CPF MINIMUM SUM SCHEME FOR RETIREMENT NEEDS AFTER AGE 60 (Statement by the Acting Minister for Labour)

11.20 am

Mr Lee Yock Suan: Mr Speaker, Sir, the Government has decided to maintain the present CPF withdrawal age of 55. Raising the CPF withdrawal age would pose problems to those who, for reasons beyond their control, are unable to work beyond 55. Instead, the Government has decided to introduce a scheme to be called the "Minimum Sum Scheme". It will provide for a minimum sum to be set aside for retirement needs after age 60.

Today, a Singaporean aged 55 can on the average expect to live for another 20 years. If he stops work at 55, and lives only on his CPF, he will need to have sufficient savings to last him for 20 years on average. He needs to invest his savings securely to assure him of a source of income for as long as he lives.

A CPF member who withdraws his savings at age 55 therefore needs to plan an average of 20 years into the future for his financial needs. Unfortunately, the best of such long-term financial plans can and do fail. If that happens, the old age security of the member would be at risk. It is against this risk that CPF members should be protected.

The Minimum Sum Scheme will protect a portion of the savings of CPF members, so that they will at least have a minimum income to fall back on after age 60. Under this Scheme, all CPF members can withdraw their entire CPF savings from the CPF Board at age 55 if they wish, provided certain arrangements are made, as I will explain later.

The Minimum Sum Scheme

The sum to be set aside to provide a minimum income will be based on the balance in each member's CPF account at age 55 (excluding the amount to be retained in Medisave). The sum will not be more than $30,000.

A member who owns a property need not set aside the minimum sum if the property has a market value of at least $30,000. If the need arises, he has the value of the property to fall back upon. However, if he decides to sell or transfer his property, then the minimum sum must be set aside to ensure that he has a minimum income to live on after age 60. If he is above 60 years old at the time of the transaction, the sum to be set aside will be reduced accordingly. The legal arrangements for this are being worked out.

If the market value of the property is less than the Minimum Sum, the difference will be set aside from the member's CPF savings. As the market value of a 3-room HDB flat today is generally above $30,000, most CPF members who own homes need not set aside further CPF savings in cash.

For those without properties, the following will apply. Those with balances of $10,000 or less need not set aside any amount under the Scheme as they may need to live on their low CPF balances after age 55. Those with balances between $10,000 and $20,000 can withdraw $10,000 at age 55 and set aside the rest to live on after age 60. For those with balances of $20,000 or more, the sum to be set aside will be half the CPF balance (excluding Medisave) up to a maximum of $30,000. Thus no member will have to set aside more than half his CPF balance.

If a married couple are both CPF members, their CPF accounts will be considered separately. If either account is less than $10,000, it can be withdrawn completely, and so on, as I have explained. Neither of them will have to set aside more than half his or her CPF balance. If the husband has already set aside $30,000, the wife needs only set aside at most $15,000. A couple would need to set aside at most $45,000 together, instead of $30,000 each. This is because the couple can share certain living expenses. However, if only one spouse is a CPF member, he or she need only set aside, at most, $30,000.

Where a member owns property of at least $45,000 in value, both he and his wife will not be required to set aside any savings provided they retain their investments in the property. However, should they decide to sell or transfer the property, $45,000 of the proceeds or a pro-rated portion of it depending on their ages will have to be set aside.

Implementation

The Scheme will come into effect on 1st January 1987 after the Central Provident Fund Act has been amended.

Minimum Income

The sum of $30,000 is arrived at after careful study. This amount, set aside by a member at age 55 plus interest earned, will provide him with a regular income of about $230 per month from age 60. The income will be available for about 20 years depending on the interest rate.

As inflation and rising standard of living will inevitably force up the cost of living, in time to come the $230 per month will have to be adjusted so that it continues to provide sufficient income for subsistence living. The minimum sum of $30,000 will also have to be adjusted accordingly. This figure will be reviewed every three to five years to ensure that the real value of $30,000 is retained.

In the case where both the husband and the wife are drawing monthly instalments from their respective sums set aside, their instalments will total $345 per month. This is calculated based on $45,000 set aside. Investment Options for the Minimum Sum

The minimum sum to be set aside need not be kept with the CPF Board. It can be withdrawn at age 55 and invested in an approved bank deposit which will pay the member a monthly income of $230 per month from age 60 until the sum, together with normal commercial interest earned, is exhausted. If he dies before the entire amount is exhausted, the balance will be paid to his nominees or, if there are no nominees, to his estate.

Alternatively, a member can use the Minimum Sum to purchase an approved annuity plan from an insurance company which will pay him a monthly income from age 60 for about 20 years or until he dies. Depending on the annuity plan, his dependants may also receive some money if he dies before a specified age.

If the member chooses to, he can keep the sum with the CPF Board earning tax-free CPF interest. The Board will act like a bank and similarly pay out $230 per month until the sum and interest are exhausted.

Protection for the Minimum Sum

The Minimum Sum will be protected by law from seizure by creditors. This will apply regardless of whether the Minimum Sum is deposited with a bank, left with the CPF Board, used to purchase an annuity policy from an insurance company or invested in a property. Thus, if a member loses all his other savings, he will at least have the Minimum Sum to fall back upon for subsistence living.

Other Exclusions from the Scheme

A member who is already assured of a retirement income no less than that provided for in the Scheme will not be required to set aside the Minimum Sum. Thus, a member who is provided with a sufficient sum of retirement income under the Government Pension Scheme, an approved company pension scheme, or an annuity scheme will be excluded from the Minimum Sum Scheme.

Non-citizens and non-permanent residents will also be excluded unless they continue to work or reside in Singapore after age 55.

Members who are above the age of 55 on the commencement date of the Scheme will be excluded from the Scheme even though they may have savings in their CPF accounts. They may, however, opt to participate in the Scheme to protect their minimum savings if they wish.

Members covered by the Scheme

In the first few years of operation of the Scheme, only about 3,000 members each year will need to set aside part of their CPF savings in cash under the Minimum Sum Scheme. Eventually, as we approach the target of 100% home ownership, almost all CPF members and/or their spouses will have invested at least the Minimum Sum in properties and need not set aside additional CPF savings in cash under the Scheme. Their Minimum Sums will be protected by law such that they will at least have these sums to fall back upon as a last resort to ensure their financial security after retirement.

Improvement to the CPF Scheme

The Minimum Sum Scheme improves on the existing CPF Scheme by making it more complete. The objective is to allow CPF members maximum discretion in managing their CPF savings both before and after age 55, whilst ensuring that most members would have at least the minimum sum to live on after retirement.

I have prepared three annexes to illustrate the main points of the Scheme. I would like to ask the Clerk of Parliament now to distribute them. They are marked Annexes (Cols. 631 - 634) A, B. and C. [Copies of documents distributed to Members.] Annexes - MAIN FEATURES OF THE MINIMUM SUM SCHEME (Cols. 631 - 634)

Annex A lists out the main points of the Scheme.

(1) The withdrawal age remains at 55.

(2) The Minimum Sum to be set aside at age 55 is $30,000 for subsistence living after age 60.

(3) Members who own properties worth at least $30,000 need not set aside any minimum sum in cash.

(4) CPF members with low balances need only set aside smaller amounts.

At age 55, if a member has (excluding Medisave): -

(i) $10,000 or less CPF savings, he can take out all the savings.

(ii) If he has between $10,000 and $20,000, he can take out $10,000 and set aside the remainder. For example, if he has $16,000, he will set aside $6,000 and take out $10,000. The $6,000 can be put in a bank or with an insurance company, or with the CPF Board.

(iii) If he has between $20,000 and $60,000, he can take out half of the savings and set aside the remainder.

(iv) If he has more than $60,000, then the maximum he has to put aside is only $30,000.

(5) The amount set aside need not be kept with the CPF Board. It can be (a) deposited in an approved bank account which pays $230 per month from age 60, or (b) used to purchase an approved annuity with an insurance company.

Any residual value upon death will be paid to the member's nominees or, if there are no nominees, to his estate.

(6) A husband and a wife who are both CPF members need to set aside separately or together at most only $45,000 in total instead of $30,000 each.

(7) The Scheme will come into effect on 1st January, 1987, after the CPF Act has been amended.

(8) The Minimum Sum will be protected by law from creditors.

Annexes B and C are two examples to show how the Scheme will be applied. Annex B is for the case of a member without property and Annex C is for a member with property.

Mr Heng Chiang Meng (Jalan Kayu): Mr Speaker, Sir, may I seek some clarification from the Acting Minister.

Sir, I would like to congratulate the Acting Minister because it is a gem of a scheme. It maintains the withdrawal age at the age of 55 and yet still leaves room for our citizens to who have at least some funds for their twilight years. Sir, the Acting Minister did say that the sum of $30,000 for subsistence living has been carefully worked out. I would like to ask the Acting Minister whether he could perhaps at a later date show how this sum was derived.

The second point is this. According to the Scheme, it appears that the retained sum at age 55 would not be touched until the member is 60 years old. Does this mean that the interest earned during this five-year period could be withdrawn as a lump sum at the age of 60 or even earlier, between 55 and 60? Or does this mean that the accumulated interest is to be treated as part of the sum set aside?

The third point, Sir, is that if a member decides to place the fund in a bank or to buy an annuity from a insurance company, would the interest earned either from the deposit or the annuity be subjected to income tax? On this point, Sir, I would like to say that I have some interest in it because I am working in a bank.

The fourth point, Sir. I realize that the Scheme provides much flexibility. However, would the Acting Minister consider other schemes which are in line with the spirit of this new CPF proposal? For example, would the Minister consider another method which could be a type that permits deductions to be put into an account which at age 55 will automatically be converted into an annuity, and the deductions to be made from the current CPF contribution?

Finally, Sir, I would like to ask, what happens when the sum is exhausted by the member? He could be 75 or 80 or even 85 years old. Has the Government any financial plans to take care of these people?

Encik Abbas Abu Amin (Pasir Panjang): Mr Speaker, Sir, I would like to join in asking clarifications from the Minister. I have two points. First, perhaps the Minister would like to let this House know as to the number of CPF contributors who have less than $30,000 in savings.

The annuity scheme proposed is yet another safeguard to ensure that the retirees would not end up destitute. If properly pro-rated, the Scheme would provide the retirees with sufficient means for the rest of their lives. There is a need to explain, especially to the lower income group or to the less educated retirees, how this Scheme works and how they could benefit from such a Scheme. Would the Minister enlighten whether an advisory committee will be formed to explain the Scheme and how to reach this group of people, so that they will really understand and participate actively in such a scheme should it be implemented?

Mr Chiam See Tong: Mr Speaker, Sir, may I be allowed to make some clarifications and make some comments on the Ministerial Statement?

First of all, what is the rationale? Why is it necessary at age 55 for the Government to retain $30,000? The last Minister for Health has already given some idea of what the Government's thinking was at that time. He said that if the people of Singapore take out their CPF savings when they reach 55, they will squander their money. Does this rationale still stand from the Government's point of view? I see no rationale at all. The Government has promised to pay back to the members their money at age 55 and now they say they are going to retain part of it. I say this is definitely a breach of promise.

The minimum sum suggested at present is $30,000. But can the Minister guarantee this House that this amount will not be raised out of proportion, out of step, with inflation? Perhaps the Minister could give us a categorical answer to this question.

We have noted here that when a member dies, his money will be given to the nominee or to the estate. I cannot understand this point. A man works hard and when he reaches 55 he still continues to save until, let us say, at the age of 57. Then he dies and his nominee will get all the money, a big lump sum. What happens then? Is there a situation like this? He is not protected. I am talking about his nominee. What happens if he dies at age 57?

An hon. Member: The nominee dies?

Mr Chiam See Tong: The member dies at age 57. No, not the nominee. It looks like the Government seems to take the CPF members' money very lightly. I think we show more concern than the Government in regard to the workers' savings. As you say, they are the workers' money.

The figure of 3,000 has been mentioned as the number involved in this retention of $30,000. Perhaps the Minister could clarify because, as I see from last year's withdrawal from CPF - section 12 covers all the cases - perhaps he could tell us how much money has been withdrawn by members at age 55. Under section 12, the amount was over $500 million and, according to Government statistics, those members who have got a balance of less than $30,000 comprise about 85-86%. In other words, the $30,000 will, in fact, catch all the members. Perhaps the Minister could clarify this point.

Could I also ask the Minister whether or not the need to retain this CPF money which is, in fact, the workers' money, is because the Government is worried about the falling rate of contribution as reported the last time because of the cut in the employer's portion of the CPF? The Government, of course, always boasts that it has got no external debt but may I say that the CPF money and moneys which have been used comprise the Government's debt to the people of Singapore. This is a debt to the people of Singapore and, of course, as you know, in other countries if they cannot repay their external debts they have got a scheme called rescheduling. Is this a scheme of Government, rescheduling their own debts? Please explain. Are you afraid that in time to come, in the year 2000 when there is a declining rate of our population, there are not enough young people working to contribute to the CPF and when there are too many withdrawals? Let us hear it. Up to date, the Government has not come out with a specific answer, clearly, to say that it has enough money to pay back the CPF money in 20 or 25 years' time.

An hon. Member: Rubbish!

Mr Chiam See Tong: I have not seen it yet. It is not rubbish. Please produce it. Government has always been accusing others of not being able to justify. We have justified it in our figures. Let us see yours - whether the Government has the means to finance the repayment of CPF. Surely, the reason given by the Government through the last Minister for Health cannot be the reason. In fact, if it is, then it is a slap on the Government's face. After 25 years, you bring up a whole generation and at age 55 they cannot look after their own financial interest? What is this Government trying to say? Is it because you cannot trust our own people with money at age 55? If you can, then pay them back the money, the whole lot. After all, it is their money. Why should you retain this sum of $30,000? The more worrying point is: are you going to stick to $30,000? I can lay a bet on my last dollar that, if this Government stays in power, it will be raised.

Mr Jeyaretnam: Mr Speaker, Sir, I have a few questions for the Minister. First of all, may I ask whether the Government has considered the situation of persons who, being obliged to leave the greater part of their savings behind with the CPF Board at the age of 55, may probably find themselves out of employment before they reach the age of 60 because the sum to be paid only begins at the age of 60, as I understand it? Has the Government considered the situation of these people who may be out of a job and not be in receipt of any income until they reach the age of 60?

The second question is: will the CPF publish - as it is we are not getting proper accounts from the CPF about their investments - will the CPF publish full accounts of where the moneys are invested when they are left with the CPF Board? What interest is earned on these moneys that are left behind, and what proportion of it is paid to the contributors, the persons who left their moneys.

The third question is this. I see the intention is to try and make the CPF Scheme partially a pension scheme. Would the Ministry consider now, quite seriously, converting the whole of it into a pension or annuity scheme for our residents so that they start contributing towards this pension from the time they commence employment, and which will then afford them security in their old age? It will not then be necessary for them to put away a quarter of their earnings every month.

The final question is this. In view of the complete change in the Government's stand, which was that the contributor would be able to withdraw all his savings at the age of 55 and now that he is not allowed to withdraw all his savings, would the Ministry consider appointing a committee to seek the views of the contributors on this plan or scheme announced by the Minister? I think it is only right that they should be heard, what they think about it, and whether they can come up with something better than the Ministry.

Mr Chng Hee Kok (Radin Mas): Mr Speaker, Sir, this Ministerial Statement has come as a relief to all Singaporeans. In view of the complex nature of the Scheme, the Ministry of Labour or the CPF Board, or both, should make every effort and utilize all available communication channels to explain the complexities of the Scheme. CPF officials should also be well-versed in the Scheme when attending to any queries from contributors to prevent any misunderstanding. I hope the Minister will give us this assurance.

The question I have now is on the $30,000 minimum sum. Is it meant to be a net sum after the bank loan or mortgage, or is it just the value of the house? In other words, you can buy a house for $100,000 but you are actually borrowing $80,000. You have only paid a down payment of $20,000. So does the $30,000 refer to the value of the house, or is the minimum sum the net sum after the bank loan?

The third point I have is on the $10,000 limit. It does appear that actually this Scheme, for all intents and purposes, will affect very few CPF contributors because I think the majority of members at the moment have less than $10,000 each. Will the Minister explain why is this sum set, and does it mean that this group of people require less protection than those who have more than $10,000 in their CPF?

Mr Philip Tan Tee Yong (Paya Lebar): Mr Speaker, Sir, I have two questions. One is, will the Minister clarify as to who will decide on the value of the property? Secondly, after the minimum sum has been established, based on the property, will there be a periodical revaluation to adjust the minimum sum required?

Dr Wang Kai Yuen (Bukit Timah): Mr Speaker, Sir, I have a question for the Minister. My question concerns couples and let us suppose the breadwinner has more than $60,000 in his CPF account. Let us consider the case of two couples. In one case, the spouse is not a CPF member but in another case the spouse is a CPF member, and for argument's sake, let us say the spouse has a very small sum of $1,000 in the CPF account. Is it true that the minimum sum retained will be $45,000 in both cases or is it $30,000 in one case and $45,000 in the other case? Is it not strange that in one case where the spouse is not a CPF member, the minimum sum is only $30,000 whereas in the other case, if the spouse during his or her lifetime only works for a very short period of time, then the minimum sum has to be increased to $45,000?

Mr Leong Horn Kee (Thomson): Mr Speaker, Sir, I would like to seek one clarification. May I ask the Minister whether after an amount has been set aside by CPF contribution by a member, and he has occasion to need to use his money as a lump sum, would any allowance be given to him to use this money as a lump sum? For example, he might want to use the money to purchase an HDB flat or for some very urgent personal expenses?

Mr S. Chandra Das (Chong Boon): Mr Speaker, Sir, I have one question for the Minister. I am just wondering whether it will be necessary for a member to pledge his property to CPF if he decides to withdraw all his savings.

Mr Lee Yock Suan: Mr Speaker, Sir, I thank all the Members for their questions. I am sure, as I explain the rationale and give my answers, it will become clearer to the public how the scheme is worked out. It would help my explanation, Sir, if I could now be allowed to distribute some additional tables (Cols. 635 - 650) which I have prepared. The tables will provide data on some of the points that have been raised. tables - POPULATION (PER THOUSAND) LIVING AT VARIOUS AGES, 1980, DEPENDENCY RATIOS, PERSONS 55 YEARS & ABOVE, PROPORTION OF POPULATION 55 YEARS OR ABOVE, Impact of Minimum Sum Scheme in 1st Five Years of Implementation (Cols. 635 - 650)

I propose to answer the questions in the order they have been raised, dealing first with the question from the Member for Jalan Kayu. He asked how the sum of $30,000 is derived. The answer is very simple. The CPF member puts aside $30,000 at age 55, say, he puts it in a bank. The capital plus interest that he will earn from this deposit is worked out into the form of an annuity. He will be able to withdraw from age 60 $230 per month for a period of about 20 years. The period depends on the interest rate. At present the interest rate on bank deposits is about 4¦%. At that rate, if you check the calculations, you will find that the sum will last just about 20 years.

His next question is: what is the tax position on the interest earned or the annuities? I am glad to inform Members that the Ministry of Finance has agreed in principle to exempt tax on the interest derived from bank deposits earned by this minimum sum in the hands of the CPF member. The same position will apply also to annuities. In the event the member buys an annuity scheme, where he uses the minimum sum to buy a stream of income, a regular stream, until he dies or over a certain period, the Ministry of Finance has agreed in principle to exempt tax on these annuity payments, provided the minimum sum is the ceiling on the capital amount. The details are still being worked out and we will announce further details later on.

The Member has also asked whether we would consider other schemes. I take it that he has in mind some kind of an endowment plan where a member from a young age contributes monthly from his CPF into a plan which will buy a capital sum which at age 55 is converted into an annuity to earn a stream of income for as long as he lives or over a certain period. The answer to that is, yes, we can consider it in principle provided the plan is for the Minimum Sum. We must realize that endowment plans involve two elements. The first element is an insurance element. The other element is an investment element. In the case of the insurance element, it is good for a young member to have this protection. In other words, after contributing a few instalments, he dies and his dependants will get the sum insured. This is good. On the other hand, if he does not die before age 55, which is the most likely situation fortunately, then the premiums paid would have been spent. It is really a form of consumption of CPF savings to buy protection for the member's dependants. Therefore, we have to make sure that the amounts spent are not excessive because the CPF savings are basically for the member's old age requirements.

As far as the investment element is concerned, it is a question of comparing the returns from this endowment plan with other forms of investment. It might be better for the CPF member, say, to put it in some other form, say, shares, or even leave it with the CPF Board if the interest earned on the CPF deposit is higher than what can be earned from the insurance plan. But in principle there is no objection to an endowment policy so long as it is limited to the minimum sum. There is one further condition. The endowment plan and the subsequent annuities cannot be terminated because, in a commercial arrangement, you can surrender the policy. But for the purpose of the Scheme, the endowment policy cannot be surrendered because the intention is to protect the member as long as he lives.

The Member has asked one other question, and that is: when the Minimum Sum is exhausted when the member reaches the age of 70 or 75, what happens then? The answer is that we have based the Minimum Sum Scheme for 20 years on the average. This is the average life expectancy of a person at age 60. If you look at the Table that I have given you, Annex 1 shows the life expectancy of male Singaporeans as at 1980, and Annex 2 is for females. For females, the life expectancy is generally a few years longer than for males. If you look down the column marked "60 years of age", you will see that if there are 1,000 persons aged 60, then on average about half will live beyond 75.3 years. The number shows how many males will survive at different ages. After 75, there will still be another 306 males who will live to the age of 80 and beyond, and another 145 males will live beyond 85.

The best plan for the individual really is to buy an annuity scheme for life. In this scheme, what happens is that the members contribute their funds to an insurance pool. Those who live shorter or who die earlier will subsidize those who live longer. The point is that nobody knows how long he is going to live. Death will come for certain but when, nobody knows for sure. How do you plan? So if you contribute to this kind of a pool and if it so happens that you live longer, and there is a 50-50 chance you will live beyond 75, then the money from the other members will be used to subsidize you.

In buying annuity plans, there are three kinds of plans. One is a straightforward plan which is called annuity certain, where you put the money with the insurance company and they pay you the full sum back after a period of time. It is just like a bank deposit. That is a financial arrangement. The other arrangement is a life annuity where you pay a capital sum to the insurance company and the company guarantees you a fixed amount every month until you die. But if the member dies, then nothing is left. The third plan is a combination of the two. It is called a guaranteed life annuity where you get a sum of money for life. But if you die before a certain age, then the balance of the amount will be paid to your dependants. We have done the calculations and found that $30,000 roughly, will be enough for each of these three schemes. It appears to us that the guaranteed life annuity scheme is, in fact, the most advantageous.

Members may want to consider structuring their financial plans after 55 somewhat along those lines, in other words, using the amount of money to buy a sum guaranteed for life. It may be two times the minimum sum, three times the minimum sum. It is up to them; their own option. What we have here is only the minimum scheme. Members who have higher CPF savings may want to use this as an example and set aside part of their money for as long as they live through an annuity plan. As for the balance, he can be more flexible about using the money.

Of course, if a person does not have enough savings and if he does not also have family support and so on, and his money is used up, then he will have to depend on support by the society at large and by the Government. I think nobody is running away from that role. What we are trying to do is to minimize the number of people who will fall into that position. But it is no joy to be in an old age home. The thinking of the Government is that the best way to help a person is to make it possible for him to help himself. So the CPF scheme is arranged in such a manner that every member will have sufficient savings for his old age. He is asked to save from the time he works until he retires. Having done so, he must also ensure that his savings are properly invested to last him over his retirement years. So every member should plan for himself. What we have done really is the minimum for everybody on the premise that the people want to manage their own savings - which is good. But there should be a minimum safety net for all CPF members.

Moving now to the questions from the Member for Pasir Panjang. He wanted to know how many members have less than $30,000. I think if you look at Annex 8 that I have given out, there is a Table there showing how many CPF members will reach 55 in the next five years; and of those numbers how many will be home owners and therefore they need not set aside any cash; how many pensionable officers will be excluded, and so on. For example, in the first year, there will be a total of about 18,000 CPF members who will reach 55 in 1987. In that group, about 3,400 are non-Singaporeans or non-permanent residents. So they are not covered. 600 are pensionable officers. Another 5,700 have used their CPF for properties, so they need not set aside cash if the value of the property is sufficient. Then there are 5,600 members who have less than $10,000 each. We have to release whatever money they have because they need the money to live on between the ages of 55 and 60. If they have stopped work, they need to have this money to live on. If we ask them to stretch this money over a longer period, the sum would be so small that it is not meaningful. So the problem for this group is that they do not have enough savings. As for the others, a total of 2,800 members in the first year will have to set aside various sums of money.

I must make it clear that the money does not have to be kept withe the CPF Board. Members can withdraw the whole amount. I think this point was missed by the Opposition Members when they said that we are trying to retain the money. We are saying that you can take out all the money at age 55, every cent, excluding Medisave which is a different scheme. Every cent in your Ordinary Account, every cent in your Special Account can be withdrawn at age 55. But we have worked out a scheme for you such that if you have not got a house, then it is better for you to initially live on half the amount and set aside the balance under a scheme which will ensure there is financial security for the rest of your life, and that means stretching out the money in monthly instalments. So the money still belongs to the member. And if he has not used up all his money before he dies, it goes to his family.

The Member for Pasir Panjang also asked how do we plan to explain this to the lower income group. I think this is a problem because we are trying to do it through television, the press and so on. My Ministry is thinking of mailing out a simple question and answer leaflet to every CPF member so that they will at least have the facts straight and not be confused by distorted stories. I hope that the hon. Members here will help us in this task of explaining to their constituents as well as others, for example, the unionists; I think a lot of them will want to know how the scheme affects them. So this is something in which all of us have to play a part.

Coming to the questions from the Member for Potong Pasir. He asked what is the rationale for this scheme. I think the rationale is very clear to all the other Members. I do not know why it was not clear to him. I have already explained in full in the Statement as well as in answering some of the questions the basic thinking behind the scheme. We are not saying that Singaporeans are spendthrift, that they will squander their money. Far from it. We think that the majority can manage but there are some who may be struck by misfortune, who may be too generous with their families, and some who may be caught by confidence tricksters. We have heard of how some confidence tricksters cheated over the telephone. In future there will be more and more old people with substantial CPF savings. So something must be done to help them preserve their savings. They may not realize that they may live up to 75 years or beyond. So what we have done is to design a scheme which is no more than what a reasonable person would do in planning his financial resources after 55. If you remember, in last Friday's Straits Times, there were three vivid examples of people who, although they were fairly educated, met misfortunes in various ways. This goes to illustrate what can happen to your money. I am not saying that it is a very common occurrence, but it is sufficiently common for mony of us to have come across such instances personally.

Mr Chiam See Tong: What about success stories?

Mr Lee Yock Suan: Yes, success stories too. Of the two success stories published on Saturday, the first one clarified that it was a big risk for him to go into business. He invested not only his CPF savings but also his house and everything else. I do not know how many people want to take that kind of risk with their life savings. The second case is just backing up the story saying, "You must plan carefully." But it is true that the majority can manage and that is why, in designing the scheme, I have tried to make it such that it causes minimum inconvenience to the members. If a member owns a property of sufficient value, all he has to do when he withdraws his money at age 55 is to sign a form saying, "I nominate this property to be the asset in which I owe the Minimum Sum," and deposit it with the CPF Board. So long as he does not sell the house, his position has not changed. He can withdraw all his CPF savings and still have the house. And he will need a house to live in for as long as he lives. So the position has not changed for him.

For the members with low balances, we have designed a scheme to help them, really. At first, they may feel that we are trying to impose on them but really the scheme is such that we have considered what a person might need at age 55. They might have already made certain plans to use that money. So we allow them to withdraw as much of the money, front-end at age 55, as possible. If he has less than $10,000, everything is withdrawn. If he has between $10,000 and $20,000, he withdraws $10,000 and only sets aside the balance, and so on.

We have done a little bit of research and we were able to dig up quite a few cases of people who have been hit by misfortune. Maybe for Members' information, I can read out one or two cases, just to make the point that people do, for whatever reasons, lose their personal savings. There was one person who had $40,000 in his CPF in 1984. He withdrew the whole sum. He was a very kind-hearted person, very caring for his family. So he gave out the whole sum to his five sons and one daughter. Son A comes along and says, "I want to do renovation. How about giving me some money?" Son B wants to run some business, and he says, "How about giving me some money?" After all, the old man has got a big fortune now, $40,000. Eventually, the whole sum was exhausted. He became ill in 1985 and retired. Now he has to depend entirely on his children for support. And when we asked him, he said that he regretted having done what he did, and if only we had the minimum sum scheme then, he would not be in this position.

Another case is a member who had $29,000 in his CPF in 1981. He withdrew the money at age 55 and, since he was still working, he spent his money on entertainment and on helping out friends with financial problems. His friends never paid him back. He spent the whole sum of $29,000 in two years. On retirement in 1984, he collected $13,000 as retirement benefits and took out another $12,000 from his CPF. In the same way, he spent all the money in two years. Fortunately for him, he has a filial son who is supporting him. And fortunately for us now, I think most children are still filial but we do not know about the future. Right now, you may have five or six children to support the aged couple. But in future there will be one, maybe two or at the most three children. The burden on them will be that much heavier and we are not sure whether they will support us. So let us all be careful and plan for our future. Let us not be a burden on our children. There are other examples but I need not go through all of them.

The Member for Potong Pasir also asked whether I could give an assurance that the Minimum Sum of $30,000 would not be raised. If he had listened carefully to my speech, he would have heard me saying that the $30,000 is based on the current value of money. So it is inevitable that, in money terms, we have to make adjustments for inflation. If not, then very soon the sum of $30,000 will be quite meaningless. In terms of its purchasing power, say over a period of 20 years or 30 years, the value would have dropped to maybe one-half or one-third. I therefore said in my statement quite clearly that my Ministry would review the sum every three to five years. And if there is a need, then we will have to adjust the sum to compensate for inflation. I have also said that we are confining it to the $30,000 in real value, the intention being to leave the member with maximum discretion to manage his own savings. The intention is not to widen the Scheme so that more and more money is taken up. The intention is to provide a minimum safety net but because there is inflation, it is inevitable that we must adjust the sum. But for a person who has $30,000 now and it is earning interest at, say, 5% or 6% which is higher than the inflation rate, then even if you adjust the $30,000 for inflation, it gets to be a smaller and smaller portion of his savings as the years go by. So the CPF members need not be worried about this point.

Then the Member asked a rather unusual and amusing question. "What happens if the member dies at 57? Why do we give the money to his nominees?" I do not know how to answer him! Can he take the money with him? Of course, he has to leave it with his family, and that is what most members would do. Is the Member advocating that every CPF member, as soon as he receives the money, should spend all of it just in case he dies the next day? Of course, not. He must plan, as a sensible person, to have enough money to last him for as long as he lives. A cautious person would just put the money in the bank and live on the interest. That is fine. But the interest might not be enough. In fact, if he lives on the interest alone, it is a bit too conservative. You can afford to eat a little bit into the capital, and we have planned it such that if you follow the scheme, there will be enough money to last you for the rest of your life. Of course, if the member dies, the money then goes to the family or to his nominees, probably his wife or his children. If there are no nominees, then it goes to his estate and the laws of intestacy will follow. So we have not changed the rules. And nobody is trying to deprive any member of his CPF savings. The savings are his money. He is entitled to use it. And if he does not use it in his lifetime and he cannot carry it with him when he dies, it goes to his family.

Mr Chiam See Tong rose -

Mr Lee Yock Suan: Sir, may I just finish my speech because I have so many questions to answer?

Mr Speaker: Please carry on.

Mr Lee Yock Suan: I was not trying to make fun of the Member. Maybe I have misunderstood him. But it sounded so funny that all of us could not help laughing.

The Member wanted to know how come there are 3,000 cases. I have given him the full figures. He can look at them. Those are the full data.

Again, he raises this question, this bogey of whether the CPF Board is able to pay. I have tried to answer him so many times. As I said before, I have managed to convince the Member for Anson who understands, but not the Member for Potong Pasir. He comes up again and again with the same story based on some misconception that his supporters may have given him. I have stated categorically that every member can withdraw all his CPF savings, every cent of it. So where is the mechanism to hold back the money? If the Government has no money to pay, will we promise the CPF members that they can withdraw everything? If they choose to leave the money with the CPF Board, well, welcome, they can leave it there. But they are free to take out all their money. In the case where they have property, they can take out the whole sum. They need not set aside any sum. In the case where they do not have property, they can take out the whole sum but they have to invest part of it in some investment plan. So there is no withholding of the money. I have given figures before to show that our financial resources are very strong and there need not be any worry about this point. This is a very prudent Government. We manage the State's resources very carefully. So there will be money to pay every CPF member.

The Member asks whether we are concerned about the declining ratio of contributors to the aged. There are also some data given in the Annexes. If you turn to Annex 5, you will find that in 1985, there were about 290,000 people aged 55 and above. In the year 2030, that number will be more than 1 million persons. In 1985, there were 5.7 young persons to 1 aged person. By "young person", I mean somebody between 15 years old and 55 years old. So in 1985 there were be 5.7 such young persons to 1 person above the age of 55. But in the year 2030, there will be only 1.4 young persons to 1 aged person. So if there is no CPF plan and there is no Minimum Sum Scheme, the burden on the young people in future will increase four-fold from what it is now. But because we have this CPF scheme where everybody saves up something for himself, I think we need not face this problem with so much concern. That is the real story behind all this.

Coming now to the questions of the Member for Anson. His first question was that the minimum sum set aside can only be withdrawn from age 60. What happens before that? Before that, at age 55, the member can withdraw at least half of his savings. If he has $10,000 or less, he withdraws the whole lot. If he has between $10,000 and $20,000, he withdraws $10,000 and leaves the rest and so on. So the intention of this front-end money is for him to live on between 55 and 60 years. If he lives frugally, he can live through those five years with maybe less than $10,000. The balance, he should really plan and set it aside for his future years. But if he does not want to and he has other commitments, he can use it to meet them.

For members with very low savings, their basic problem is that they have insufficient savings. We are not able to design a scheme that will stretch their savings out too much. What has to be done really is for these members to continue working for as long as they can, maybe to age 60 or 65. The Government will still like to encourage people to work for as long as they can because that is the way to stay healthy and financially independent and live longer perhaps.

For those with very low savings, we are also considering a scheme where the children can take out part of their CPF savings and transfer it to the Minimum Sum Scheme account of the parent. This is being considered and details will be announced later. The amount transferred must be limited only to the Minimum Sum and provided the son himself has enough for his own needs. This will help to top up the CPF accounts of the aged persons.

We may also allow the son to contribute cash to the aged person's CPF account. We are talking to the Ministry of Finance to have this cash contribution exempt from tax, so long as it is limited only to $30,000. If the old man dies any balance must go back to the contributor's CPF account. Otherwise it becomes a tax loophole.

The Member for Anson wants to know how the CPF Board has invested the CPF members' money. The report of the CPF Board shows this very clearly. The CPF Board collects on the one hand from CPF members and on the other hand lends out the bulk of this money to the Government which then invests it in secure assets, overseas or through other arrangements. The net result is that all these CPF savings have been salted away, invested. So if the Member wants to look at the accounts, it is really very simple. The liabilities are the CPF members' savings; the assets are mostly Government bonds. The money has been placed with the Government, with GIC and MAS, for management. So when the time comes to pay out the CPF members, the assets will, if necessary, be sold and used to pay CPF members; and there will be enough assets to pay everybody.

The Member asks why we do not convert the full CPF scheme to a pension scheme. I do not know how many members of the public would support him on this point. It is a valid point, but it is a very drastic change because most people want to collect their CPF in one lump sum and be able to do what they want with it. Most people are able to manage. So we need not impose on them to the extent of converting all their CPF money into a pension scheme. What we have done is to convert a minimum portion of it at the end, and this portion can even be in the form of a property. So there is no need to set aside other sums.

I know the Member is thinking of an alternative scheme where we contribute lower amounts and it becomes a pension. Then it is a question of how much is sufficient for a pension scheme. The CPF scheme is designed such that it should be sufficient to pay for a home commensurate with the member's income, pay for hospitalization through Medisave and so on. And we are still studying this point - how much would he need at the end after retirement? What level of a monthly income would he need to live on after retirement? Is it 30%? Is it 40%? We have to cater the CPF scheme in that manner. But there is perhaps no need to take the drastic step of converting everybody's savings into a pension scheme.

The Member for Anson asks why we have changed our position and are not allowing people to withdraw all their money at 55? My answer is they can withdraw all their money at 55. So the question does not arise. We have not changed our position. We have not imposed on anybody. The majority will have homes. Eventually when all have homes, 100% home ownership, the scheme is reduced to just this Minimum Sum, which is protected by law in the value of the property. If it is a private property, the member can still use the property to raise funds. He is also not hindered if he wants to transact his property. He can sell it, buy another one and say, "Look, CPF Board, I want to nominate this new property." And so it goes. Just a very simple process. So there will be minimum inconvenience to CPF members. We are, of course, working out the legal mechanism for this and it will be announced in due course. But our intention is to make this legal protection and the legal hold for the member's security as simple as possible.

Coming next to the questions from the Member for Radin Mas. He says we have to explain to the public. This is very true. We will do our best to try and explain it and I hope Members will help me out in this respect.

The Member's second question is whether the $30,000 is the full value of the property or net of bank loans. The answer is net of bank loans. We are looking really at how much of the property belongs to the member. If he has only paid out $100, his worth is only $100, not the whole value of the property. If there are joint properties with several owners, we will look at the share of each owner. Of course, with joint properties there will be further complications of having to get the consent of the other members and so on. We will have to study that in more detail. What I have covered are just properties owned by spouses, singly or jointly. If one member, say, a husband, has a property worth $45,000, he can use it to cover both husband and wife. It does not have to be a joint property.

The Member's third question is that we seem to be letting go those people with low balances, and so they are not protected by the scheme. The problem is that they have so little savings that we have to let them have the money to live on in case they have stopped work. But we hope they will realize that this is all the savings they have, that they will continue working, save more and manage the sum carefully. If they need our help to plan how to manage the sum, we will be happy to help them do so. They can put it in a bank or buy an annuity. But since the sum is so little, there is not much we can really do. These people are really the interim case; the older people who have had a lower income and lower CPF rates. Their sums are small. As the years pass by, there will be fewer and fewer such people.

The Member for Paya Lebar wants to know who decides on the value of the property. The value of the property will be based on the market value. For example, if it is an HDB flat, then we will look at the list of actual transactions of HDB flats, say, over the last year and use that as a gauge. In the case of private properties we may have to use a valuer or some other basis. We have to work out the details in due course, but the basic concept is market value.

Will the Minimum Sum be adjusted? I think I have answered the point. We will have to take care of inflation and rising standards of living. But we are going to confine it to the minimum for subsistence living.

The Member for Bukit Timah asks about the case of a couple. This is slightly complicated. Maybe I should explain again. Let us take the case of a husband and wife where the husband has $60,000 and the wife $1,000. The husband sets aside $30,000, the wife sets aside nothing. We look at each account on its own and apply the rules on each account. But it is only when we look at the ceiling that we have actually made a concession. Instead of $30,000 each, we say the total need only be $45,000. But it does not mean that every husband must set aside $45,000 for both. It depends on how much the husband has in his own CPF savings. For example, if the husband has $60,000 and the wife has $60,000. If they were singles, we will have to ask them to set aside $30,000 in one case and $30,000 in the other case. But because they are living together and they are able to share expenses, we say, "Look, only one member needs to set aside $30,000; the other one only needs to set aside $15,000, to make a total of $45,000." So it is actually lower than what it would be if both of them were single members and treated separately. But if only one of them is a member, then to be fair to him, we only look at his account. We cannot insist that he must put aside $45,000 because he may not have enough money. So he will only be required to set aside $30,000.

The Member for Thomson wanted to know what happens after, say, age 60 and the member has put aside this minimum sum, and he then needs to have a lump sum of money for expenses. The point here is that we have planned out a stream of income so that it will last him throughout his life until he dies. If he has some other means of support, he need not live on this minimum sum. If his family is still supporting him, or he has other savings, or he is working, he can keep the money with the bank and allow it to accumulate. So instead of withdrawing the money every month, he can withdraw it, say, every year. In that case he can withdraw about $3,000 every year to go on a trip or whatever. So it need not be exactly $230 per month. $230 per month is what he will get to spend if he wants it to last. So he can either withdraw monthly or quarterly or yearly, as he wishes. But he should only spend whatever he has accumulated, not more than what he has accumulated.

The Member for Chong Boon asks whether it is necessary to have the pledge on the property. Here there is some public misunderstanding over the mechanism. We are not saying that there will be a charge on the property. It will be some kind of a legal hold on the property for his own protection, to protect him from creditors and also the hold is to retain the minimum sum for his own benefit. If a bank imposes a charge on the property it is for the benefit of the bank as a lender. But in this case we will have some kind of legal mechanism which is to safeguard that value of $30,000 for the member's own benefit. And we intend to make the mechanism as simple as possible. Maybe just signing a form and saying, "This is the property." If he is does not sell the property that is the end of the story. If he sells he renominates another property or he puts aside the minimum sum. So the mechanism will be as simple as possible. [Applause].

Mr Jeyaretnam: Mr Speaker, Sir, may I just seek clarification from the Minister following his reply to my questions. I am afraid he does not quite understand the problem I posed to him about the persons who have reached 55 and who have left behind a sum with the CPF and then find themselves out of employment. The Minister says the answer is to encourage everyone to stay on working till the age of 60. Does he realize that it is virtually impossible now for a person to find employment in Singapore after the age of 50 or 55? Does he know that employers are terminating the employment of people when they reach the age of 50 or 55? I know of this myself in many cases. So it is their situation to which my question was directed and I do not think it can simply be answered by saying the Government wants to encourage everyone to work till the age of 60.

The other thing is about the accounts. Of course, I am aware that CPF lends the money to the Government or purchases Government bonds. But what we are not told is what the GIC or the Government does with these moneys and how much is earned on them? I think it is only fair that if contributors have left their moneys to be invested for the interest to be paid out to them, then they should be told fully how much is earned by the Government by way of interest upon the moneys left behind by the CPF contributors.

Finally, the Minister perhaps skirted my last request, ie, whether the Ministry would consider appointing a committee to inquire into the whole problem now and invite views from the contributors? Because it is a serious departure, I still maintain that.

Mr Lee Yock Suan: Mr Speaker, Sir, coming to the first point about those who have put aside some money at 55 and who would need some money before they reach 60. I have explained that we have planned the scheme such that he has as much front-end money as possible. The intention is that he should try and use that for his living expenses between 55 and 60. For example, if he has withdrawn $20,000 and he needs to go on a Haj, in the case of Muslims. He should consider whether he could afford the trip; out of the $20,000 how much would he need to live between 55 and 60, and set aside a sum. The rest can be spent more freely. But he must realize that what we have planned for him after age 60 based on the minimum sum is only enough for subsistence living. If he is contented with that standard of living, he can be more free with the money in the front-end. The data I have given you also shows how we derived the $230. It is a very frugal amount.

As for people not being able to find jobs after 55, this is a temporary problem. If you study the data of those aged 55 and above and even above 60 for males, you will find that the majority are still working. According to actual statistics, I think it is more than 60% in the case of males aged 55 and above, ie, more than 60% of males above that age are still working. The unions and the Ministry of Labour would like to encourage employers to offer employment to their workers beyond the age of 55. I think quite a few companies already have this scheme where their employees can opt to retire at 55 or carry on working as long as possible. There are various kinds of jobs still available for people who are older. My Ministry can also help those who are above that age if they want to find jobs.

On the other hand, it is difficult for us to say, "Look. Take out this money at age 55 and we set aside this sum for you from age 60. If it so happens you need some more, you can come and take some more." Then the whole scheme is defeated, is it not? For the scheme to work, we have to have certain basic requirements and the member must try and plan within those requirements. As I said, the scheme is meant to help him plan for his financial security.

The Member for Anson asks for details of investments by GIC. This is something that the Minister for Finance has already answered. To the extent that it is common to release such details, and they have been released. It is not a secret that we have plenty of reserves with GIC earning adequate returns. As far as the CPF members are concerned, they are assured of getting their money back with CPF interest. The CPF Board is paid the same interest that the CPF member gets from the CPF Board.

The Member also wants to know whether we would appoint a committee to find out public views and so on. This Minimum Sum Scheme is not a new idea. It was mentioned in the last general elections by the Prime Minister. I have mentioned it a few times in Parliament. Recently, before we decided on the scheme, my Ministry has also done a spot survey of quite a big sample. The majority, even based on the information that has been given out so far, are in favour of the scheme. A lot of these people who were not sure will be in favour once they know the details. For example, we will allow them to take out the whole sum and put it in a bank so that nothing is held back. We believe that more than 80% will be in favour of the scheme. So there is really no need for us to do another survey or have a committee for this purpose.

Mr Chiam See Tong: Just one final question, with your indulgence, Sir. At age 55, if he needs more than the $10,000 which will be paid out to him for his children's education - this point has been brought up before - especially for university education, will he be given some kind of leeway to take out money for his children's tertiary education?

Mr Lee Yock Suan: Mr Speaker, Sir, the figure of $10,000 only relates to a certain group of CPF members. Those who have less than $10,000 in their Ordinary and Special Accounts are allowed to withdraw the whole sum. They can do what they want with it. We are telling them that they should plan for their own old age. If they need to spend it on their children's education, nobody is stopping them. In the case where they have between $10,000 and $20, 000, they are allowed to take out $10,000 and keep the rest. Again, I think, the $10,000, in most cases, will be adequate. It will not be enough to send the child to UK for studies but it will be more than enough to pay the fees at NUS which only amount to about $1,100 per year for most courses. For those with larger sums and with no property, say, he has $40, 000 in his account, he is allowed to withdraw half, not $10, 000. He is allowed to withdraw $20,000. If he has $50,000, he is allowed to withdraw $25,000. If he has $60,000, he is allowed to withdraw $30,000. In fact, he is allowed to withdraw the whole lot, but we ask him to put part of it in a bank or buy annuities or whatever to stretch it out for the rest of his life, if possible.