CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL

Order for Second Reading read. 2.50 pm

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

The purposes of this Bill are two-fold. Firstly, to improve on the Home Protection Insurance Scheme (HPIS) and, secondly, to safeguard against its possible abuse by CPF members at the expense of other members.

Introduced in 1981, the HPIS insures CPF members who have taken loans to purchase HDB or HUDC flats. It protects such CPF members and their families from the risk of losing their homes in the event of the members' premature death or permanent incapacity.

The Scheme has benefited many CPF members. At the end of October 1987, a total of 373,000 members were insured for a total sum of about $7.5 billion. So far, about 2,000 members or their families have claimed a total sum of $26 million under the Scheme.

Although the HPIS has functioned smoothly, it can be further improved. Two proposed changes will enable the Board to:

(a) provide insurance cover to non-CPF members who are joint-owners of the HDB or HUDC flat and who are responsible for servicing the bulk of the housing loans; and

(b) provide insurance cover to the members as soon as practicable.

The Board has also detected weaknesses in the present Scheme which could lead to abuse if left unchecked. These weaknesses are:

(a) A few members who knew they were suffering from terminal illnesses could have arranged maximum loans for their flats and insured them under HPIS just before they passed away.

(b) There is no time limit for members to pay their premiums. As a result, some could delay their payment until they are seriously ill.

(c) There have been instances of members who claimed HPIS on the grounds that they were permanently incapacitated from ever working again. They subsequently recovered and returned to work.

The ordinary members will continue to enjoy full protection under HPIS in the event of premature death or permanent incapacity. However, no one should be allowed to abuse the Scheme at the expense of other members. I shall now highlight the main provisions of the Bill. Clause 3 of the Bill amends section 25 of the principal Act so that only those members who are responsible for servicing the housing loans (ie repaying the loan instalments) will be covered by the Scheme.

The amended section 25 will also allow the Scheme to cover any non-CPF member who is jointly servicing a housing loan with a CPF member. At present, the Scheme covers only CPF members even though it may be a non-member who is responsible for repaying the bulk of the housing loan. Without the new provision, the family will lose its home if the non-CPF member dies prematurely or is permanently incapacitated.

The new subsection 25B(4) will allow a member to use his CPF contributions to pay for the premiums of his spouse if the spouse is a joint-owner insured under the Scheme. This will facilitate the payment of premium for the spouse who is not a CPF member. The total sum insured will be the outstanding amount of the loan.

At present, members joining the Scheme are not required to undergo a medical examination. Neither are they required to declare their state of health. Consequently, it provides a loophole for some members to take advantage of the Scheme. The new section 25A will prevent such abuses. With the amendment the CPF Board will be able to require all new members who join the Scheme in future to sign a health declaration and, if the Board considers it necessary, to undergo a medical examination. Members who are certified to be terminally ill or permanently incapacitated will not be admitted to the Scheme. Members who sign a false declaration will have their claims invalidated. This health requirement will not apply to existing members who are already insured under the Scheme.

The new section 29(2) empowers the CPF Board to pay initially only the monthly loan instalments for a period not exceeding two years where a member makes a claim on the grounds of permanent incapacity, for example, from a traffic accident. The Board will settle the outstanding housing loan completely after the two years if a doctor certifies the incapacity to be truly permanent. In the early stages it may be difficult for a doctor to be completely sure that the incapacity is permanent in the sense that the person will never be able to work again.

At present, the Act specifies that premiums are payable only one month after a member has signed the loan agreement or made a withdrawal to service his housing loan. As insurance cover under the Scheme only takes effect upon payment of the premium, there is a one-month gap before coverage begins. As a result, some deserving cases have missed the insurance cover.

The amendment enables members joining the Scheme to be covered on the date of commencement of the housing loan or possession of the property, whichever is earlier. In the case of home purchasers who did not use CPF to service their loans in the earlier stages, insurance coverage will begin when they start to draw on their CPF.

Sir, I beg to move.

Question proposed.

Dr Augustine Tan: Mr Deputy Speaker, Sir, I rise to protest for the second instance in the same day - that the Government has overlooked something very important. The first was admitted by the Minister for Finance in regard to the Totalisator Board when it took a long time for the Government to realize that there is this huge sum of money available and in private hands.

The second oversight is in respect of clause 4 of this Bill to provide for the new section 25A, regarding the requirement now for new members of the housing protection scheme to undergo a medical examination. I am very surprised because I would have thought that any insurance programme would have required this in the first place of anyone wanting to join the programme. Could it not be that the CPF had determined from the statistics that if it covered everybody in the process it could afford to carry cases where people were already terminally ill? Why now the change of mind? And what about those who are already admitted to the Scheme? How many of them are on the point of dying and would cost the Board some money as a consequence of this oversight?

Encik Abbas Abu Amin (Pasir Panjang): Mr Deputy Speaker, Sir, I would like to support the Central Provident Fund (Amendment No. 2) Bill. The Amendment Bill deserves our support as it contains improvements to the original Act. For example, in the Amendment Bill, clause 4 (section 25B(4)), the spouse of the joint-owner is allowed to use his or her contributions in the Fund to pay for the whole or part of the premium which the joint-owner is likely to pay under the new Scheme. This means that both spouses can be covered under the Home Protection Insurance Scheme (HPIS) even though one of the spouses is not a CPF member. Another improvement in the Amendment Bill can be found in clause 5 (section 27(1)) which makes the HPIS effective on the execution date and not to be delayed for one month as in the original Act. This means that HPIS members will benefit from an early start of the insurance.

The Bill can be further improved. For example, the new section 25(5)(a) of the Amendment Bill states that the HPIS does not apply to a member if he is 55 years of age or above. Since the Government is now trying to encourage our workers to continue working after 55 years of age, will the Minister consider extending the age limit for the HPIS to, say, 60 years old? Section 25A of the amended CPF Act actually bars a person who is not in good health from joining the Scheme. Perhaps the Minister could explain to this House in greater detail the kind of illnesses that would prevent a person from joining the Scheme.

Finally, Sir, may I get clarification from the Minister: when will the Scheme be implemented, and whether the CPF Board will give sufficient information to its members before the implementation of the Scheme.

Mr Chng Hee Kok: Mr Deputy Speaker, Sir, I rise in support of this Bill.

In the debate in Committee of Supply for the Ministry of Labour on the 24th March this year, I raised the issue of potential abuse of HPIS. I think this Bill goes towards addressing this problem. I am also very pleased that it goes further than that. Instead of just tightening up the HPIS, it has also introduced a number of features which, I think, will go towards enhancing this Bill.

I have a number of comments on the Bill. In the new section 25(6), the Bill states that members covered by the present Scheme before the passage of this Bill will continue to be subject to the present terms and conditions. However, the new Bill has some improved features. I refer especially to the one which allows non-CPF members to join the Scheme. In view of this, I think the Minister should consider a modification to allow existing members to take advantage of these new rules and be covered by the new Scheme.

The new section 25A is an amendment to ensure that no one can join the Scheme unless the Board is satisfied that the person is in good health. This is across the board group protection against the kind of abuse which the Minister is concerned about. However, as good health is relative, the Board should specify in greater detail the degree of ill health a person must be suffering from before rejecting him from the Scheme. I think a rating system should be introduced so that those who are suffering from lesser forms of ill health can be covered by the Scheme by paying a higher premium.

Section 25B(4) states that the CPF of either spouse may be used for payment of premiums. As we are encouraging three-tier families to live under one roof, it will be a further improvement to the Scheme. I think it can be extended to cover not just spouses but parents and siblings.

Section 29(2) which specifies that the Board will pay up to two years the loan instalment in the case of permanent incapacity and the loan will only be discharged if this incapacity goes beyond two years. I am requesting the Minister to consider lowering the two-year period. I am sure the Minister is aware that, after a lengthy chronic illness, a person is unlikely to be as effective as before, and he may also be boarded out of his company. In the event he gets alternative employment, he is likely to get a lower salary. So a two-year period seems a rather long time. I wonder if the Minister would consider lowering the two-year period to one year.

Clause 8(b) amends the Scheme which presently covers "house or flat" to any "immovable property". I do not understand the rationale. But I can only surmise that the Scheme may be extended to cover commercial or industrial property sold by the Housing and Development Board or the Jurong Town Corporation. I hope this is not the case. Commercial and industry property is used for business. They are separate entities and they do have regular rentals or other forms of revenue.

The final comment I have is not on the Bill itself but it is nevertheless on the Home Protection Insurance Scheme. I wonder if the CPF Board has taken steps to have a portion of the Home Protection fund reinsured outside Singapore. In the event of a catastrophe, the CPF Board will be saddled with a huge liability, and of course this huge liability will be translated into higher premiums in future.

Dr Dixie Tan (Ulu Pandan): Mr Deputy Speaker, Sir, may I make a comment on section 29(2) where the Board pays out monthly or other periodic loan instal- ments. There is no mention of the starting point where these payments will be taken up. I bring this point up because certification of incapacity often takes quite a while to be obtained, either because the attending doctor is not sure of the final degree of incapacity or because of just the slowness of the bureaucracy. A period of time may have elapsed, up to two or even three years, before there is actual certification. During this period the family of the member who is incapacitated would have to pay out the instalments. Is there any provision at present or in the future where a refund can be made where a case has been established that the member was actually incapacitated from a date previous to the certification of that incapacity?

Mr Lee Yock Suan: Mr Deputy Speaker, Sir, I thank Members for their comments. I get the general impression that they support the Bill although there were some critical remarks made. I will answer the points in the order they were raised.

Firstly, the point made by the Member for Whampoa: did the CPF Board overlook something when they first introduced the Scheme? Why do they require medical examination at such a late stage? No, the Board did not overlook such a requirement. The reason was a practical one. When the Scheme first started, we had a flood of members. I mentioned the figure of 300,000 home owners. So for practical reasons, it was not possible to require all of them to go for medical examination. Secondly, the Scheme is meant to be a social scheme to insure as many people as possible. The intention is not to cut out all, except those who are in perfect health. It is, in fact, the reverse: to try to insure everybody, except those who try to abuse the Scheme on the basis that they already knew they were suffering, say, from liver cancer or kidney failure. And because the Act has been worded in this way, a member could abuse it by, for example, selling his old flat and buying a new one, getting immediate allocation of, say a flat in Yishun, which is worth much more than he can afford really and then taking up a big insurance under the HPIS, and within two or three months he passes away and the Scheme has to pay out. In actual fact, there have been some cases like this, fortunately not too many. But it is time we stopped these abuses.

The HPIS Scheme was, in fact, initially designed with the knowledge that this sort of cases could arise. In other words, they based it on a conservative basis that within the population of persons insured, there could be some who were already seriously ill. But having operated the Scheme for six years now, it is time to improve it and stop these abuses.

It is through such prudent measures that the Board has been able, when it makes a good surplus of the Scheme, to give a refund. In 1986, I think there was a refund of $38.5 million to the CPF accounts of members who were insured under the Scheme. If, in future, again there are big surpluses, maybe we can expect future rebates. But this is only possible provided the Scheme is confined to its purpose and there are not any further abuses of the Scheme. I think that answers the point from the Member for Whampoa.

Coming now to the points made by the Member for Pasir Panjang. He asked whether it is possible to extend the Scheme to cover members beyond the age of 55. This point has been considered. But the thinking of my Ministry is that there is no need at the moment. The vast majority of CPF members would have paid up their housing loans long before they reach 55 years. They are aware that as of now most of them in the private sector have to retire at 55 and that they can withdraw their full CPF at 55. So there are few CPF members who have housing loans extending beyond age 55. In any case, the sums outstanding are generally quite small and these people would have children who can help them in case they die and the housing loan has to be serviced. But we may review this situation in future. Of course, if we extend the Scheme to older members, then the premium would have to be much higher because the risk of death is much higher.

The second point was about ill health, what kind of illnesses. I think I have explained this. We are going to get the members to sign a declaration when they join the Scheme that they are not suffer- ing, say, from liver cancer or kidney failure, or of illnesses where they have been advised by their doctors they may die within a year or so. But all other cases would be covered. Of course, the other group will be those who have met with traffic accidents and are perhaps bedridden, completely paralyzed, and can never work again. So in those situations they are not allowed to join the Scheme. Otherwise it would be like giving charity. I mean, they join the Scheme knowing that they will get the money. I think the point must be made that this HPIS is not a charity. This is money contributed by all the CPF members under the scheme and put into a common pool so that in the event of death or permanent incapacity their families are protected.

The third question raised by the Member for Pasir Panjang is the implementation date. The intention is to implement these amendments as soon as possible. I expect it to be in the first quarter of next year, on or before the 1st March.

The Member for Radin Mas raised several points. First, concerning the existing members. There are cases where the wife is the one who has some CPF money and the Act at the moment covers only the wife, because the husband is not a CPF member. He may be a taxi-driver, for example, and is therefore not covered under the Scheme. So the intention of this amendment is to cover these people who are not members of CPF. If there are cases like this, they will be covered by the Act, even though there is already an insurance policy. The policy will be varied to cover those deserving cases.

The point about ill health has been covered. The other point is that I think there is no need for us to adopt a complicated rating system to assess the degree of illness, premiums, and so on. The Scheme is to cover everybody, except those who are terminally ill or permanently incapacitated.

Another question is, now that we allow the CPF of a spouse to be used for another spouse who is a non-CPF member, can we extend this concession also to parents and siblings? This question is something that can be expected. Each time we liberalize the CPF scheme somebody will come and say, "Why not more of this and more of that?" I think the basic concept is that we are trying to protect the family of the home purchaser, the dependants in other words. It is meant for the family nucleus - the husband and wife - so that in case the husband passes away and he is the breadwinner, the family is not left in a lurch. But where it is a joint ownership between an aged parent and a child, I think it is quite a different situation. So there is no intention for us to widen the scope here. But if both parent and child are CPF members, they can both be covered under the Scheme. All joint owners can be covered. It is only the extent to which the CPF can be used, whether the CPF of one member can be used for another. In that situation we limit only to husband and wife as in the present Bill.

The fourth point is about permanent incapacity. Can the two years be reduced to one year? The point is this. When they claim permanent incapacity, often after a serious accident, the doctor will assess and will certify in the case of permanent incapacity, but later on we discover that, in fact, it is not so. The Scheme, as it is now, is basically a life insurance scheme meant only for two kinds of risk - death or permanent incapacity. It is not meant for variations in between where the illness may be less than permanent. So the intention is to limit it to those two kinds of risk. It is feasible to extend it to other forms but it will make the Scheme much more complicated and it will increase the premium as well. As a social insurance scheme, we are only covering two kinds of risk, death or permanent incapacity.

In this light, there is no advantage in amending the two-year period to one year. Because in some cases you need as long as two years to be really sure. I take the point of the Member for Ulu Pandan that we should try and settle it as soon as possible. I have to look into that particular aspect. Upon a claim, as soon as the CPF Board is satisfied that there is a good case, I think the Board should pay the instalments for up to a period of two years. If at the end of two years the incapacity is truly permanent, then the Board will settle the balance of the loan. This is the situation. This is how we are going to operate.

There is no need really for us to lower the period from two years to one year. In fact, if the Board is satisfied at the outset that the incapacity is permanent - the person has damaged his spine so that he can never walk again, or he is blinded in both eyes, for example - then the intention is not to hold back the settlement but to settle as soon as possible. But in cases of doubt, we will just pay for two years and at the end of two years reassess the case.

The Member has gone through the Bill very carefully. He noticed that we changed from "house or flat" to "immovable property". This is purely a drafting change. The wording has to be standardized and made similar with other parts of the Act. There is no intention to widen the Scheme to cover non-residential property because the Scheme is labelled Home Protection Insurance Scheme. So it is only meant for homes.

Dr Tan Cheng Bock (Ayer Rajah): What about private properties?

Mr Lee Yock Suan: As for private homes, I have answered this before. They tend to be too lumpy, $1 million, $(r) million and so on. It would be difficult for the CPF to cover it under HPIS because the claims could be very big in certain cases. I think those home owners are generally well off and they should buy their own private insurance.

As to whether the Scheme is reinsured against catastrophe, the answer is yes. There is a reinsurance scheme for up to $10 million. On average, this will cover about 500 lives because the average per claim is about $20,000. In the event of a catastrophe, say, many people are injured, so long as the number of claims exceeds 10, then the reinsurance scheme is activated. So the CPF Board and the HPIS fund are protected against catastrophe.

Sir, I think I have covered all the points,including that of the Member for Ayer Rajah.

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