CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL

Order for Second Reading read.

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

The Bill seeks to provide the legal framework for the CPF Education Scheme. It will allow CPF members to invest part of their CPF savings in tertiary education in Singapore for themselves and their children.

When I announced the Scheme in March this year, I informed hon. Members that the Bill might have to be back-dated to enable parents to make use of the scheme this year. Hence clause 1 of the Bill sets the commencement date at 1st June 1989 which is before the start of the academic terms of our tertiary institutes this year.

Clause 2 enables withdrawals under the Scheme to be made from CPF members' ordinary accounts.

Clause 3 contains the main provisions. It will enable a member to withdraw part of his CPF savings to pay the tuition fees at an approved tertiary institution in Singapore. The beneficiary could be the member himself, his child or such other dependent relatives as the Board may approve.

The approved institutions are the National University of Singapore, Nanyang Technological Institute, Singapore Polytechnic and Ngee Ann Polytechnic. The Scheme will not cover overseas tertiary institutions for reasons I have previously stated. Overseas tertiary education is extremely expensive. A 3 or 4-year course will easily cost more than S$100,000. This is far more than the CPF balances of most Singaporeans. Parents who can contemplate sending their children on such courses are likely to have substantial income. If we allow those who do not have such resources to use CPF for overseas tertiary education, we will be placing many of them under great pressure to send their children when they really cannot afford to do so.

Furthermore, overseas institutions and courses vary enormously in type and quality. The Government is in no position to assess, much less pass judgment on, the quality of foreign tertiary institutions, whether individually or by categories. To approve some institutions while excluding others will lead to contention. Yet to allow Singaporeans to use their CPF for all of them, regardless of the character of the institutions, will be irresponsible. The Government has therefore chosen a cautious approach in implementing the CPF Education Scheme, and excluded overseas institutions altogether.

As with the Approved Investments Scheme, a CPF member must have at least the minimum sum of $30,900 in his Ordinary Account (inclusive of amounts withdrawn for housing), before he can participate in the CPF Education Scheme. This is to ensure that the member will have at least the minimum sum to survive on at subsistence level if the loan is not fully repaid for whatever reason.

The amount that members can withdraw will be limited to 40% of their CPF balances in excess of the minimum sum (same as for the Approved Investments Scheme) or the full tuition fees for the approved courses, whichever is the lower. The approved courses are full-time degree or diploma courses at our tertiary institutes.

The CPF Education Scheme is basically a loan scheme. This is to comply with the basic objective of the CPF Scheme which is to safeguard members' CPF savings for their own old-age needs. It will ensure that the member's CPF will be reinstated to the position that it would have been had he not withdrawn his savings for education.

Various provisions are contained in clause 3 for this purpose. The borrower will have to give an undertaking to the CPF Board to repay in full the amount withdrawn plus interest to the lender's CPF account. A guarantor is required as in the case of the NUS and NTI loan schemes. If the loan is defaulted, the CPF Board may have to take legal action to ensure repayment.

Other details of the Scheme will be set out in Regulations, such as the withdrawal limits and the repayment terms.

The education loan will carry interest pegged at the CPF rate. Interest will be calculated from the date funds are withdrawn. There will be a charge by the CPF Board to cover the cost of administering the scheme.

The borrower will be allowed up to 10 years to repay the loan plus interest. He will be required to start repaying within one year after graduation or leaving the course for whatever reason. Repayment will be in cash. Otherwise it could lead to his CPF savings being siphoned to his parent's CPF account and thereafter withdrawn prematurely.

Repayment will continue even if the lender has reached the age of 55 years. This is to prevent the scheme from degenerating into an early withdrawal scheme. Under existing CPF rules, money repaid into the member's account after age 55 will be withdrawable when the lender reaches the age of 58 years and every third year thereafter.

The CPF Education Scheme is available to about 500,000 CPF members who are eligible to participate in it. It is especially helpful to low-income Singaporeans who have difficulty supporting their children through our local tertiary institutes.

Sir, I beg to move.

Question proposed. 3.00 pm

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, Sir, I rise to support this Bill.

This issue of allowing CPF to be used for education has been discussed over many Parliament sittings. It has been a long drawn affair. Today, I am indeed glad that the Minister has agreed to the proposals laid out by my GPC and he has actually accepted many of the points raised in our Report. But to be fair, we must give credit to many Members of this House, especially some Members who have already left this Chamber, like Eric Cheong, Mansor Sukaimi, Chai Chong Yii and Tang See Chim. They pioneered this and I think they should be given some credit. I therefore propose not to speak on the pros and cons of the CPF issue again. I just want to zero in on this Bill.

I would like to ask the Minister whether he would like to consider deleting two words. Can I refer him to page 3 of the Bill, new section 21A, subsection (6), on the definition of "approved tertiary institution"? I would like him to delete the words "in Singapore", so that "approved tertiary institution" would now be redefined to read, "means any tertiary institution approved by the Minister for the purpose of this section;".

I seek this amendment to make the Bill neater. I foresee the possibility of extending the use of CPF for overseas education in the years to come. I think it is being realistic. There are about 11,000 Singaporeans studying abroad and I think there will be pressure on the Ministry. And this little deletion of two words would save him a lot of trouble in future. There is flexibility of purpose. Then there is ease of operating future requests and, of course, there is this administrative readiness for him if he could just delete these two words. He need not come back to Parliament to seek approval.

Mr Speaker, Sir, we have established the purpose to allow the use of CPF for education. We have already agreed that CPF can be used for education and we are going to pass this CPF (Amendment No. 2) Bill after this Reading. I see a greater need for overseas students. I see an ever greater need for them because of the high cost. Singaporeans want to go abroad for quality tertiary education. They would add to our talent pool with their cross cultural exposure and experience. It also provides them with a wider perspective of life. However, I understand that there is a fear of the depletion of the member's CPF account because of the large sums involved for overseas education. I therefore would like to suggest to the Minister that the Ministry put a limit on the amount to be spent for overseas education to an equivalent sum for a similar course at our local tertiary institution.

Let me give you an example, Mr Speaker, Sir. An account holder can only withdraw up to a maximum of $7,200 which is the fee for a medical course locally. Even if his overseas medical course in the United States is $31,000, you place that limit. I think this limitation is fair because it does not discriminate against students studying overseas.

To ensure that students leave Singapore for quality tertiary education, the Minister could also, as pointed out in our GPC Report, draw up a list of approved courses. This means that members who wish to draw their CPF savings for overseas education must choose courses that are relevant to the needs of the country. This ensures that the students upon their return are more likely to have employable skills and could therefore contribute positively to society.

I support the other provisions in this Bill. There is the signing of an undertaking to return the amount withdrawn. I think this is in line with what my GPC proposed. However, in subsection (3)(b) of new section 21A, I am drawn to conclude that the Board is going to allow exemptions on the requirement of a guarantor. May I be allowed to read that subsection? Please refer to page 2. It says:

''(3) Where a member wishes to make any withdrawals for himself, his child or relative for the purpose of subsection (1), that member, child or relative shall -

(a) give an undertaking to the Board; and' this is the important point

'(b) if required by the Board, furnish a guarantee by any person acceptable to the Board, for the repayment to the Board to the account of that member in the Fund from whose account such withdrawals were made, all such withdrawals plus interest in such manner and within such time as may be prescribed.'' Under what circumstances will the Board allow this? Who will be exempted? Whoever is required to furnish a guarantor will be subjected to further pressure or extra financial burden compared to those who need not. However, I see a case may be made out for those who are studying overseas because of the risk of defaulting payment is much higher than those who are studying locally.

Apart from the points I have raised, I would like to thank the Minister again for making this decision. I hope he will take into account those two words I mentioned. And after about a year or two of his experience in implementing the CPF scheme for local tertiary education, I hope he will then consider allowing the use of CPF for overseas education.

Mr Teo Chong Tee (Changi): Mr Speaker, Sir, I support the Bill.

However, I have one request for the Minister's consideration. In the case of a retiree who has withdrawn his CPF contributions from his ordinary account and has exhausted the money, he would have difficulty financing the expenses of his children's tertiary education in an approved institution. However, if the retiree has other children who are gainfully employed and who have CPF contributions and are prepared to finance the expenses of their siblings' tertiary education, would the Minister consider approval for such requests?

Dr Wong Kwei Cheong (Cairnhill): Mr Speaker, Sir, I speak in support of the Bill.

The original objective of the CPF scheme when it was first introduced was to ensure that Singaporeans have sufficient funds to see them through their old age after retirement. Through the years, the uses of CPF savings have been expanded to include the purchase of HDB flats and private properties, medical treatment, purchase of shares for investment and now for higher education under the CPF education scheme. The cost of tertiary education in Singapore is still affordable to most Singaporeans, except fom some lower-income groups. Therefore, the introduction of the CPF education scheme will greatly benefit the lower-income groups.

The Minister for Labour has pointed out in his speech that about 500,000 CPF members will be eligible to participate in the CPF education scheme. Currently, this represents more than 52% of the active CPF members. The Minister for Labour has emphasized that the CPF education scheme will not cover expenses for overseas tertiary institutions as a 3- or 4-year course will easily cost more than $100,000. Unlike the Member for Ayer Rajah, I support this policy, as this is essentially a loan scheme and repayment of interest plus administrative fees will have to be made over a 10-year period once the course of study is completed. If overseas tertiary education is included in the CPF education scheme, then the debt of the recipient will be an enormous one. I am sure most parents would not want their children to be responsible for an enormous 10-year debt the moment they start their first job. Moreover, an examination of the balances of CPF account holders reveals that as at December 1988, less than 4% of active CPF account holders are really in a position to spend $100,000 from their CPF to pay for overseas tertiary education. The income bracket of this upper 4% is perhaps high enough to enable them to afford overseas tertiary education without drawing upon their CPF savings.

In conclusion, Mr Speaker, Sir, the CPF education scheme will benefit the lower income Singaporeans. It is also a step in the right direction. And it would be difficult for any Singaporean in future to say that he was deprived of an opportunity for tertiary education in Singapore because his parents could not afford it.

Mr Lee Yock Suan: Mr Speaker, Sir, I would like to thank all the Members who have spoken for their whole-hearted support of the Bill, although there were a few reservations here and there, as expected, from Dr Tan Cheng Bock.

He has very temptingly suggested that I delete the two words "in Singapore" from the definition of "approved tertiary institutions". This will obviously save me a lot of trouble and work eventually if the Government decides to allow the use of CPF for overseas education. We did debate this at length in my Ministry. Eventually, we decided that it is better to limit it to "in Singapore". Because to do otherwise would be to send the wrong signal. The Government

as decided that it will only allow the use of CPF for approved local institutions, at least for the time being. If after a lot of debate and consideration and if Government were to agree to allow the use of CPF for overseas education, that will be a major decision. And I think it is proper that the decision should then come back to the House and be thoroughly debated. So despite the tempting offer, I must decline to accept the deletion of those two words.

I have already given the reasons why the Government is reluctant to open this up to allow for overseas education and Dr Wong Kwei Cheong has also given a few reasons. Perhaps I can supplement that by giving Members some other data.

As at 30th April 1989, that is about two months ago, the latest information, considering the amount that is available for withdrawal under the Approved Investments Scheme (that means the amount that members can take out from their accounts either for shares, gold or for the CPF Education Scheme) only 12,500 members have more than $40,000 available. These are perhaps the ones we could consider to have the financial muscle to send their children overseas. The number is really very small (12,500) compared to a total of about half a million who can qualify for the Scheme and who can probably afford only to send their children to local institutions, either NUS, NTI or the Polytechnics.

The number who have amounts exceeding $80,000 available under the Approved Investments Scheme is even smaller, 6,400 only. And the number exceeding $100,000 is only 3,500 members. This is not all. In fact, only a fraction of these members may be planning to send their children overseas. Others may have children in the local universities or polytechnics or who have children who are already grown up or who may not qualify for university education. So, in fact, we are talking of a fraction of this number that I have just mentioned. Most of these people who have high CPF balances have high incomes. They have probably used their CPF for properties and have other savings. So it is not really a problem for them.

I was persuaded to support this scheme to allow CPF for local education because I feel that now it is, in fact, more difficult for the lower income groups to support their children through university, to pay for transportation, food, fees and so on. If you look at the five-year medical cost at $7,200 per year, it is already $36,000. So the amount that can be made available under this Scheme, as it is, is substantial. I know of quite a lot of people who are very happy to have this Scheme and there have been appeals from families, from siblings, wanting to use their own CPF in cases where the parents are already dead. So long as the brothers and sisters are dependent on the elder brother who is the main breadwinner, I think we can allow under the scheme. Those will be straightforward cases. In fact, this is an extension of the original idea that was meant only for the members themselves and their children but now also extended to deserving cases of dependent siblings.

The Member for Changi has asked whether we can allow in the case where the parents are unemployed and have no CPF. I will ask the CPF Board to look into those cases. My own feeling is we should try and be as liberal as possible.

Dr Tan Cheng Bock asked under what circumstances we would not require a guarantor. One situation will be when the CPF member has other forms of collateral. For example, he may pledge something else, although it is rather unusual. At the moment all those who have borrowed from the Scheme have provided a guarantor. The requirements are very minimal. We only need a guarantor who is above 21 years of age, who is employed and drawing more than $500 per month salary, who is not an undischarged bankrupt and who is below 60 years of age. The intention is really to have somebody else to apply moral pressure on the child repay the lone. So we make the conditions very simple.

I think I have covered all the points. I thank the Members once again for their support.

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 Speaker in the Chair]

Clause 1

Mr Lee Yock Suan: Mr Speaker, Sir, I wish to seek your consent and the general assent of Members to move an amendment.

The Chairman: You have my consent. Does the Minister have the general assent of Members to move the amendment?

Hon. Members indicated assent.

Mr Lee Yock Suan: Mr Speaker, Sir, clause 1 of the Bill reads, and I quote:

''This Act may be cited as the Central Provident Fund (Amendment No. 2) Act 1989 and shall come into operation on the 1st June 1989.''

As the Bill is being considered after this commencement date, a minor drafting amendment has to be made to the clause to reflect this. Sir, I beg to move,

In page 1, line 4, after "shall", to insert "be deemed to have".

Amendment agreed to.

Clause 1, as amended, ordered to stand part of the Bill.

Clauses 2 and 3 ordered to stand part of the Bill.

Bill reported with an amendment; read a Third time and passed.