CENTRAL PROVIDENT FUND (AMENDMENT) BILL

Order for Second Reading reed. 4.52 p.m.

The Minister for Communications and Minister for Labour (Mr Ong Teng Cheong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, the Bill seeks to amend the Central Provident Fund Act to empower the Central Provident Fund Board to operate a Home Protection Insurance Scheme so that the outstanding loans on flats purchased by members under the various approved housing schemes of HDB, JTC, HUDC and Mindef will be paid in the event that the members die or are permanently incapacitated from ever working again.

The Central Provident Fund was set up in 1955 to provide employees with compulsory savings which would be available to them when they reach the retirement age of 55 years or when they are unable to continue working. For the past 25 years, the Fund has played a significant role in providing for employees after their retirement and their dependants in the event of their premature death or total permanent incapacity.

In 1968, members were allowed to use their CPF moneys to buy HDB and JTC flats. Subsequently, in 1975, members were allowed to use it to buy HUDC flats, and in

1977 SAF officers could use it to buy flats under the Mindef Housing Scheme. As at the end of 1980, about 305,000 members had withdrawn about $2.5 billion from the Fund to buy flats under the various approved housing schemes. Of these, about 119,000 are using their CPF contributions to repay the loan instalment on their flats.

A study by the CPF Board in 1979 of HDB housing loan borrowers indicated that 56,200 borrowers did not have sufficient CPF savings to pay off their outstanding loans if required to do so. Should such members die or become permanently incapacitated from working again, they or their families may lose their homes if the repayment of the loan cannot be met. The risk is especially real if members die or are incapacitated early in their working life when their CPF savings are small.

Mr Speaker, Sir, the Ministry has found that a large majority of CPF members who are using their CPF moneys to repay the mortgages on their flats are not covered by any mortgage reducing insurance policy which could give them the monetary protection they need. For instance, although 28,000 loans were granted in 1978 by the HDB and the JTC, there were only about 150 mortgage reducing policies written by insurance companies for such borrowers. Therefore, the establishment of the Scheme by the CPF Board would meet a need which insurance companies have failed to meet. In this regard I need hardly add that the establishment of the Scheme would have minimal adverse effect on the insurance industry.

Sir, the salient features of the Scheme are already summarised in the Explanatory Statement to this Bill. Let me elaborate on some of the important features of the Scheme.

The Scheme will cover all CPF members who have withdrawn their CPF savings to buy flats under the approved housing schemes and who have outstanding loans on their flats. Members will only be given coverage up to the age of 55 years. This is because at this age members are entitled to withdraw their CPF savings which could be used to pay off the outstanding loans. Besides, the need for a cover beyond this age is less crucial as such members are unlikely to have young dependent children.

Members who have adequate mortgage reducing insurance cover on their flats can apply to the CPF Board to be exempted from the Scheme. Exemption will also be granted to members whose outstanding housing loans do not exceed $3,000 or such other amount as may be fixed from time to time by the Minister and the repayment period does not exceed two years.

Members will be charged premiums for the cover given under the Scheme. The premiums, generally, will be in one lump sum to be paid through a one-time deduction from their CPF savings. If a member has insufficient CPF savings, he will be given a cover up to an amount that can be purchased with his available CPF savings. Subsequently, when more CPF contributions are paid into his account, his cover will be topped up until his outstanding loan is fully covered. Members with insufficient CPF savings may, however, also pay their premiums in cash to obtain a full cover.

The premiums to be charged under the Scheme will be based on the sex, age at the time cover is given, the amount of the outstanding loan, the period of repayment and the interest on the loan. A member who is the sole owner of a flat will be covered for the whole outstanding loan. A co-owner of a flat will be covered for his share of the outstanding loan repayment.

The premiums to be charged under the Scheme will be generally much cheaper than that normally charged by the insurance companies and they will be prescribed by regulations. The Scheme is able to offer low premiums largely because there is no element of profit, no sales expenses such as commissions to agents, no collection expenses as premiums are deducted from CPF savings and the risk is spread over a large base. Further, the cover under the Scheme includes payment if members suffer permanent total incapacity and are unable to continue working. This protection is seldom given by insurance companies.

The Scheme will be administered by the CPF Board and it will not be subject to the provisions of the Insurance Act. A Home Protection Fund, which will be administered and controlled by the CPF Board, will be set up for the purposes of receiving premiums of members. Moneys in the Fund will be used to meet all payments under the Scheme. Upon death or incapacity of a member who is covered under the Scheme, the Board will redeem his outstanding housing loan if he has paid his premium in full. However, if he has not paid his premium in full, the Board will only repay part of the loan up to the amount covered by the premium actually paid by him.

Members covered under the Scheme will not be issued with policy documents. They will, however, be informed of the premiums deducted from their CPF accounts and the amounts they are covered for. If a cover is prematurely terminated as, for example, when a member gives up ownership of his property or redeems his housing loan early, the CPF Board will pay into his CPF account the premium of the unrequired remaining cover.

Finally, the Bill also seeks to empower the Minister to make such regulations as are necessary or expedient for the purposes of implementing the Scheme.

It is the intention of the Government to refer this Bill to a Select Committee.

Sir, I beg to move.

Question proposed.

Dr Ang Kok Peng (Buona Vista): Mr Speaker, Sir, just a point of clarification. The proposed scheme may give cause for alarm to the insurance companies that this may be the beginning of the nationalization of the life assurance business. Can the Minister assure the House that the CPF will not expand its activities into other areas of life assurance currently transacted by ,the private sector?

Mr Ong Teng Cheong: Sir, as I have mentioned in my speech just now, the scheme will have minimal adverse effect on the insurance industry. As the Member has pointed out, this may give cause for concern to the insurance industry and it is for that reason that Government has decided to refer the Bill to a Select Committee so that their views can be considered.

Question put, and agreed to.

Bill accordingly read a Second time.

Resolved,

That the Central Provident Fund (Amendment) Bill be committed to a Select Committee consisting of Mr Speaker as Chairman and the following Members: Mr Eric Cheong Yuen Chee Mr Ong Teng Cheong Mr Ch'ng Jit Koon Mr Sia Kah Hui Mr Lee Yock Suan Dr Yeo Ning Hong Encik Mansor Haji Sukaimi Mr Ong Teng Cheong.