CENTRAL PROVIDENT FUND (AMENDMENT) BILL

[Mr Deputy Speaker in the Chair]

Order for Second Reading read.

The Acting Minister for Labour (Prof. S. Jayakumar): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, there are two aspects of the proposed amending legislation. One concerns the COWEC Scheme or Company Welfarism from Employer's Contributions. The second concerns the Approved Residential Properties Scheme. I shall deal with each of these separately.

COWEC Scheme

Sir, the concept of using a portion of the employer's contribution to CPF for benefits provided by the companies to employees was outlined and discussed in this House in March this year. The proposed amendments, now before the House, particularly clause 4 which introduces two new sections, are to facilitate the implementation of the COWEC Scheme and to provide for certain safe-guards and penalties.

We are living in an age of economic uncertainties and increasing protectionism. For Singapore to survive in this harsh economic climate, our products and services must have an edge over that of our competitors. Productivity must therefore be the cornerstone of our economic growth. One of the means of increasing the productivity will of our workers is to enhance the nexus between the employee and his employer. Employers must be encouraged to provide directly for the welfare of their employees who will then know that they are cared for by their employers and be willing to upgrade themselves and contribute to the well-being of their companies.

It was with this in mind that the National Productivity Board promoted the COWEC Scheme. Under this Scheme, an employer will be allowed to pay CPF contributions at a reduced rate of 36% of the salaries instead of the full rate of 46%. The 10% which would otherwise have been contributed to the CPF will be retained by the employer and paid into a trust fund to be set up by the employer for the benefit of the employees. Rules must be dr,awn up governing the amount of contributions payable by the employer into the trust fund, the time period within which the contributions must be paid, the interest payable on late payments, and the management, investment and use of the trust fund must be drawn up. The employer must also furnish a bank guarantee in favour of the CPF Board so that the Board can recover the contributions retained by the employer should the need ever arise.

Sir, the COWEC Scheme therefore is intended to forge a link between workers' efforts and good management. Experience elsewhere has shown that absence of such linkage leads to erosion of the will to work and to improve. The COWEC Scheme is one way of enhancing the nexus between the employees and their company.

Under a pilot scheme, 10 companies have agreed to participate in the COWEC Scheme. It must be emphasized that the Scheme will be a voluntary one for both employers and existing employees. We shall use the pilot scheme to build up our experience so that we will gradually learn and broaden its scope.

The new section 40A deals with the powers of the CPF Board, the obligations of the employers participating in the Scheme and the protection of contributions paid under the COWEC Scheme.

The CPF Board will be empowered to approve any welfare scheme which provides for the payment of pensions, gra- tuities or other pecuniary or welfare benefits by an employer to his employees. Any such welfare scheme which has been approved by the CPF Board will be called an "approved employees' scheme". An employer who has established a scheme will be entitled to pay a reduced rate of CPF contributions in respect of employees who are members of the scheme. The Board will also be empowered to revoke any approval given under the section.

The section also requires the employer to furnish to the CPF Board audited accounts in respect of the approved employees' scheme, comply with the rules of the scheme, pay contributions in accordance with the rules, obtain the prior permission of the CPF Board before amending the rules and furnish such returns and other information which may be required by the CPF Board.

An employer who fails to comply with any of these obligations imposed under the provisions will be guilty of an offence and liable on conviction to a fine not exceeding $5,000. If an employer is convicted for failure to pay contributions to the scheme, the court can also order him to pay the outstanding contributions and interests due thereon.

All contributions paid into an approved employees' scheme will enjoy the same protection against creditors, etc., as CPF contributions.

Approved Residential Properties Scheme

The second aspect of the Bill relates to the Approved Residential Properties Scheme. This aspect of the Bill concerns Approved Residential Properties Scheme under which CPF moneys can be used to pay the purchase price of a private residential property or to redeem an outstanding mortgage loan on the property.

The present section 14 of the CPF Act was enacted in 1981 for purposes of implementing the Scheme. It creates a charge on a residential property which has been purchased with CPF moneys to secure the repayment of the moneys withdrawn, including the interest that would have accrued to the Member's account if the withdrawals had not been made and provides for matters relating thereto.

Since the inception of the Scheme, Sir, more than 10,000 members have withdrawn over $500 million. The experience gained in implementing the Scheme has shown that certain improvements can be made to the present section to overcome certain practical and legal problems encountered by the CPF Board, to save legal fees and other costs and to reduce the time taken for processing applications. Clause 3 of the Bill repeals and re-enacts with amendments section 14 of the Act to achieve this.

If I may just touch on a few of the important changes. First, where a property is owned by more than one person, the charge created under the present section 14 does not extend to the estates and interests of the co-owners who do not use their CPF moneys in respect of the property. Consequently, a co-owner who wishes to use his CPF moneys can only be allowed to withdraw up to 80% of the value of his share in the property instead of the value of the whole property. However, there have been applications under the Scheme by members, especially those who owned a property jointly with the spouse who was not a CPF member, to withdraw up to 80% of the value of the entire property. To meet this difficulty, the CPF Board had to require all the co-owners to execute a legal mortgage in favour of the Board. This, however, involves the payment of legal and stamp fees and other costs.

Under the proposed new section 14, the charge created by the section will extend to all the estates and interests of all the co-owners of the property provided the co-owners give their written consent to the CPF Board. In this way, it will enable any of the co-owners to withdraw his CPF moneys up to 80% of the value of the whole property without the co-owners having to execute a legal mortgage in favour of the CPF Board.

Under the present section 14 any housing loan which is disbursed by a financial institution after the borrower has withdrawn his CPF moneys under the Scheme will rank, in terms of priority, after the CPF Board's charge for all the moneys withdrawn and authorized to be withdrawn as well as the interests that would have accrued to the member's account if the withdrawals had not been made. However, most financial institutions have no objections if the principal loan given by them ranks after the Board's charge in respect of the CPF moneys withdrawn. On the other hand, they are reluctant to give adequate housing loans to borrowers who also want to use their CPF moneys, if their principal loan or any part thereof ranks after the Board's charge in respect of the accrued interest.

The CPF Board has no objections in allowing the full amount of the loan given by a financial institution to rank before the Board's charge in respect of the accrued interest. This will make it easier for members to obtain adequate housing loans. However, because the present section 14 does not allow the Board to postpone its rights, the Board had to require the financial institution and the member to execute certain legal documents to protect the Board's interest. This involves the payment of legal fees and costs and may also delay the processing of the application.

Thus, the new section 14 will allow the CPF Board to give another mortgagee's or chargee's rights priority over the charge created by the section if the Board deems fit. The other changes are technical improvements of meanings and clarification of interpretations.

Mr Deputy Speaker, Sir, I beg to move.

Question proposed. 6.02 pm

Encik Abbas Abu Amin (Pasir Panjang): Mr Deputy Speaker, Sir, ever since the Committee on Productivity published its report in 1981, there has been concern among workers over the proposal to hive off a part of the employee's CPF into some welfare fund. The Central Provident Fund (Amendment) Bill, when passed by the House, will allow employers to implement the COWEC scheme. Although the COWEC scheme has been discussed by the National Productivity Council, the workers are largely ignorant of the scheme. I must add that there are also many employers who are equally ignorant of the Scheme.

The COWEC scheme needs wider publicity and explanation to the workers at grassroots level. While the top union leadership understand that the objective of the Scheme is to promote a closer, stronger link between employers and employees, the rank and file members, the ordinary workers, have not quite grasped this.

Everyone who is going to be affected by the Scheme should first know what it is about. What does it entail? How will they benefit? Therefore, before the COWEC Scheme is implemented, there must be an active effort to inform all workers, in a simple and straightforward way, so that they fully understand the Scheme. They should be assured that they will not lose out if they participate in the COWEC Scheme.

Most of our workers know about CPF. They know what returns they can get out of the CPF contributions. Many of them also depend on CPF contributions to pay for their HDB flats. When we propose hiving off part of it to form COWEC, there will be concern among them over whether COWEC can be used to pay for their HDB flats. Since the number of workers who are paying for their HDB flats is not inconsiderable, it would be wise to give a categorical reassurance once again that COWEC will help workers pay for their homes.

COWEC is something new and, naturally, workers will compare the new scheme with existing benefits that they enjoy. Some of the questions that our workers will ask include:-

First, how does COWEC affect the CPF Scheme?

Secondly, what can workers expect to benefit from COWEC? Will these benefits be the same as existing benefits, but paid for by their own CPF funds?

Thirdly, how does COWEC work? Are there examples of proposals that have been worked out which the Minister can reveal that would help explain this?

Fourthly, how will the workers' interests be safeguarded? Will workers have a say in the management of the COWEC Fund? Will the Central Provident Fund (Amendment) Bill that we are discussing contain safeguards? What happens if the COWEC Fund is mismanaged?

When details are made known, I am sure our workers will have more questions. If the COWEC Scheme is to be successful, we have to clear the doubts of the workers in the factories. It is only when they fully understand, can they be motivated by such a Scheme.

The objective of the COWEC Scheme is to strengthen the link between employers and employees. As such, the management must see the Scheme as beneficial. Yet, we find that at the moment some of them throw cold water on the Scheme. They regard administering the COWEC Scheme as an extra burden, extra responsibility. Such an attitude reflects their attitude towards their employees. Even if the Scheme were to be compulsory and handsome returns are gained from the COWEC Fund, there will not be any loyalty because the attitude of the employers does not merit loyalty. We must remember that the Scheme is meant to help strengthen the link between employers and employees, and this will only be achieved with the right management attitude.

Perhaps the sceptical employers will change their attitude if they understand what COWEC is about. An active effort to explain it seems very necessary. 6.08 pm

Mr Goh Chee Wee (Boon Lay): Mr Deputy Speaker, Sir, the proposed amendments to the Central Provident Fund Act provides for the introduction of the COWEC Scheme which allows the employers to retain part of its CPF contributions in a trust fund which can be used to provide welfare benefits to its employees.

As I understand it, the objective of the Scheme is to strengthen the nexus between the company and its employees. It is hoped that through the COWEC Scheme, the employees would identify their well-being closely with their employer and this would help to inculcate a sense of commitment to their work and loyalty to the company.

While I subscribe to the ideal of the Scheme and what it sets out to achieve, I wish to register the following points for the consideration and clarification by the Minister:-

(1) The selling point of this Scheme is that the benefits that an employee would enjoy should be better than what would be accrued to him if the money were to be left in the CPF. The COWEC Scheme requires that the principal sum retained in the trust fund be secured by a banker's guarantee. However, there is no guarantee required on the amount of interest the principal sum would generate. Presently, the CPF offers an interest return of 6 1/2%. If we wish to assure the employees who opt for COWEC Scheme that they have nothing to lose by joining the Scheme, and since the whole exercise is intended to generate benefits better than what would be derived by putting the money in CPF, I suggest it would be prudent to require that not only the principal sum retained in the trust fund be secured by a banker's guarantee, but the interest rate of 6 1/2% or any prevailing CPF interest rate must also be secured. I do not think it is wise to expose the employees to the risk of getting an interest return of less than what is being offered by CPF. I would, therefore, like to see companies operating the COWEC Scheme to include the guarantee on both the principal sum and the interest as a standard feature.

The Scheme is voluntary and the existing employees have the option of joining or not joining the Scheme. My view is that the Scheme should be open to all the employees of the company, right from the General Manager to the lowest graded staff. There should be no distinction between bargainable employees and non-bargainable employees. To demonstrate to the employees that the Scheme is indeed beneficial to them, the top management, and indeed all the managers and supervisors, should take the lead in opting for the Scheme. If the management staff themselves choose not to opt for the Scheme, I do not see how they can convince their subordinates and other employees to do so. If the managers themselves feel that it is safer to leave their money in CPF rather than to opt for the COWEC Scheme, then the effort to con- vince the employees to join the Scheme is doomed to fail right from the word "go". As a matter of fact, the credibility of such a Scheme would be seriously questioned.

The COWEC Scheme is intended to provide benefits over and above those currently being provided by the employer. The company should not, subsequent to the introduction of the Scheme, seek to withdraw or reduce the existing welfare benefits. Let me bring to the attention of the Minister that with the introduction of the proposed Medisave Scheme, some employers are already talking about withdrawing, offsetting or adjusting the existing company medical benefits. Similarly, I am aware of at least one employer who has indicated that some existing service benefits should be replaced by the COWEC Scheme.

I would, therefore, like to seek the assurance of the Minister that in approving a company's COWEC Scheme, the Government should see to it that the company does not reduce or withdraw the existing welfare benefits. I am registering this point strongly for the very simple reason that the fund to be provided under the COWEC Scheme is the employees' money which is apportioned out from their CPF entitlement, notwithstanding the fact that the contributions come from the employers. Any attempt to replace the existing welfare benefits by COWEC will, on balance, place the employees in a worse-off situation. Unless the COWEC Scheme could offer something over and above the existing benefits, it is only natural to expect the employees to prefer to leave their money in the CPF.

Mr Deputy Speaker, Sir, I wish to conclude my observations by saying that the COWEC Scheme is not the panacea to all the problems of staff morale, employees' motivation or labour-management relations. It would be naive to believe that by the mere mechanical introduction of a COWEC Scheme, the employee would feel obligated to the company and would be motivated to work hard. What is important is not so much the form, but the substance. Whether there be COWEC or no COWEC, the management must always have the interest and welfare of the employees at heart. They must be sincere in looking after the interest and welfare of the workers. COWEC provides a framework and mechanism for the company to practise some forms of company welfarism, but it is up to the employers to fill in. the substance and to make it work.

Mr Jeyaretnam: Mr Deputy Speaker, Sir, I propose to be brief. May I say that I share what has been said by the previous two speakers, and I wish to ask the Minister by way of clarification as to how the agreement of the workers is to be obtained to this approved employees' scheme.

As he has said and as it appears from the Bill, the worker is to be given an option whether he wishes to join in the scheme or not. Is the obtaining of the approval of the worker to be left to the company, or is it going to be obtained by a body outside the company, for example, the Registrar of Trade Unions or somebody in the Labour Ministry? Will the Board or the Ministry ensure, as has been pointed out quite adequately, that before any worker exercises his option whether to join the scheme or not he is adequately and truthfully informed of the whole scheme, what he stands to gain by it and what are the disadvantages, if any; a proper balance sheet, as it were, drawn up in simple language to explain to him so that he can fully understand and exercise his option in a meaningful way, so that he is not misled by the company or the employer who may be only too anxious to have his contributions to the Board reduced. 6.15pm

Encik Othman bin Haron Eusofe (Geylang Serai): Mr Deputy Speaker, Sir, I would like to make two points on the COWEC scheme. First, I agree with my colleague, the Member for Pasir Panjang, that there is an urgent need to provide more information to workers about this scheme and to explain carefully the implications of the scheme to them. It is important for the companies which propose to introduce the scheme to ensure that their employees clearly understand the scheme before it is implemented.

Secondly, I feel that it is useful for the employees to be allowed to make suggestions on how the COWEC fund should be operated. More specifically, what types of benefits they want the company to provide out of this scheme? In this way, the benefits will be more relevant to their needs.

It is important for management to demonstrate clearly that it has the employees' interest and welfare at heart. This should not be taken for granted even when a company operates a COWEC scheme. It will not be easy to develop the nexus between the employee and the employer in any company or organization, especially if the employer does not show sincerely its care and concern for the employee. While top management may be genuinely committed to the welfare and well-being of their employees, middle management may be not so enthusiastic and often are more task orientated than people orientated. Top management must always check their middle management officers and the supervisors to ensure that they will treat their subordinates with care and consideration. This will help create mutual trust and confidence. Unless they are able to motivate their subordinates, it will be difficult to increase productivity. The existence of a COWEC scheme in the company will be of no avail unless middle management and supervisors are properly trained and can perform their responsibilities properly.

Prof. Jayakumar: Mr Deputy Speaker, Sir, I wish to thank the Members who have spoken on this Bill, in particular the Members for Pasir Panjang, Boon Lay and Geylang Serai, who have demonstrated their sincerity in the subject by staying behind to listen to my responses.

Sir, my colleagues have made several points, I have made a note of the various points and comments which they have raised, all of which I take it to be in the direction of constructive suggestions. This is a new scheme. It is experimental in a sense, the success of which will be known in time to come. If it succeeds, it will trigger off other similar schemes. So we need as many constructive suggestions as possible. It may not be possible for me to reply to each and every one of the various points mentioned, but I will endeavour to do my best now.

The general point made by all three hon. Members was the need for maximum publicity, information and knowledge about this scheme to be disseminated to all levels of workers, especially the grassroots level. This is a point which is well taken, for I would agree that the more that is known, the more will misconception be dispelled, and the greater the support will come forth from the workers. Considerable effort at publicity has, in fact, as Members will know, been already done - talks, seminars, symposiums, press articles and more recently a very simple brochure or pamphlet has been published. I take the hon. Members' point here to be whether more can be done and more should be done. The answer to that must, of course, be yes, and efforts will continue in that direction to disseminate as much information as possible to clarify as many questions as there are. So I wish to give my assurance on that.

The second point raised by the Member for Pasir Panjang was that he attached importance to the need to give an assurance as to how this would impinge on existing home ownership schemes and whether they would be adversely affected. There, too, I should reassure hon. Members, and through them to those outside who will be interested in the scheme, that the employee in a COWEC scheme will not be adversely affected in respect of the housing scheme or any other approved scheme under the CPF. That is to say, if the balances in his CPF account are insufficient for him to participate in the housing programme, then his balances in the COWEC scheme will be used, and this is a condition under which the CPF Board will approve various COWEC schemes. This is a point which has been reiterated in all cases where proposals have come forth. So that assurance I gladly give.

More than one hon. Member have stressed that everything turns on employer/ employee relationship and positive cooperation between management and the employees - the necessity to consult. This again is very important. A funda- mental feature of the scheme is the element of voluntariness both for the employer and for existing employees. Because it is voluntary, obviously both the employer and employees must be persuaded that it is in their interest to do so. This requires a fairly high level of collaboration and cooperation. So this point is also one which is valid and one which we in the Ministry of Labour as well as the National Productivity Board will not fail to bear uppermost in our minds.

The Member for Boon Lay asked whether this would in any way adversely affect existing benefits which are enjoyed by the employee. Here again, I need to stress that the scheme of COWEC emphasizes that all benefits under COWEC must be over and above current benefits. And this will be ensured by the approving authority in process of approving the scheme through a comparison of the proposed benefits with a list of existing benefits. So I can give him that assurance.

The Member for Boon Lay also asked this question that while under the COWEC scheme the employer is required to obtain a banker's guarantee for the 10% or principal sum which will be invested in a trust fund and whether a similar requirement can also be imposed in terms of a banker's guarantee for the interest. We have given thought to this. Theoretically, it will be possible to insist on a banker's guarantee for the interest on the principal sum. But the intention of the Government in implementing the COWEC scheme is to give considerable flexibility to the participating firms in devising as wide and varied a range of benefits under the COWEC scheme. If we imposed a requirement of a banker's guarantee, this could be done but it may reduce and constrict the flexibility and the range of benefits that would be provided. But I think the Member for Boon Lay would be pleased to hear that of the 10 companies which are participating in the scheme, nearly all of them, in their tentative proposals sent up for approval, have not only provided for banker's guarantee for the 10% principal but have also provided for guarantee for the CPF interest. So I think that those 10 companies have set a pattern which will be very difficult for other companies to depart from.

The Member for Pasir Panjang and I believe the Member for Geylang Serai also, stressed the importance of managerial staff and middle management staff being well versed in the scheme. This is a point which has not escaped us and several workshops have been conducted by the NPB, precisely to ensure not only the letter but also the spirit of the scheme will be thoroughly understood by those in charge of implementing it.

Finally, the Member for Pasir Panjang asked for some indication as to the types of benefits or schemes which may be covered by the COWEC concept. There are basically two types of schemes. One type is a scheme whereby the investment income from the principal sum is devoted exclusively for retirement. Under this scheme, in addition to the 10% principal sum, all incomes will be kept for retirement. To give you one illustration which is interesting: one of the companies under this scheme has a proposal whereby if the employee resigns within five years of employment, he would not only have the 10% returned to his CPF account but also the interest. But if he serves more than five years in the company, then he will enjoy increasingly a proportion of net investment income. This will serve to encourage the employee to remain loyal and to foster a link between the employer and employee.

The other type or category of benefits involves retirement benefit plus various other benefits. For example, in addition to the retirement funds based on the 10%, the investment income could be used for various benefits such as educational allowances, scholarships, medical benefits, various group activities, recreational activities, life insurance premiums, long service cash withdrawal and similar benefits.

I apologize to the Members if I have not dealt with all the other points but I hope this covers the main points that they have raised.

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. - [Prof S. Jayakumar].

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