PENSIONS (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Pensions (Amendment) Bill, 1986, seeks to amend the Pensions Act for two reasons. The amendment is to provide for an option to be given to pensionable officers to either remain on the Pensions Scheme or switch over to the full CPF Scheme on such terms and conditions as may be prescribed. Secondly, it is to defer the pension-drawing age of officers who are granted early retirement or are retired in the public interest.

Option to Convert to the Full CPF Scheme

Let me first explain the option to be given to allow officers in certain Services to convert to the full CPF Scheme.

Prior to December 1972, the Pensions Scheme was the common superannuation scheme for almost all civil servants. However, since then all new Division III and IV officers (except the Police and Narcotics Officers) have been appointed on the full CPF Scheme, and in mid-1973 serving Division III and IV officers (except the Police and Narcotics Officers) were allowed to opt for the full CPF Scheme. The Pensions Scheme has been retained for the Division I and II appointments and the Division III Police and Narcotics appointments.

The full CPF Scheme has been found to work well for the Division III and IV officers. It is neater than the Pensions Scheme as Government's financial liability to its officers is entirely discharged on their retirement. For the officers, being on the full CPF Scheme means more CPF savings could be utilized for approved purposes like home ownership. Moreover, since the CPF benefits are not contingent upon the officers remaining in the Civil Service until their retirement, it facilitates their movement from the Civil Service to the statutory boards or private sector.

The Government has hence decided to also phase out the Pensions Scheme for most Division I and II officers. However, there are a few key Services where continuity of national policies is vital and wherein officers are encouraged to pursue a life-long career. These key Services are the Administrative, SAF (Senior), Police (Senior), Intelligence and the Administrative Service (Foreign Service Branch). These Services have to remain on the Pensions Scheme.

Accordingly, with effect from 1st April 1986, all new Division I and II officers in the non-key Services and the Division III Police and Narcotics Officers are appointed on the full CPF scheme. Serving officers in these Services will remain on the pensions scheme. However, since some of these officers may wish to convert to the full CPF scheme, I am pleased to say that Government has agreed to allow all serving Division I and II pensionable officers (other than those in the key Services) and the pensionable Division III Police and Narcotics Officers an option to convert to the full CPF scheme or remain on the pensions scheme. The choice will be entirely theirs.

Timing

Government realizes that, in view of the recent cut in the rate of employer's CPF contribution, this may not be considered an opportune time to offer the option. However, since the decision to phase out the pensions scheme is basically sound, it should be implemented earlier rather than later. In retrospect, it seems fortunate that the option was not timed before the CPF cut, for otherwise civil servants who would have opted for the full CPF scheme might feel short-changed, though the effect was not foreseen.

Terms of Option

I would like to briefly describe the terms of the option. If a pensionable officer opts to convert to the full CPF scheme, he will be placed exclusively under the full CPF scheme from the date of conversion. But the pension benefits which he has accrued in respect of his past pensionable service will be frozen. The accrued pension benefits will be paid upon the officer's eventual retirement.

If an officer dies in harness on or after the date of conversion, his dependants will be paid a death gratuity for his past pensionable service.

An officer who opts for the full CPF scheme will enjoy medical benefits after retirement only if he has at least 10 years' pensionable service. Similarly, an officer who remains on the pensions scheme will also enjoy post-retirement medical benefits if he has at least 10 years' pensionable service. This is an established practice.

Deferment of Pension Drawing Age

The second purpose of the Pensions (Amendment) Bill is to defer the age for drawing pension in the case of an officer who retires early or in the public interest. I would like to explain this move.

At present, an officer could be retired by the Public Service Commission in the public interest on disciplinary grounds with or without reduction in his pension benefits. Presently, these benefits are paid immediately upon his retirement. If the officer is young, he will be receiving pension for many years until his death and the total superannuation benefits he gets may be more than another officer who has records of good conduct and work until normal retirement age. This is, obviously, an anomaly.

To remove the anomaly highlighted, Government proposes that an officer retired in the public interest should only start to draw pension at the same age as an officer granted early retirement under section 7(2)(j) of the Pensions Act. Presently, an officer with at least 15 years' service may request and be allowed early retirement under section 7(2)(j) of the Pensions Act. In such a case, he will receive his pension from the minimum age of 50 years or 45 years in the case of some Police and Prisons Officers. The minimum age for drawing pension for officers retired in the public interest or under section 7(2)(j) should now be changed to their optional retirement age. The optional retirement age is 55 years for officers with compulsory retirement age of 60. It is 50 for officers with compulsory retirement age of 55. This change is to ensure that an officer retired earlier than his normal retirement age either in the public interest or under section 7(2)(j) does not benefit much more than one who serves until his normal retirement age. This change in pension-drawing age will, however, apply only to officers appointed on or after the effective date of the proposed legislative amendment because Article 112 of the Constitution protects the pension rights of serving officers.

Legislative Amendments

To effect the proposals I have explained, it is necessary to amend the Pensions legislation.

Clause 2 of the Pensions (Amendment) Bill, 1986, will empower the President to make regulations for an option to be given to any pensionable officer or class of pensionable officers to convert to the full CPF scheme. The terms and conditions of the option will be spelt out in the regulations to be made by the President and will be on the lines I have indicated earlier.

Clause 3 of the Bill re-defines the minimum age so that new recruits will only receive their pensions at their optional retirement age when they are retired in the public interest or under section 7(2)(j) of the Pensions Act.

Clause 4 of the Bill clarifies that where the Public Service Commission has ordered an officer to be retired in the public interest, the officer's service shall be deemed to have been terminated under subsection 8(1) of the Pensions Act for the purpose of granting any pension or gratuity.

Finally, clause 5 of the Bill provides for the payment of death gratuity to the dependants of an officer who converts to the full CPF scheme should he die in harness.

Sir, I beg to move.

Question proposed.

Mr Jeyaretnam: Mr Deputy Speaker, Sir, I rise really by way of seeking clarification from the Minister on this Bill.

As he has pointed out, the major change that is brought about by this Bill is that all officers appointed on or after the 1st April 1986 to the public service shall not be pensionable, except such schemes of service as may be designated by the President. And the Minister has said that this pension scheme would apply, or intended to apply, to key Services and key officers, and the intention is that they should be encouraged to make the public service their life-long career. I hope I have understood the Minister correctly. By implication, the Minister is saying that the pension scheme must be more advantageous to the public service officer than if he were put onto the CPF scheme.

What I would like to know from the Minister is: since we are now making a drastic change from pensionable public service to non-pensionable public service for the majority of our civil servants, has there been any consultation with the public service? When I say "consultation with the public service", I mean the associations representing the public service and the unions. Have their views been sought at all as to what they feel about the change and whether it will have any detrimental effect on the public service making this conversion?

Dr Richard Hu Tsu Tau: In answer to the question of the Member for Anson, the Public Service Division of my Ministry carried out a sample survey of 30,000 serving pensionable officers who might be eligible for the option. A stratified random sample of 5,000 officers for the survey was conducted in March 1986 in which the officers were asked to indicate if they would like to opt for the full CPF scheme, reasons for their decision as well as their views on whether offer of the option would be opportune at this time. Just over 3,000 officers responded to the survey and I would just like to recount the main findings briefly.

31% of the respondents indicated that they would choose to convert to the full CPF scheme while 69% chose to remain on the pensions scheme. 44% felt the option was opportune; 56% felt otherwise. The majority of those who chose the full CPF scheme gave, as their main reason, flexibility in their career choice. The majority of those who chose the pensions scheme cited greater longer-term benefits under the pensions scheme. As expected, the younger an officer, the more likely he would opt for the full CPF scheme. In fact, 51% of those less than 35 years old chose the full CPF scheme, whilst only 26% of those who are between 35 and 45 years old chose to remain on the full CPF scheme. Although, on balance, it does appear that it might be that the majority prefer to remain on the pensions scheme, I think the important point to remember is: this is an option. A serving officer has every right to remain on the existing pensions scheme. As to the issue of whether new officers should or should not be on the pensions scheme, I think this is a decision which Government is entitled to make on the terms and conditions of service for new officers entering the service.

Mr Jeyaretnam: Do I then understand from the Minister that there was no consultation whatsoever with the officers about bringing in a rule that from 1st April 1986 there would be no more pensionable service with the Government?

Dr Richard Hu Tsu Tau: Mr Deputy Speaker, Sir, the issue of a specific consultation is considered unnecessary since the change, in fact, had been introduced some years ago for the Division III and IV officers. And as I indicated earlier, the conditions under which Government elects to determine terms of service for new officers is an option which the Government has the right to decide.

Mr Jeyaretnam: But as a good employer, you should hear their views.

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. - [Dr Richard Hu Tsu Tau].

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