USE OF CPF SAVINGS FOR INVESTMENT IN SHARES, LOAN STOCKS, UNIT TRUSTS AND GOLD

5.30 pm

Mr Lee Yock Suan: Mr Speaker, Sir, the basic objective of the Central Provident Fund (CPF) is to provide for the old-age financial security of our citizens and for contingencies. CPF savings also help to achieve our goal of a 100% home ownership society as well as to meet hospitalization expenses.

Whilst maintaining the high savings rate through the CPF, members can be given the flexibility to manage their own CPF savings. Once they have saved a minimum reserve for old age and contingencies, they can be allowed the option to invest their CPF funds in excess of this minimum reserve in other types of investment.

The Government has therefore approved the setting up of a scheme to allow CPF members to invest a portion of their Ordinary Account savings in shares, loan stocks, unit trusts and gold.

Savings which can be used for such investments

A CPF member should have at least a minimum reserve of $30,000 in his CPF Ordinary and Special Accounts before the excess balance in his Ordinary Account will be allowed for such investments. The minimum reserve of $30,000 will include CPF amounts which have been invested in a home. It does not include the Medisave Account which is meant for hospitalization expenses.

This reserve of $30,000 is estimated to be the amount necessary for an individual to meet his barest living expenses after retirement. The minimum reserve of $30,000 will be adjusted periodically for inflation.

Above the reserve of $30,000, the excess balance which can be used for investment will be termed "Investable CPF Savings". For a start, members will be allowed to invest up to 10% of their investable CPF savings in the local stock market or in gold. There will be a sub-limit of 5% on the amount which can be invested in gold. They can only use amounts in their Ordinary Account for this purpose. The ultimate intention is to allow CPF members maximum discretion in the way they deploy their investable CPF savings, subject to minimum essential safeguards.

Type of shares and loan stocks

Let me outline the salient features of the scheme for investment in shares, loan stocks and unit trusts. It is desirable that members be allowed to choose from as wide a variety of stocks as possible, exercising their own judgment and discretion. However, as many CPF members may be investing in the stock market for the first time, certain minimum standards should be set. Investable CPF savings will only be permitted for investment in shares which satisfy the minimum conditions laid down under the Trustees Act and are listed in the Stock Exchange of Singapore. I will refer to them as trustee shares. These conditions include a minimum paid-up capital of S$5 million and require the companies to have paid dividends for each of the last five years.

Investment in the convertible loan stocks of companies whose shares are classified as trustee shares will also be allowed.

Other companies with good track records but whose shares do not meet the conditions to be classified as trustee shares can apply to the Securities Industry Council (SIC) which will be asked to assess their applications for inclusion under the scheme. Those companies that are seeking listing for the first time can likewise apply to SIC for consideration.

As the liability of CPF funds is wholly in Singapore, the scheme will be confined to stocks of Singapore-incorporated companies. This is similar to the present situation where CPF funds can only be invested in properties located in Singapore.

Unit Trusts

Investable CPF savings can also be used for investment in unit trusts. Unit trusts will similarly have to apply to SIC to be considered for inclusion in the scheme. The CPF savings invested through unit trusts can only be invested in shares or convertible loan stocks which are included under the scheme.

Limits for investing in shares, loan stocks and unit trusts

Of the 308 companies listed on the local stock exchange, 59 are trustee shares of Singapore-incorporated companies. Their total market capitalization is about $20 billion. Their turnover last year is estimated at about S$2.5 billion.

To avoid artificially inflating the stock prices, the liberalization of CPF savings for such investments will be done gradually. For a start, members will be allowed to invest up to 10% of their investable CPF savings under the scheme. The intention is to gradually allow the limit to go up, subject to evaluation of the scheme.

It is estimated that initially up to about S$1 billion, or S$1,000 million, will thus be made available for investment under this scheme. It can be used for the purchase of qualifying stocks from the local stock market as well as for re-financing of such stocks already purchased.

To provide hon. Members with a better picture of how the investment limits will be applied, I will ask the Clerk of Parliament to distribute a paper (Cols. 649 - 652) which contains three examples for Members' information. If Members have any questions on the examples, I will be happy to answer them afterwards. paper - USE OF CPF SAVINGS FOR INVESTMENT IN SHARES, LOAN STOCKS AND UNIT TRUST (Cols. 649 - 652)

Trading in shares, loan stocks and unit trusts

I now turn to some other details of the investment scheme. CPF members will be allowed to use their investable CPF savings up to the initial limit of 10% to pay for the full price of the Singapore trustee shares, related convertible loan stocks and unit trusts, as well as the brokerage, administrative and other charges incurred. If they already own such stocks, they can use their investable CPF savings up to the approved limit to re-finance these assets. Where the available CPF funds are insufficient, they can top up with cash.

Members will be allowed to trade freely in the shares, convertible loan stocks and unit trusts under the scheme. However, as the scheme is to enable members to invest but not to speculate in the stock market, there will be administrative guidelines to prevent the use of CPF monies for speculation and trading on margins. These guidelines will be formulated so as not to hinder the flexibility required for non-speculative investments.

As this is a scheme to enable CPF members to manage the investment of their old-age savings, all gains derived from CPF funds must be kept in the CPF accounts. Dividends received (net of corporate tax) must be returned to the member's account. Upon the sale of the shares, loan stocks and unit trusts purchased under the scheme, the amount realized from the use of CPF funds, including any capital gain, must also be returned to the CPF accounts. However, members will not be required to make good trading losses or to reimburse the CPF interest forgone. Any cash top-up and related earnings will be returned to the member. Implementation of the Scheme

The scheme will come into operation after the Central Provident Fund Act has been amended and the operational Regulations drawn up.

CPF members who decide to take advantage of the scheme should do so carefully, as investments in stocks, shares and gold carry both opportunities of capital gains and risks of capital loss. With CPF members investing under the scheme, it is expected that the number of small investors will increase. They will benefit from sound advice on investment. Banks and other financial institutions will be encouraged to develop the capacity to provide such services for a fee.

Investment in Gold

Details of the investment scheme for gold are being finalized and will be announced within the next two months.

Mr Speaker: Any questions?

Mr Eric Cheong Yuen Chee (Toa Payoh): May I ask the Hon. Acting Minister for Labour whether this scheme, as proposed by him, will effectively demolish the false argument put forward by the Member for Potong Pasir that the CPF Board does not have sufficient funds to pay its members?

Mr Lee Yock Suan: Mr Speaker, Sir, this scheme is a clear demonstration that the Government and the CPF Board have more than adequate resources to pay all the CPF members. The fact that we have been liberalizing the CPF scheme to allow more and more money to be taken out for purchase of private residential properties, commercial properties, and now shares and gold and, in future, other schemes, means that we have the money already available. So Members need not be worried about this. In fact, I would be surprised if the Members for Anson and Potong Pasir were not happy to make use of the scheme themselves and withdraw the CPF savings that they have.

As I have explained before in this House, the Government has carefully invested the CPF savings in sound investments. I do not know whether the Member for Potong Pasir is able to read accounts or he is unwilling to accept the facts. If he understands accounts, he will realize that over the last few years the Government has been generating healthy surpluses, so much so that the CPF savings are saved up and invested in sound assets. When the need arises to repay members, there will be more than enough money to pay all the members. In fact, our reserves are more than the sum total of the CPF savings. So the CPF Board is, in fact, the strongest bank you can find.

Mr Tang See Chim: Mr Speaker, Sir, has the Minister considered the reason why he prefers allowing CPF members to withdraw from the investable funds and invest in stocks and shares to the more stable and better investment of higher education for children of CPF members? Has he considered the reason for his preference for shares and stocks rather than for education?

Mr Lee Yock Suan: Mr Speaker, Sir, this question of using CPF for education was raised at the last sitting of Parliament, and I take it that Members are very keen to have CPF savings released for education. I assured Members at that time that the committee in my Ministry, which is looking into the overall issue of CPF, will also look into the use of CPF for education. It so happens that we have finalized the scheme for shares and gold at this point, and so I have announced the scheme. But we are still looking into the use of CPF for education.

Maj Fong Sip Chee (Kampong Chai Chee): Mr Speaker, Sir, in fact, the answer to the question asked by the Member for Chua Chu Kang has some relationship. I would like to ask the Minister if he will agree that the implementation of this rule will benefit the richer CPF members. By that I mean, Mr Speaker, Sir, the higher income members of the CPF. Would the Minister agree that this scheme will benefit those richer members of the CPF who have already acquired a certain amount, or even a substantial amount, of shares in their hands? And in advantage of this scheme, they could easily dispose of their existing shares, say, $100,000, and use their CPF savings of $100,000 to acquire the shares, and so use that money for their children's education. Therefore, Mr Speaker, Sir, I ask the Minister whether he will agree that those CPF members, who do not have existing shares or stocks in their hands, would not be able to use this advantage, quite legal and perfectly in order, to circumvent the CPF rules by taking out the money, quite justifiably, to use for their children's education? Would the Minister therefore agree that this provision will benefit those richer members but depriving the poorer members of the CPF, who are still faced with problems of finding money for their children's education?

Mr Lee Yock Suan: Mr Speaker, Sir, I do not know whether the Member was asking a question or expressing his opinion on the subject.

Maj Fong Sip Chee: I asked the question with a proper question mark behind the sentence. If the Minister cannot understand, he should not be in this place.

Mr Speaker: A very, very long question.

Mr Lee Yock Suan: May I request Members not to be personal in their remarks. But I will just answer the question.

We have estimated that, based on this requirement of a minimum reserve of $30,000, about 300,000 members will be able to take part in the scheme. That is quite a large number of people. In fact, we feel that those people who have lower CPF savings should really save carefully and hold the money with the CPF, where it is safe and which pays a guaranteed return of 6 1/2% interest at present, before they venture out into more risky areas. Because when you invest in stocks and shares, and gold, you may make or you may lose. It is up to your judgment and good fortune. In fact, as for the poorer members, the majority of them are already using their CPF for housing. You know, more than half a million people now have their own homes. So these people have benefited from the CPF scheme, and they will further benefit from this scheme if they save enough. So it is erroneous to say that the CPF scheme is only meant for the richer members.

Mr Tan Soo Khoon (Alexandra): Sir, may I ask a question? I agree with the Minister that investment of CPF funds in shares entails a high degree of risk on the part of the CPF member. I would therefore like to ask him about the criteria for companies qualifying as trustee shares companies. He has stated that this will be companies which have been able to declare dividends for the past five years. In view of the fact that there are companies who do not perform well but continue to declare dividends, does he not think that such a criterion would not be so prudent? Would it not be more prudent to define such companies as those which have been able to make a certain amount of profits, probably defined as a certain percentage of return on capital, rather than to use the criterion of having paid-up dividends continuously for five years?

Mr Lee Yock Suan: Mr Speaker, Sir, I think that is a very good question. Now, we have to strike a balance here. The objective of the Government is to allow members maximum flexibility and choice. We do not want to limit them to any particular stocks because we do not favour any particular stocks. So the conditions that we have laid out are really the minimum conditions.

To qualify as a trustee stock, all that the company needs to have is just $5 million paid-up capital, which is not big by today's standards, and also to have paid dividends over the past five years. So members should really be very careful. It does not mean that trustee shares are safe shares. Members should really look at the future profit projections of the company. A company might have made money over the past five years but it may not be making money in the future. So they should go in with their eyes open.

But I think the question, as I said, is how to draw a balance, which class of shares? What we are doing here is just to provide a minimum level of protection, beyond which we will be, in fact, investing the money for members, which will not be desirable. So I want to emphasize the point that members should go in with their eyes open, and they have to accept the consequences of their investment decisions.

Maj Fong Sip Chee: Mr Speaker, Sir, I am afraid the Minister has not answered my question. May I just repeat. Will the Minister agree that the very provision that he has just announced will benefit those people who have already got substantial shares in their hands but, at the same time, denying those people who are prudent enough not to indulge in shares of a chance to acquire extra funds for the ---

Mr S. Dhanabalan (Leader of the House): Mr Speaker, Sir, on a point of order. I think it is quite clear in the Standing Orders that a question cannot be framed as to ask for an opinion. This question is an opinion, and it is out of order.

Mr Speaker: I agree with you.

Maj Fong Sip Chee: Mr Speaker, Sir, that applies to questions for oral answer, not on a Ministerial Statement. I hope the Leader of the House understands his Standing Orders.

Mr Speaker: Yes, Mr Chng.

Mr Chng Hee Kok (Radin Mas): Mr Speaker, Sir, regarding investment of funds in such shares which can be pledged to the banks and money may be used, will the Minister look into some safeguards? In other words, this money which comes from CPF to buy shares which can also be pledged to the banks means this money can still be used. So perhaps some safeguards may have to be looked into.

Mr Lee Yock Suan: I am sorry, Sir, I do not understand the question.

Mr Chng Hee Kok: The point really is this. Shares which you purchase with CPF funds can be used as shares to be pledged to the banks and from there you can get your money out, indirectly. In other words, you use the CPF money to buy shares and the shares are pledged to the bank, and you get the money out from the bank. So in that way, you are indirectly taking money out from the CPF. So I think some safeguards may be necessary because the amount involved may be quite large.

Mr Lee Yock Suan: I take note of the Member's point and we will look into it.

Dr Wang Kai Yuen (Bukit Timah): Mr Speaker, Sir, would members making use of the CPF fund to buy stocks be able to enjoy a preferential brokerage rate, rather than the usual brokerage rate?

Maj Fong Sip Chee: You are asking too much!

Mr Lee Yock Suan: Sir, this is up to the Stock Exchange and the brokers concerned.

Mr Chiam See Tong: Mr Speaker, Sir, will the Minister please tell the House whether or not this scheme is to get the very slow stock market moving again, just as the second house scheme despite which the release of CPF did not move the property market?

Mr Lee Yock Suan: Mr Speaker, Sir, that is not the intention of this scheme. The intention is to allow CPF members greater flexibility to manage their own savings. If they feel that they are better-off leaving their money with CPF, we will be most happy.

Mr Ng Kah Ting (Punggol): Mr Speaker, Sir, with the three examples tabled by the Hon. Minister, could he enlighten the House as to when his Ministry will be able to fully discharge item (e) Amount of Investable CPF savings? At the moment, it is only 10% of item (e), as given in item (f). And by that stage, will the CPF have enough money to fully meet the requirements of those seeking to make use of that amount?

Mr Lee Yock Suan: Mr Speaker, Sir, if Members had listened carefully, they would have realized that the 10% was because we do not want to overheat the stock market. It is not related to the ability of CPF to provide the money. I said so before, that even if all the members were to be allowed tomorrow to withdraw their CPF money entirely, there will be enough money to pay. There is no doubt about that. As to when this limit of 100% of investable CPF savings will be reached, I can remind Members that, in fact, CPF members are now allowed to use 100% of their Ordinary Account savings for properties, either residential or commercial. So as far as properties are concerned, we have already reached the limit, but for shares, gold and other instruments, we are approaching it cautiously to see how the market reacts, whether there are any problems to the scheme, and we will liberalize as we go along. It is difficult to put a time-frame on this.

Encik Yatiman Yusof: Mr Speaker, Sir, earlier, the Acting Minister mentioned about the plan to allow the use of CPF for educational purposes and that he is looking into it. May I ask him when will the announcement be made?

Mr Lee Yock Suan: Mr Speaker, Sir, may I correct the point? I have not said that CPF will be allowed for education. That is something which has still got to be decided by Cabinet. But my Ministry is doing a study to review the whole question of CPF, and we hope to complete our study by next year.

Encik Yatiman Yusof: May I know whether it will be in the early or latter part of next year?

Mr Lee Yock Suan: All I can say is to ask the Member to be patient.