EDUCATION ENDOWMENT SCHEME (AMENDMENT NO. 2) BILL

EDUCATION ENDOWMENT SCHEME (AMENDMENT NO. 2) BILL: Order for Second reading read.

6.35 pm

The Minister of State for Education (Mr Gan Kim Yong): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill seeks to amend the Education Endowment Scheme Act to establish the Post-Secondary Education Scheme.

Sir, we want to prepare our children well to face the challenges of the future. We want to encourage and help them to continue with their education beyond secondary level if they can. For this reason, the Prime Minister announced the setting up of a Post-Secondary Education (PSE) Scheme at the National Day Rally in 2005. The main objective of the PSE Scheme is to help parents save for their children's post-secondary education through Government co-funding. This is part of our efforts to encourage every Singaporean to complete post-secondary education and underscores our continued commitment to support families in investing in the future by providing education to their children.

Under the scheme, a Post-Secondary Education (PSE) account will be created for every child with a Children Development Account (CDA). Unused funds in the CDA would be transferred to

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the PSE account in the year when the child attains the age of seven years. Parents can continue to contribute to the PSE account until their child turns 18 years. The Government will continue to match parents' contributions, subject to a combined CDA/PSE account matching cap of $6,000 for the second child and $12,000 each for the third and fourth children. This will give parents more time to contribute and benefit fully from Government co-savings in their child's account. The PSE Scheme will be launched in January next year when the first cohort of children with CDA attains the age of seven.

In addition, the Second Minister for Finance announced in the Budget Statement this year that the Government will top up the PSE accounts of all Singaporean citizens between ages seven and 20 in 2008 and 2009 as part of the GST off-set package. The intent was to help parents save for their children's post-secondary education even if they are not eligible for CDA. The quantum to be given ranges from $100 to $400 based on the child's age and the annual value of their homes. The top-up in 2008 will be credited to the PSE accounts in March 2008.

Finally, when the child reaches 16 years old or leaves Secondary School/Junior College/Vocational Training Centre, whichever occurs later, his unused Edusave balance will be transferred to his PSE account to be used for post-secondary education. Funds in the PSE account can be used by the account holder or his siblings for programmes in the ITE and publicly-funded polytechnics and universities as well as other institutions approved by the Minister.

Key provisions of the Bill

Sir, I now move on to the key aspects of the Bill.

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Clauses 2 and 3 amend the title of the Act to Education Endowment and Savings Schemes Act to reflect the expanded scope of the Act.

Part IIIA establishes the PSE Scheme and sets out the sources of funds for the PSE accounts, the role of the PSE Scheme administrator, the criteria for membership, contributions and interest payable. The PSE Fund will earn interest pegged at the CPF ordinary account rate.

Part IIIB lays down the conditions for withdrawal from PSE Fund, protection of members' benefits and disbursement to deceased members. It also provides for the transfer of the balance in the account to the member's CPF ordinary account from the age of 21 years, or to a sibling's PSE account at an age to be prescribed by the Minister. My Ministry is drawing up guidelines on the withdrawal and application of funds in the PSE accounts.

Sir, let me now turn to the remaining amendments which are related to the Children Development Co-Savings (CDC) Act.

Besides removing the provisions on the transfer of CDA balances to Edusave accounts and providing for the transfer to PSE account, the related amendments also seek to clarify that the CDC Scheme allows for any monies paid into a member's CDA to be used for the benefit of the member's siblings. This is to align the CDC Act with the Education Endowment and Savings Schemes Act, which will allow monies in a member's PSE account to be used for the post-secondary education of his sibling.

In conclusion, Mr Deputy Speaker, Sir, the amendments proposed in the Bill will establish the Post-Secondary Education Scheme and make related amendments to the Children Development Co-Savings Scheme.

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Sir, I beg to move.

Question proposed.

6.40 pm

Dr Lily Neo (Jalan Besar): Mr Deputy Speaker, Sir, I support the amendments made to the Education Endowment Scheme. The development of education is integral to our society, and an important driver of our economy. In the light of an increasingly dynamic landscape, driven by the rapid movement of global talent and rise of the knowledge economy, it is imperative that we continue to support the development of knowledge through education. It is also thus timely that we review the scheme to ensure that in view of rising costs, both at home and abroad, education will still be affordable to all Singaporeans.

In this light, there are three issues I would like to raise. First, is on the rising cost of education and the reduction in education subsidies at the tertiary levels. Second, is on the need to raise awareness on these rising costs. And, third, is on helping Singaporeans fund their education.

Rising costs of tertiary education

Sir, I am concerned that the proverbial pie set aside for education may not be adequate to fund the increase in the cost of tertiary studies. The Education Minister said at last year's Committee of Supply debates that our university fees needed to be revised regularly to allow them to meet cost increases, while improving on the quality of education provided. He cautioned that increasing the share of the economic budget to our universities would not be equitable, as it would reduce the share for the rest of the education sector.

This has obvious implications, particularly as we aim to increase the

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number of university places in Singapore, and our population as a whole. The Prime Minister has set a target of providing sufficient places in local publicly funded universities for 30% of the 2015 cohort. Will there be enough funds for subsidies for this new batch of students?

With our universities going autonomous, how much will the rise in cost affect our undergraduates? Countries, like the UK and Australia, have already seen a marked increase in the cost of undergraduate study for their population. In Singapore, the average fees for undergraduate students for courses in Arts and Sciences are about $27,000 before subsidies. At a conservative 5% increase per year, this would rise to about $40,500 in 10 years and double to about $54,000 in 20 years.

Raising public awareness

With this expected rise in the cost of tertiary education, it is necessary to ensure public awareness of this issue and for Singaporeans to be aware of the need to plan early for these costs. While in the long term, Singaporeans must adequately plan to bear the costs for tertiary education due to the decrease in subsidies, in the short term, the Government must explain the rationale behind the decrease in subsidies, and assure Singaporeans that this does not mean that education is not a priority. The Government must convince Singaporeans that, on the contrary, more is being done to prepare Singaporeans for the knowledge economy at the fundamental level.

Helping Singaporeans fund their education

In the light of these developments, my third and final point would be on measures taken by the Government to help Singaporeans fund their education. Two issues are pertinent here.

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The first issue is on the interest paid to the Education Endowment Fund, which currently receives an annual interest rate of 4%.

I would like to ask the Minister of State how this interest rate is being derived. In real terms, will this be sufficient to cover the rate of rise in inflation? Additionally, with the recent increase in interest paid to CPF funds, how viable will it be to increase the interest rate to be paid to the Education Endowment Fund?

The second issue concerns the use of the Post-Secondary Education Fund (PSEA). I would like to ask the Minister of State how far an average Singaporean's PSEA, if left untouched, will go towards being able to fund the cost of a basic local degree. Also, how viable is it to delay the use of the PSEA and Baby Bonus for tertiary education? Will the Government also consider allowing Singaporeans to use the PSEA to pay for overseas education? In light of the recent debate about the inadequacy of university places in Singapore, a good number of Singaporeans will have to and have expressed their intentions to pursue an overseas education. If this uptrend continues, then surely the option to use the PSEA will be beneficial to this group of Singaporeans.

PSEA can now be used at our publicly-funded universities, polytechnics, ITEs and our arts institutions. In addition, the Minister for Education has recently announced that PSEA may be used at UNiSIM as well. Will the Government also consider allowing Singaporeans to use their PSEA for post-graduate study? More Singaporeans are pursuing higher education, particularly among younger Singaporeans after working for some years. If indeed the PSEA is eventually allowed to fund post-graduate study, then there will be a need to revise the automatic transfer of PSEA into the CPF

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Ordinary Account at age 30 as many will probably engage in continuing education well into their 30s and 40s.

Mr Gan Kim Yong: Mr Deputy Speaker, Sir, I would like to thank Dr Neo for her remarks and her support for the Bill. I would like to take this opportunity to address some of the concerns raised by Dr Neo.

Dr Neo voiced some concerns about the rising cost of university education. As she rightly pointed out, it is inevitable that the fees have to be adjusted from time to time to reflect higher cost and to ensure the quality of education in our tertiary institutions. However, I would like to assure her that our universities are always mindful of the need to keep cost down. MOE and the autonomous universities will ensure that university education remains affordable to Singaporeans.

With the PSEA, Singaporean students could have up to, if they have not spent any amount or they have not withdrawn any amount, $33,000 in their accounts before they enter university, coupled with study loans, bursaries and work study programmes. We can expect that all Singaporean students from the lower 50% income group who are admitted to the local universities will be able to complete their university education without any cash outlay for tuition fee and living expenses.

I agree with Dr Neo that Singaporeans must be prudent in using their funds and we will continue to stress the importance of long-term investment in the future through educating their children. Dr Neo also asked whether the Government can consider allowing Singaporeans to use the PSEA to pay for post-graduate study or overseas education. Dr Neo will be pleased to note that PSEA can be used for all undergraduate education and post-graduate programmes offered by our three local autonomous universities and SIM University.

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Currently, the scope of use of the PSEA excludes overseas education as overseas educational institutions are not accountable to the Singapore Government for their programmes and the educational outcome. To ensure that the limited PSEA funds are used for its intended purpose of providing quality post-secondary education, it will be prudent for us to limit its use to local institutions, the quality of which is more assured.

On the issue of whether the use of the PSEA can be deferred, a student may request to defer the transfer of the PSEA to his CPF if he is still studying in a post-secondary tertiary institution and is using the fund upon reaching the age as prescribed by the Minister. However, PSEA is primarily aimed at financing post-secondary education as part of the pre-employment education. For post-employment education, that is, after you have started work and you have decided to continue to go back to school and continue to upgrade yourself, there are other schemes available, such as the Skills Development Fund and Lifelong Learning Fund administered by the Singapore Workforce Development Agency.

Dr Neo asked how the interest rate of the Education Endowment Fund is derived and whether it is sufficient to provide for inflation in the long run. The interest rate for the Education Endowment Fund is currently pegged to the CPF Special Account rate which was 4% last year. However, the Ministry of Finance is reviewing this. Similar to the CPF interest rates, the interest rate on Government endowment funds should be pegged to

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the interest rate on market based instruments which are of comparable risk and duration. As Government endowment funds are long term in nature, MOF is studying an appropriate long-term market benchmark. While it is not assured, long-term bond yields do tend to rise and fall in tandem with inflation. Furthermore, the Government is committed to maintaining a low inflation environment in Singapore through its monetary and fiscal policies.

Sir, this Bill establishes the Post-Secondary Education scheme which will help Singaporeans save for their children's education beyond the secondary level. This is an important part of our strategy to invest in our future.

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 Gan Kim Yong].

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