CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL

Order for Second Reading read.

The Minister for Labour (Mr Lee Yock Suan): Sir, I beg to move, "That the Bill be now read a Second time."

The purpose of this Bill is to provide the enabling legislation for the implementation from 1st January 1987 of the CPF Minimum Sum Scheme which was announced and debated in the House last August. The objective of the Scheme is to ensure that in future most CPF members will have at least a minimum sum to live on after age 60.

I shall highlight the key provisions of the Bill. Clause 4 of the Bill amends section 12 of the principal Act to introduce new subsections (6) to (13) which provide for the main features of the Scheme. The new subsection (12)(6) requires a CPF member who withdraws his savings at age 55 to deposit the minimum sum with an approved bank or in a retirement account with the Board or to purchase an approved annuity plan. From this, under the new subsection (12)(7), he will be able to withdraw a monthly income, starting from age 60.

The new subsection (12)(8) excludes three categories of CPF members from the Minimum Sum Scheme. All members who have attained the age of 55 before 1st January 1987 are excluded although they may opt to participate in the Scheme. So are members who have an adequate and assured source of income for the rest of their lives, such as Government pensioners. The third category are those who are suffering from a terminal illness or disease. Non-citizens who have left or are about to leave Singapore permanently are excluded under the existing section 12(2) of the Act.

CPF members who wish to pledge their properties or their spouse's properties in lieu of setting aside the minimum sum in cash may do so under the new subsections (12)(9) to (12)(11) as well as section 14 as amended by clauses 7 and 8 of the Bill.

There are three methods of doing this, depending on the type of property. For a property sold by the HDB or other housing authorities, the owner need only sign an undertaking to set aside the minimum sum should he later sell the property. For a private property purchased with CPF money, there is already an existing charge to secure the refund of the CPF money to a member's account if he sells the property before he reaches age 55. Clause 7 of the Bill will extend this charge beyond age 55 but only for the value of the minimum sum. The extended charge will be removed if a member opts instead to set aside the minimum sum in cash.

Either of these two methods will apply to the vast majority of CPF members who own properties. For them, therefore, there will be minimum inconvenience and no additional cost. However, there will be a few CPF members who may wish to nominate private properties not purchased with CPF money. In such cases, it is unavoidable that a fresh charge will have to be created on their properties, for the value of the minimum sum. However, the procedure will be kept as simple and as inexpensive as possible. The charge will be to protect the member's minimum sum for his benefit.

The new subsection (12)(12) protects a CPF member's minimum sum kept in an approved bank, the CPF Board or an approved annuity plan from seizure by the member's creditors for payment of any debts or claims. Where a member has pledged a private property in lieu of the minimum sum in cash, the charge on the property will provide the necessary protection from creditors. In the case of HDB flats, similar protection is provided under sections 43 and 44 of the Housing and Development Act.

The minimum sum to be set aside at age 55 is $30,000. This figure will be reviewed every three to five years to compensate for inflation and rising standard of living. Members with low balances need only set aside smaller amounts. From age 60, the member can withdraw $230 per month from his minimum sum account, except in the case of certain approved annuity plans which offer to pay more than $230 per month for a principal sum of $30,000. Upon the member's death, any remaining amount will be paid to his nominees or, if there are no nominees, to his estate. A married couple, who are both CPF members, will need to set aside $45,000 at most, and not $30,000 per spouse. They can withdraw $345 per month. These and other details as announced in August will be spelt out in Regulations. Clause 9 of the Bill introduces a new paragraph (i)(b) into section 45(1) of the Act to enable such Regulations to be made.

Sir, the other clause of the Bill which I would like to highlight is clause 5. It introduces two new sections 12C and 12D to enable children to contribute to their parents' Minimum Sum accounts either through transfers from their own CPF accounts or with cash. On the death of the parents, the unexpended portion of the contributions will be transferred back to the CPF accounts of the persons who made the contributions.

The details of the CPF "Topping-up Scheme" will be set out in Regulations. A CPF member must have at least $60,000 in his CPF account, including amounts withdrawn for housing and investments but excluding Medisave, before he can transfer any excess to his parent's account. The maximum amount of such topping-up is the difference between $30,000 and the parent's CPF balance at age 55, before withdrawal. For both parents, the maximum amount is the difference between $45,000 and their combined CPF balance at age 55. The topping-up can be done in one lump sum or once a year over a period of up to 10 years from the time the parent turns 55. The amount used for topping-up can only be withdrawn by the parent in monthly instalments from age 60. Such minimum sum accounts can also be opened for parents who are non-CPF members. For parents who have already passed 55, the amount will be reduced, depending on their ages and the topping-up must be done within the next 10 years, ie, by 31st December 1996. The Topping-up Scheme will be implemented from 1st April 1987.

Sir, I shall now ask the Clerk of Parliament to distribute a brief note (Cols. 1063 - 1066) which will help to clarify the details of the Topping-up Scheme. note - THE CPF MINIMUM SUM ACCOUNT TOPPING-UP SCHEME (Cols. 1063 - 1066)

[Copies of note distributed to hon. Members.]

Sir, I beg to move.

Question proposed. 11.10 am

Dr Wong Kwei Cheong (Cairnhill): Mr Deputy Speaker, Sir, I rise in support of the amendment Bill. The CPF minimum sum scheme was announced and debated in the House last August. Most of the queries raised by Members during the debate have been clearly explained by the Minister then and need no further elaboration. I hope the Minister can clarify three more points.

Firstly, sections 12C and 12D of the amendment Bill do not spell out clearly whether cash payments to top up the parent's minimum sum account are tax exempt. Can the Minister please explain?

Secondly, there is no provision in the amendment Bill for children to do a second topping up if the parents live longer than the 20 years estimated under the minimum sum scheme.

Thirdly, as mentioned by the Minister during the debate in August 1986, the minimum sum of $30,000 will pay out about $230 per month for 20 years based on the then prevailing bank deposit rate of about 4ª%. Sir, the current deposit rates are as low as 3%. Can the Minister assure the House that our senior citizens affected by the scheme will still receive the $230 for the next 20 years?

On that note, Sir, I support the amendment Bill.

Encik Abbas Abu Amin (Pasir Panjang): Mr Deputy Speaker, Sir, I would like to support the Bill.

This Bill when passed will enable any person who has sufficient CPF savings of his own to participate in the topping-up scheme to ensure financial independence of his parents after the age of 60. The participation in such a noble scheme would foster greater filial piety and a sense of responsibility for children to support their aged parents.

I would like two clarifications from the Hon. Minister on clause 5 of the Bill. (1) Since the transfers could be made either through CPF accounts or with cash, I would urge that these contributions be tax exempted. (2) Whether this topping-up scheme could be further extended to adopted children and siblings of the aged persons.

May I also suggest that the CPF Board take appropriate steps to inform or to explain to the CPF contributors that this is a voluntary scheme to enable contributors to help their aged parents and not a legislation to compel or force contributors to pay from their CPF accounts.

Sir, I would like to support the Bill.

Encik Ibrahim Othman (Tanah Merah): Mr Deputy Speaker, Sir, I join my colleagues in supporting this Bill. But I would like the Minister to answer a few questions.

Firstly, this Bill exempts certain people from the Scheme. Among them are persons suffering from terminal illness or disease. In this instance, may I ask who is to certify the illness or disease? Is it restricted only to doctors in the Government hospitals and clinics? Or are certificates from private medical practitioners also accepted? If the control system is lax, I am afraid CPF members might take advantage.

My second point is the charge on any property owned by a CPF member, his spouse or in their joint names. The question is, how long will the charge be on that property? Is it until he reaches, say, 70 years old or 75 years?

My third point is the joint account in the names of the member and his spouse. They will receive a certain amount of money every month after age 60. What happens to the account if one of the member dies? Will his account be split and the money divided among the next-of-kin of the deceased? Or will the living party be allowed to continue receiving the same amount every month until the depletion of the fund?

Finally, Sir, I wish to suggest that for those account holders who are reaching 55 years old, the CPF could have an advisory or counselling scheme to advise these members on the best way to a very good return, whether to put their money in an insurance scheme, or to leave it with the CPF, or in a bank.

Sir, I support the Bill.

Mrs Yu-Foo Yee Shoon (Yuhua): ( In Mandarin): Mr Deputy Speaker, Sir, I support the Bill introduced by the Minister for Labour. There is flexibility provided in the Bill. I will air my views on the new sections 12C and 12D in clause 5.

All along we have been encouraging the spirit of ethical virtues as an indisputable norm of moral conduct, of which filial piety is the natural and prime duty of our children to their parents. In consonance with this, we shall allow and encourage the children to transfer a certain sum of money from their CPF contributions towards their parents' minimum retirement accounts. I support the appeal by the other two MPs that Government also give them tax relief concessions, in other words, free from income tax for such sums.

The second point is that it is only when the parents have passed 55 years and reached 60 before any sum can be obtained from that minimum saving. As the long years pass by, anything can happen. I hope that as long as the children have the opportunity, ie, financially able to contribute that sum of money to top-up the minimum amount of the parents, such transfer should be encouraged and the sum exempted from tax. The reason is that any of the parents may die sooner than expected or some mishap may befall on the children in which event they may not have the opportunity to support their parents. Furthermore, with such flexibility in the Scheme, the parents will, with the financial help from their children, be enabled to buy HDB flats.

The third point is this. I hope the Minister will see to it that not only the parents can make use of their own private property as a mortgage or charge for the required minimum, but the children also should be allowed and encouraged tomake use of their property, in addition to cash contribution, as a mortgage or charge to contribute to the parents' minimum CPF retirement accounts.

Mr Yeo Choo Kok (Delta): Mr Deputy Speaker, Sir, I just want to seek one clarification from the Minister. Referring to page 1 of the handout, paragraph 2 begins with the sentence, "It is open to all parents above age 55."

Mr Deputy Speaker, Sir, we do have a lot of single persons in Singapore. What about CPF subscribers who are not married? When they reach 55, does this scheme apply to them when they are not married and have no children?

Mr Leong Horn Kee (Thomson): Mr Deputy Speaker, Sir, I would like to join the debate by first stating that I believe this Topping-up Scheme proposed by the Minister is indeed very innovative and deserves our support. I would like to seek a few points of clarification from the Minister.

First, may I ask the Minister when the parents have already passed the age of 60 when this scheme comes into effect on a date that the Minister would like to set, whether the amount that the children transfer from their CPF accounts into their parents' accounts could be immediately withdrawn by the parents? If this is so, I think this can be a way where children can at least have the immediate benefit of transferring monies from their own CPF accounts to the parents' accounts. However, would the Minister also take note that this can be taken as a back-door way for children to withdraw money from their CPF accounts before reaching their retirement age. Could the Minister con- sider working some kind of scheme whereby it will ensure that the monies actually goes into the parents' accounts?

Secondly, if the children put in cash to top-up their parents' CPF accounts, I support the Member for Yuhua's proposal that these monies contributed by the children should enjoy some form of tax relief.

The last point I would like to ask the Minister is this. When a husband and wife wish to put money into the CPF accounts of their parents, can they be considered as a joint account so that either the husband's money or the wife's money in the CPF can be transferred to the accounts of the parents of either the husband or the wife?

Mr Heng Chiang Meng (Jalan Kayu): Mr Deputy Speaker, Sir, I would also like to join the debate in saying that I support the amendments to the principal legislation. However, regarding the Topping-up Scheme, may I ask the Minister two points for clarification. One is whether this scheme could also be extended to grandparents. The second question is if one or both parents do not have any CPF account right now; upon the implementation of this scheme, can an account be opened for this purpose? In the handout here, the Minister says that the topping-up may also be by cash and the Ministry of Labour is discussing with the Ministry of Finance to provide tax relief for such cash contributions. This, of course, opens up another avenue for tax planning.

Mr Lee Yock Suan: Mr Deputy Speaker, Sir, I would first like to thank all the Members for their support of the Bill. I see that the Topping-up Scheme has aroused quite a bit of interest among Members. The Minimum Sum Scheme was well debated in August. So I propose to be very brief in my explanations and confine more to the questions raised by the Members. I shall take the questions in the order they were raised.

Firstly, the question from the Member for Cairnhill. He and also several other Members touched on this point of tax exemption for cash contributions. My Ministry is discussing this with the Ministry of Finance. We strongly support this idea that the cash contributions should be exempt from tax. In other words, the con- tributions should be deductible from the CPF Members' taxable income. There will have to be certain forms of control, of course, to be placed by the Ministry of Finance. I am sure with the strong support from Members, I should be able to persuade the Minister, perhaps during the coming Budget Statement, to tell us his thinking on this point. It is a good move to promote filial piety.

The second point raised by the Member for Cairnhill concerns a second topping-up. We have only come to the first topping-up and we are already thinking of a second topping-up. Let me first clarify that the scheme is not meant to be a total solution. With or without this scheme, with or without tax exemption and Government encouragement, it is the duty of all children to look after their parents. So I hope this point will be borne in mind. The scheme itself is not meant to be everything. It is only meant to be a form of encouragement, although a very substantial one. In the case of those who have the ability to contribute the full amount to their parents' account so that the parents have $30,000 to put aside at age 55, and if the parents were to buy an annuity plan with this sum for life, the money should be enough to last them for as long as they live. There are various attractive schemes offered by the approved insurance companies which pay as much as $300 per month for a long period, for as long as the members live. The CPF Board will be publishing a short pamphlet explaining the different schemes that are available to the public. I hope this pamphlet will enable the members when they reach 55 to make a good investment decision on where they want to place their money, either with the CPF Board or with banks, or with insurance companies.

The Member for Cairnhill also asked whether, with the current low interest rates, the sum will be enough to last a member for 20 years. In other words, if he puts aside $30,000 at age 55 and it earns interest, would it last 20 years? The answer is yes, provided the average interest rate is at least 4ª% per annum. The calculations have been based on 4ª%. The money is put aside at age 55. It earns interest for as long as it is deposited. The capital and interest will be enough to pay out to the member $230 per month for 20 years. Judging from past experience, I think the interest rates are likely to go up again in future. So I am fairly confident that the average interest rate should be at least 4ª%.

If Members are doubtful about this point and they have $30,000 to set aside, the best way, as I have said before, is to put the money into an annuity plan so that they can be sure that they will have this sum to drawdown upon for as long as they live. In fact, the schemes proposed by some insurance companies are so attractive that I think even those members who need not set aside the sum under the scheme should seriously consider whether they should plan on putting aside some money on their own because the insurance companies are able to provide this risk-sharing aspect and the member can be sure that he will have a sum to draw on monthly for as long as he lives. The returns are fairly good, I think, judging from the schemes put up by the insurance companies.

Coming now to the points from the Member for Pasir Panjang. I have already touched on the point about tax exemption. Concerning adopted children, the answer is yes; if the children are legally adopted; they will be allowed to enjoy the benefits of the scheme. In other words, they can either contribute cash, which hopefully will be tax-exempt in the future, to their parents' CPF accounts, or they can transfer from their own CPF to their parents' accounts, provided of course the member himself has at least $60,000 in his own account. We must have this cut-off because we need to protect the member himself to make sure he has enough for his own needs before he is allowed to transfer CPF to his parents' account. That is the reason for the $60,000 floor which is placed on the contributor's CPF account.

Can siblings also transfer CPF to their siblings' accounts? The scheme as conceived is meant to promote filial piety, in other words, children to look after their parents. The Bill, as currently drafted, does not provide for siblings to contribute to their siblings' accounts or, for that matter, other relatives to contribute to, say, an aged person. My own assessment is that there are probably very few siblings or other relatives who are willing to contribute cash or CPF to another sibling or relative's account. So this is going to be a rather uncommon situation. Anyway, for the time being I would prefer to just try out the scheme as it stands and not widen the scope any further. We must realize that the CPF scheme is basically for the member's own benefit. It is going to be designed so that it is only enough for his own needs. We have already made a concession here for those who can afford it. But we should not widen this transfer too widely, otherwise it will defeat the purpose of the CPF scheme.

The other point made by the Member for Pasir Panjang is that the scheme should be a voluntary one. Indeed my note says so, that this is purely voluntary. There is no compulsion on the part of anybody to contribute to his parent's account.

Coming now to the questions from the Member for Tanah Merah. He asked whether a person suffering from terminal illness and who is exempted from the Minimum Sum Scheme will be examined by a private doctor or a Government doctor. The answer is that he will have to be certified to be suffering from a terminal illness or disease by a doctor appointed by the CPF Board. We must make sure there is no abuse in this case. I think it is only fair and just and humane that we allow people who are about to die within a year or two to enjoy the full benefits of their savings instead of trying to lock up the amount for their kin. That is why I have specifically exempted this group of people from having to put money aside under the Minimum Sum Scheme. However, there are other categories of people, for example, who may suffer from physical inability, be physically incapacitated or mentally incapacitated after they have passed the age of 55. In those cases, they may still live for quite a long time. The scheme will still apply to them.

The Member's other question concerned the charge on properties. This applies only in the case of private properties because for HDB flats we have simplified the procedure so much that there is no charge really. It is only an undertaking by the member that if he sells the HDB flat, the minimum sum must be put aside. Under the Housing and Development Act, in fact, the property cannot be mortgaged to anybody. A charge cannot be imposed without the consent of the HDB. In the case of HDB properties, sales must be done through HDB. We can depend on HDB to administer and collect this minimum sum for us and so we are able to keep the procedure very simple. In the case of properties bought with CPF, as I have explained, there is already a charge on the property to secure the return of his CPF money to his account if he should decide to sell the property before age 55. We have simply extended the charge to cover the property in respect of the minimum sum beyond age 55.

Similarly, for other properties not purchased with CPF money, we will have to apply a new charge through the simplest possible procedure and at minimum cost. This charge must last for as long as the person lives because the idea is to protect that minimum sum for his own benefit so that it cannot be seized by creditors. The charge will be in place for as long as the person lives.

In the case of private properties not purchased with CPF money which a member chooses to pledge in lieu of the minimum sum in cash, the CPF Board will keep the procedure very simple. There will be no need to appoint private lawyers to go through the process. The CPF Board will go through the search, certification and registration process on its own so there will be minimum expense involved. I think it is in the region of maybe $50. There was a complaint in the press recently on this point and I think the CPF Board has already clarified it.

The Member for Tanah Merah came up with a good suggestion that we should provide advisory or counselling services to members when they reach 55. As I have explained, we will be producing a pamphlet to illustrate all the different schemes which are available now for them to choose as to where they want to put their money. These are offered by nine insurance companies and 23 banks, as alternatives. They can, of course, leave their money with the CPF Board which will be the safest form of investment. They have to make up their minds as to how they want to invest their minimum sum. If they put the money somewhere else, there could be a slightly higher risk which they should be aware of but the returns are likely to be better. The alternatives are there. Members should make up their own minds on this matter and there will be a pamphlet and guidance from the CPF Board to explain the different alternatives.

Coming now to the questions from the Member for Yuhua. She also supported tax exemption and I thank her for her support. Her second question is: why do we have to wait until the parent is 55 before we allow the children to top up his or her account? The main reason is an administrative one because we have to wait until the parent is 55 to know how much he or she has in the CPF account. We would only allow the topping-up to be the difference between his own balance and $30,000. So long as this topping-up amount is kept with the CPF Board, whether in the children's account or the parent's account, it does not really make much difference in terms of earnings. The parent can only withdraw from the sum from age 60 in any case. If, therefore, we try and allow the transfer at an age when the parent is younger than 55 years, we have to look at the procedures. It may mean that we have to project the member's CPF balance until age 55 and also make some adjustment at age 55. It could be rather complicated. However, I will ask my officers to examine the suggestion and see whether there is any merit in it, especially in the case of, say, a daughter who is about to get married and she needs to help the parent to keep the flat. This, of course, involves the HDB also. If HDB is prepared to relax its rules and allow the daughter to keep her CPF for payment of the existing flat jointly owned with her parents and live with her spouse in the a flat, then there is really no problem. But if for some reason the HDB thinks it is not wise to allow it and they want to promote a nuclear family, for example, maybe the topping-up could be one possibility, but we will need to study it further.

Her third question was whether children can pledge their properties to enable the parents to withdraw their entire CPF savings at age 55. The answer is yes, provided the property is in the joint name of the children and the parents. We must make sure there is a joint ownership so that there is protection for the parent; otherwise the scheme could lead to abuse. We cannot be sure that the child will look after the parent. If the child wants to nominate his property for the parent's sake, he must make it a joint property and the parent's name must be included in the property.

The Member for Delta asked about single persons. Unfortunately, a single person has no children. He could have children really but he missed out. Perhaps he should get married or he should find other means of support with his own savings. Under the present scheme as drafted, which is meant for children to support their parents, unfortunately there is no means to help these single persons. As I have said, I am reluctant at this point to widen the scheme further to cover other relatives.

The Member for Thomson raised a few points. He asked whether the amount used for topping-up is immediately withdrawable. The answer is, it can be withdrawn by the parent from age 60. For example, if you have a parent who is already 65 and you open a minimum sum account for him, the parent will be able to withdraw the money straightaway. But that account will be in the parent's name so as to make sure that the money is for his own use. Hopefully, this will provide some protection and minimize abuses. The parent will have to consent to the withdrawals and the money is meant for him.

In the case of a husband and wife, ie, whether they can be considered jointly, I am not very clear about this point. Does the Member for Thomson mean that we look at the joint account of both the husband and wife and so long as the amount is above $60,000 we allow them the transfer, or in what sense? We have in any case to study this a bit further. The thought has not crossed my mind yet. But as of now we are looking at each individual member. He must have at least $60,000 before he can make contributions to a parent, and the maximum he can contribute is $30,000 minus the parent's balance at age 55. If several children wish to contribute to one parent, the maximum in any case is only $30,000 minus his balance at age 55. In the case of both aged parents who are still alive, the ceiling is $45,000. This is in keeping with the Minimum Sum Scheme because parents living together can live on a smaller amount of $45,000 instead of $30,000 each.

The Member for Jalan Kayu raised two questions. One concerns grandparents. As I have explained, at the moment the scheme is only for children and parents. Whenever there is a new scheme announced, the tendency is to widen the scheme further and further. We must guard against that. For the time being, I would draw the line at children and parents, and let us keep the CPF scheme to its original purpose, which is mainly for the member's own needs.

He asked about the case where one or both parents are non-CPF members. In my statement and in my clarification, I have said that even if the parent is a non- CPF member the children can still open an account for him, the CPF Minimum Sum Scheme account, and proceed to top it up. That point is clear. It covers not only those who will be reaching 55 but those who are already above 55. The scope of the scheme has, in fact, been very much widened. We estimate that there are some 300,000 parents who are already above 55 years old. But we will have to look at their past CPF records. Our records fortunately are complete and so we know, say, some 10 years back when they withdrew the money, how much they had in their CPF balance. The difference can be topped up.

Sir, I think I have covered all the points.

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. - [Mr Lee Yock Suan].

Bill considered in Committee.

[Mr Deputy Speaker in the Chair]

Clause 1 -

The Chairman: The citation year will be changed to "1987" and an alteration will also be made in page 1, line 4, to leave out (No. 2) in the short title.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 9 inclusive ordered to stand part of the Bill.

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