CENTRAL PROVIDENT FUND (AMENDMENT) BILL

Order for Second Reading read.

5.04 p.m.

The Minister for Foreign Affairs and Minister for Labour (Mr Rajaratnam): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill is the third of three Bills which are designed to meet the challenging economic problems that loom ahead. Whilst the purpose of the Employment Bill and the Industrial Relations (Amendment) Bill is to have more realistic terms and conditions of service and employer-employee relations consonant with the need to induce greater investment, generate higher productivity and employment, this Bill deals with another inter-related problem -- the marshalling of domestic savings for the economic and social benefit of our people.

Before I deal with the Bill itself, hon. Members will no doubt like to have the air cleared in regard to the Fund itself. At the end of 1967, there were 456,029 members with balances totalling $477,315,488. The number of active accounts in 1967 was, however, 299,157 and contributions received during the year amounted to $55.8 million. An interesting feature of the Fund is that about 60 per cent of the members earn less than $200 per month, whilst about 31 per cent earn between $200 and $500 per month, and only about 9 per cent earn more than $500 per month. It would also be interesting to note that about 57 per cent of the total membership have a balance of less than $500, but if we were to consider the total number of members having a balance of under $1,000 the percentage would be about 71 per cent. The analyses given here will help hon. Members, in the light of what I have to say later on, to appreciate the effect the proposed amendments to the Central Provident Fund Ordinance will have on the wage earning population of Singapore.

Mr Speaker, Sir, the principal purposes of the Bill are:

(i) to increase the contributions payable to the Central Provident Fund by employers and employees;

(ii) to enable arrangements to be made for members of the Fund to use their savings in the Fund for the purchase of houses or flats for their own occupation; and

(iii) to enable the provisions of the Central Provident Fund Ordinance to be extended to cover persons who are self-employed and who do not at present contribute to the Fund.

I shall first deal with the proposal to increase the contributions. An amendment is made to the Schedule to the Ordinance whereby new rates of contribution payable are prescribed. The effect of this amendment is that the current rate of contribution of 5 per cent each by employer and employee is increased by 1½, per cent to make it 6½ per cent each, and the existing provision that limits the employers' and employees' contributions to a maximum of $25 per month from each is removed and a new maximum of $150 per month from each is substituted. It should be noted, however, that employees who earn less than $200 per month, will not, as at present, be required to contribute to the Fund.

This means that the payment of an additional 1½ per cent by the employer will, in respect of about 60 per cent of the members of the Fund, mean contributions only by employers towards enhancing the savings of workers. In an indirect way it is an addition to workers' pay. The same advantages would also apply to employees in the higher wage groups. However, it is not intended to apply the new rates to the United Kingdom Government and its employees and they will therefore contribute the present rate of 5 per cent each. The reason for this is obvious as hon. Members know that the British are leaving and retrenching their employees.

The Minister is given powers to vary the schedule of contributions. The intention behind these powers is to increase the rate by another 1½ per cent in the second stage. Therefore, the total savings each month for the worker as a result of contributions payable both by employer and employee will be 16 per cent - that is 8 per cent each by employer and employee. In the third stage, the contributions will be increased by a further 2 per cent to make it 10 per cent from each side, or a total savings of 20 per cent of salary each month. This will considerably increase the savings of the employees and build up their reserves in the Fund which will stand them in good stead both by enhancing savings and accumulating sufficient money to purchase houses or flats.

A very significant departure from the existing law are the amendments to section 25 of the Ordinance, as embodied in clause 14. This is to enable members of the Fund to use their savings in the Fund for the purchase of houses or flats for their own occupation. A reasonable question that can be asked in this regard is the basis on which Government has assessed the situation. I must inform hon. Members that the Government has assessed the purchase intentions of the people through a feasibility survey conducted by the Economic Research Centre in conjunction with the Housing and Development Board. This survey has shown that 49 per cent, or nearly half of the householders in Housing Board flats, expressed the intention to buy them, 10 per cent expressed uncertainty and 41 per cent did not wish to purchase flats. Among those who wish to buy flats, 16 per cent live in one-room flats, 30 per cent in two-room flats and 54 per cent in three-room flats. 29 per cent of those who expressed uncertainty live in one-room flats, 35 per cent in two-room flats and 36 per cent in three-room flats. An interesting feature was that 53 per cent of those who did not wish to buy flats live in one-room flats, 27 per cent in two-room flats and 20 per cent in three-room flats.

These figures indicate that the proportion of households wishing to purchase flats varies directly with the number of rooms in a flat. While only 24 per cent of those living in one-room flats wish to buy, 50 per cent of those living in two-room flats and 68 per cent of those living in three-room flats have expressed a wish to buy them.

In regard to Central Provident Fund balances of households surveyed, an interesting revelation is that about 31 per cent have between $1,000 and $5,000 and 13 per cent above $5,000. About 10 per cent have between $500 and $1,000 and 21 per cent less than $500. There are, however, a good number of people in these households who do not contribute to the Central Provident Fund but who wish to buy flats. These people are generally self-employed. Hon. Members will see that there is, therefore, justification in enabling members to make use of their savings in the Fund to purchase houses as a sizable proportion of our people, whether in or out of the Fund, are keen to own their own homes. This should give the lie to those who allege that people are forced to buy Housing Board flats. With the enhancement of savings through increased contributions, it can reasonably be expected that more people will have enough funds in due course to make down payments and pay instalments.

Central Provident Fund members who already have sufficiently large balances in the Fund would be allowed to use their balances to purchase flats outright, while those who have already purchased flats will be allowed to use their monthly contributions to pay the instalments of their housing loans, but they will not be allowed to use their balances to settle outstanding balances of any existing loans. I must inform hon. Members that regulations will be introduced to make the necessary arrangements for implementing the housing scheme.

The other notable amendment is the provision to extend coverage to self-employed persons, that is to say, persons who derive income from any trade, profession or vocation. Any such person, however, need not contribute after he has attained the age of 55 years. Provision is also made to ascertain from the Comptroller of Income Tax the incomes of such persons. These are contained in clauses 2 and 14 which amend sections 2 and 25 of the Ordinance. The necessary regulations in this regard will also be made in due course.

The other amendments to the Central Provident Fund Ordinance are in part consequential and in part designed to improve the drafting and the administration of the Ordinance. These amendments, however, include a number of others which are considered necessary for other reasons. In particular, provisions have been made in clause 6 to require employers to contribute to the Fund in respect of employees over the age of 55 years and to require such employees to contribute.

Clauses 7 and 8 of the Bill introduce two new sections designed to clarify the procedure and conditions of withdrawal from the Fund. The rights of members of the Fund to withdraw will be affected: -

(a) by restricting the right of withdrawal on the ground that a member is leaving Malaya permanently to persons who are not citizens of Singapore; and

(b) by discontinuing the existing provision under which a person who has not been an employee for more than two years to be allowed to withdraw if he can satisfy the Board that he is not likely to be an employee again.

The restriction in the case of persons who have not been employed for more than two years is necessary in view of the fact that provision has been made for self-employed persons to contribute to the Fund. The existing provision in the Ordinance that allows such persons to withdraw from the Fund is not compatible with the new requirement that they should contribute to the Fund.

The amendment to section 14 of the Ordinance, which is embodied in clause 9, enables, firstly, a member's balance in the Fund to be used as security for the purposes of purchasing a house or a flat for his own occupation and, secondly, deletes a transitional provision in the Ordinance that ceased to have any effect some 10 years ago.

The purpose of clause 10 is to make new provision to provide penalties for publication of information by an employee of the Board to unauthorised persons.

The amendment to section 21 in clause 11 of the Bill is in connection with approved funds. There are 26 such funds. It is probable that in many cases the new rates of contributions payable under the Ordinance will be of greater benefit to the employees who are members of such funds than their existing rights as members of approved funds. The amendment will merely enable the Minister to require employers who operate approved funds to contribute to the Central Provident Fund for their employees if the Minister so directs. Further, the deletion of subsection (8) of section 21 of the Ordinance will affect between two and three thousand employees who have been exempted from the provisions of the Ordinance by the Board. It is now proposed to exempt by Regulations to be gazetted employees whose country of domicile is outside Malaya and Singapore and who are employed in Singapore on an Employment or Professional Visit Pass issued by the Controller of Immigration.

Clause 12 of the Bill contains a new section dealing with the refund of amounts paid to the Fund by error. Most of the provisions of the existing section 24 have been continued, but provisions have now been made for dealing with contributions paid in error by persons who are not employees, and with errors made in the payment of interest under section 7A of the Ordinance. The time for claiming refund of amounts paid in error has been reduced from three years to one year.

Clause 13 introduces a new section 24A which is designed to enable the Board to engage in activities not directly related to the administration of the Fund and to call for information under certain circumstances. Hon. Members will appreciate that in the context of the present situation, when economic planning is to the fore, compilation of vital statistical information relating to employees and employers may be required from time to time.

Clause 14 includes a number of amendments to section 25 of the Ordinance, the most important of which are those in paragraph (d). The new paragraphs (e) , (f) and (g) that are added to subsection (1) of section 25 of the Ordinance enable the Minister to make regulations.

There are a few other amendments which are of minor moment.

Mr Speaker, Sir, the amendments to the Central Provident Fund Ordinance proposed in this Bill usher in a piece of social legislation that brings to the workers benefits which they did not enjoy before increased savings to provide for their old age and the opportunity to buy a house or flat of their own. This is an exercise in social innovation and social transformation, an attempt to create as large a proportion of property-owning population as possible so that they would have a deep and abiding stake in the country and thereby revolutionise the pattern of living of our people for the better.

Mr Speaker, Sir, I beg to move.

Question proposed.

5.25 p.m.

Mr Seah Mui Kok: Mr Speaker, Sir, I rise in support of the Central Provident Fund (Amendment) Bill. This Bill makes a welcome change from the Employment Bill and the Industrial Relations (Amendment) Bill in that it contains provisions mainly for the benefit of workers in Singapore. The Bill seeks to increase the existing rate of contribution to the Central Provident Fund payable by both employer and employee from 5 per cent to 6½ per cent, 8 per cent and 10 per cent respectively during the next three years. It appears to be the intention of the Government that such increases in the rate of Central Provident Fund contributions are to be treated as wage increases. The Government is to be congratulated on moving such an amendment to the Central Provider Fund Ordinance as the increased rate of contribution would, in effect, increase the savings of workers.

In conjunction with the increased rate of contribution, the Bill also seeks to provide that the amount of existing deposits credited to each employee in the Central Provident Fund can be utilised for making a down payment for the purchase of a Housing and Development Board flat and that the subsequent contributions to the Central Provident Fund at the enhanced rate of contribution can be utilised for paying the monthly hire-purchase instalments for the purchase of such flats. As I see it, such a provision would enable many workers to make their dream of owning their own homes come true. This is particularly so when the Central Provident Fund rate of contribution is increased to 10 per cent in three years' time.

While I appreciate that the provisions in the Bill are for the general benefit to workers, however, I wish to draw the attention of the Government to the fact that whatever benefit the Government proposes to give to the workers under the Bill may be largely negatived by the action that would be taken by most employers. It is the valid fear of workers that employers may offset the increased rate of contribution payable under this Bill against the gratuity benefits payable by them under a collective agreement. Members of the House may be aware that in most collective agreements, provision is made for the payment of gratuity benefit to an employee on his resignation or retirement from the service of his employer. The amount of this gratuity benefit depends on the length of his service. The rate usually averages five per cent of the last drawn monthly salary for each year of service, in addition to the Central Provident Fund contribution payable by the employer. As it is proposed under the Bill to increase the Central Provident Fund contribution ultimately to 10 per cent, and if the employer is allowed to offset the increased rate of contribution against whatever gratuity benefit is payable by him to the worker under the collective agreement it would, in effect, mean that the worker would not obtain the benefit of any wage increase as envisaged under this Bill. I would therefore urge the Government to look into this problem and ensure that the employer does not offset the increased rate of Central Provident Fund contribution against whatever gratuity benefit is payable by him to his workers under the collective agreement. If employers do this, it will defeat the very purpose of this Bill which is to enable the workers to enjoy any increase in wages.

I wish also to comment on an important point which seems to be ignored under the Central Provident Fund (Amendment) Bill. I refer to the problem of persons who are unemployed before reaching the age of 55 years, at which age they are only allowed to withdraw whatever sum of money is standing to their credit in the Central Provident Fund. Such persons, particularly those whose ages range between 45 and 50, may find themselves unemployable in the labour market which is being flooded with young school-leavers. The tragedy is compounded by the fact that such persons are usually family men. The result is that they find themselves in a most unenviable situation. They have no jobs and no means to support the family. They find that they cannot withdraw some of the monies which are credited to their names in the Central Provident Fund.

I would, therefore, appeal to the Government seriously to consider allowing such persons to withdraw some of the monies credited to them in the Central Provident Fund. I would suggest that a person who has been unemployed for five years and has attained the age of 45 years should be allowed to withdraw up to 30 per cent of the amount of money standing to his credit in the Central Provident Fund, and if he still remains unemployed at the age of 50, he should be allowed to withdraw a further 30 per cent of the money standing to his credit. Such a measure will allow him to make use of the money when he most urgently needs it either for supporting his family or for commencing a small business. This measure also allows him to retain 40 per cent of the sum of money so deposited in the Central Provident Fund for use in his old age, by which time some members of his family may be able to take over the task of maintaining the family.

5.32 p.m.

Mr Lee Teck Him: (In Mandarin): Mr Speaker, Sir, a few moments ago, the Minister said that the Central Provident Fund (Amendment) Bill was to be introduced in the interest of the workers. He also stated that there will be 1½ per cent increase in the amount of contributions and that there will be provision to enable members of the Central Provident Fund to utilise money in credit with the Fund to buy flats. In my view, this may not be quite correct.

The most important factor is whether or not the products of our factories are cheap and of good quality. It is only under these circumstances that we can compete in the international market. If the products of our factories are not of good quality and are expensive, how can the workers be expected to contribute 1½ per cent more to the Central Provident Fund? The factories will not be able to sell their goods. They may even have to close down. Therefore, in my view this is not a very practical solution. Contributions to the Central Provident Fund should be reduced so that the cost of production to employees may be reduced and our goods will be more competitive in the international market. If there are more factories, there will be more jobs created. I am afraid that if workers spend their money and their rate of contribution to the Central Provident Fund is increased, many factories will not be able to keep down the cost of production. As a result, they may have to close down and unemployment will increase.

5.35 p.m.

Mr Rajaratnam: Mr Speaker, Sir, in view of the fact that hon. Members are relieved that at least this Bill is the silver lining in the black cloud which has been hanging over them for the past few weeks, I think there are only two points to which I need reply. The first point is about the question of offsetting the increased contributions to the new Central Provident Fund against gratuities payable under collective agreements. I suggest this is one instance where the trade unions can legitimately pursue their job of protecting the interest of the workers by insisting that ---

An hon. Member: It is also good for the Government!

Mr Rajaratnam: - the employers do stick by their agreements.

The other point is the possibility of allowing people who are unemployed before the age of 55 to withdraw their Central Provident Fund contributions. As hon. Members will know, I gave some statistics which will show that this will not really help anyone who is unemployed to set up business. Something like 70 per cent of the contributors, as I have indicated, have a balance of $1,000 each. Thirty per cent of that is about $300. Any man who decides to set up business with $300 is obviously going to lose that $300 which will be there if he does not withdraw it when he is 55. So I suggest that this Bill will safeguard at least many of the younger people. If the Bill is passed, 20 per cent of their wages every month will be put into a Central Provident Fund which, over a period of 10 or 20 years, will be very substantial enough for them to buy a house and perhaps go into business.

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 Rajaratnam].

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