF monies should be distributed under the intestacy laws and, again, the Muslim inheritance certificate. A subsequent valid nomination by a member would revoke his earlier nomination. This is to make clear that CPF monies will be paid in accordance with the latest CPF nomination.

What is the effect of a revocation when a nomination is revoked and no subsequent valid nomination is made? The CPF monies belonging to the member will be distributed to the Public Trustee, again, according to the intestacy laws and the Muslim inheritance certificate. And if a member has made a subsequent valid nomination, then it will be paid in accordance with his latest CPF nomination. We have discussed this issue internally quite a few times. We want to strike a balance between the ease of application and making sure that members also know that it is something important

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that they need to do. Simply, if there is no nomination, then the intestacy laws apply. I think that makes sense because that is distributed to his remaining family members. So, as I said, I may not have given all the information that Ms Sylvia Lim has asked. If this is so, I will request that she files a Question to answer those specific questions.

Ms Sylvia Lim also asked about clause 15. Let me just say that, in the same vein, when we started our Workfare scheme, we started this section Part VIA in the CPF Act to be able to recover money. But I would not stance it as if, again, in a legalistic manner, that we will try to recover every cent if there is a technical infringement, and we do not want to incentivise work. That is not the aim of it. The aim is really, of course, to create legislation to allow us to act against those who are egregious sinners, those who are plainly fraudulent, and that we can go after, because it is important.

You and I know that our grassroots members are very savvy. I remember once we gave out transportation vouchers and a grassroots member came up to me and said, "I saw so and so who live there. They are retirees. They live in a terrace house and they were queueing up with me for these transportation vouchers. Why does Government allow this?" So word gets around, it gets diluted. And if people can get away, in a sense, by cheating the Workfare scheme, falsely declaring, or they know that they have other sources of income, I think it dilutes it, it diminishes it, it really perverts the scheme and distorts it, and it does not allow that scheme to do what it was intended, which was to really help those in need. So all these laws, in terms of adjustments, in terms of being able to recover, are to allow us to act against those people. I suppose it is no different from saying that you fine somebody who

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is speeding but, if there are mitigating circumstances, then you have to act with compassion. So the DPS was to say that there were circumstances where the CPF Board had to return to the member certain DPS premiums when the policy was cancelled. And I used the reverse example in my speech where I said that we may have to recover because we give the Workfare in two tranches as your income changes. But we wanted not to be tight-fisted, we wanted to give you the money first, and, if there are adjustments in the second half of the year, we can adjust. That was the reason.

But because of the new interest rate structure, 1% is given on $60,000 from all combined accounts. Again, we wanted to be flexible because among the three accounts - the Ordinary Account, the Retirement Account and the Medisave Account - it shifts. When you sell a house and you have a lot of money, suddenly, you do not earn the 1%. Then you buy a new house, you take out from your OA, you are below the $60,000, the 1% comes back. It kicks in. So that 1% moves with three accounts.

The Second Minister for Finance (Mr Tharman Shanmugaratnam): It is complex. When we deliberated internally, I said, "Look, why can we not calculate exactly how much we are to give back or how much that extra 1% is?", and they told me that just to build a system to track that extra 1% on the moving $60,000 in three accounts would cost enormous amounts, and I said we will take a practical approach. Where it is necessary and, for a few members, we can calculate, I suppose manually, to return it. It is only that 1% on the extra amount; it is not the entire interest, in other words, that flat 4% or the 10-year SGS+1 in which the new interest rate structure is based. That is quite clear. That is not a problem. But the extra 1% is contingent on the $60,000, which makes it a bit more complicated.

Similarly, when we are recovering interest, we may have to just say that the

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extra 1% is difficult to calculate. We can recover but that gives us the discretion. And if there are cases indeed where we certainly do not want to add greater hardship for these cases, we will spend the extra effort to return all the interest, if need be. So let me give the House and Ms Sylvia Lim that assurance. So, that answers the unjust refund under DPS.

Ms Sylvia Lim also asked about the WIS payment in cash. On that last point, I was not quite clear that the CPF Act wanted us to prescribe the manner in which the cash is to be used. I would have to check up on that, but I do not think that that was the intention of the legislation. Once the cash is given to you, I think that is out of our hands and nobody can legislate what you do with it. So let me check on that and return to her perhaps in a written reply, if I may.

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. - [Dr Ng Eng Hen].

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