RAISING OF CPF MINIMUM SUM

[Mr Speaker in the Chair]

Dr Lee Boon Yang: Mr Speaker, Sir, on 18th January this year, during the Debate on the President's Address, the Prime Minister proposed raising the Minimum Sum amount in the CPF Minimum Sum Scheme as a way of coping with an ageing population. Before I explain how Government intends to revise the Minimum Sum Scheme, allow me a few moments to reiterate some of the points made by the Prime Minister.

While other countries such as the United States, United Kingdom, Germany and Japan are also ageing, Singapore is ageing far more rapidly. It will take the United Kingdom 85 years to double its aged population from 10% to 20% of the population; it will take us only 17 years. We are ageing faster than Japan, already one of the fastest ageing countries in the world. In Japan, it will take them 25 years to double the aged percentage. This means that the resources which we must devote to the aged will increase dramatically in the next two decades unless we help the aged to prepare for a prolonged retirement.

Our rapid ageing is mainly because of the unusually sharp decline in fertility rate coupled with the increase in life expectancy. The total fertility rate has dropped sharply from about 3.1 per female in 1970 to 1.7 in 1992. On the other hand, life expectancy of Singaporeans has increased quite dramatically from 63 in 1957, which was two years after the inception of CPF, to 67 by 1970 and to 76 by 1992. These are figures for life expectancy at birth. Life expectancy at age 55 is even longer. It is now 79 for a person aged 55 in 1992. Singapore will therefore increasingly feel the impact of an ageing population as our post-war baby boomers join the ranks of the aged at around 2015-2030. In 30 years' time, compared to our neighbours, Indonesia, Malaysia and Thailand, we will only have half the number of economically active persons supporting each aged citizen. Our problem will be more acute if we do nothing to prepare our society for the drastic and unavoidable change.

The two main problems of an ageing population are, firstly, getting the older workers to work for as long as they are healthy and able; and, secondly, providing for the aged in their retirement.

To address the first problem, we have already raised the retirement age to 60 years from 1st July 1993. We will be raising it progressively to 67 over the next seven to 10 years.

The second is a serious problem experienced worldwide, particularly in countries that rely on state pension to provide for their retirees. Several European countries, such as Germany and Italy, both facing ageing populations, have resorted to raising the retirement and pension withdrawal age. France has extended from 37.5 years to 40 years the length of time people must work before they qualify to collect full retirement benefits. Sweden is also planning to increase its retirement age.

In Singapore, we have adopted a different approach to provide for old age. Instead of state pension, we have the Central Provident Fund which is a fully funded individual savings scheme. Each worker saves for his own old age requirement so that the Central Provident Fund will never lack funds to pay those who reach the withdrawal age. Nor will future governments of Singapore have to impose heavy taxes on Singaporeans to pay retirees their pensions. Countries which adopted welfarism have found that such taxes erode competitiveness and act as a strong disincentive to work. They drive up costs of production and services. In the long term, they will cripple the economy. We must therefore encourage and enable workers to start saving for their old age as soon as possible through the Central Provident Fund mechanism.

Sir, the Prime Minister's proposal to revise the CPF Minimum Sum Scheme is not the only way to cater for the longer retirement period and greater need for retirement savings of Singaporeans. A more direct solution would be to raise the CPF withdrawal age to the prevailing retirement age for all current CPF members. Or a variation could be used where you raise the withdrawal age only for new contributions or new members joining the CPF system. But raising the withdrawal age for current CPF members would require those who are nearing the age of 55 to make major adjustments to their plans to use some of their CPF savings. They may have to postpone their long awaited desire to make a haj, buy something for themselves or carry out some renovations to their homes or pay for some educational expenses for their children. The direct approach might cause great misunderstanding and concern among current CPF members, particularly the older members.

We have decided that it is not necessary to make such drastic changes. The revision of the Minimum Sum Scheme will achieve the objective of getting Singaporeans to set aside adequate savings for their old age more quickly and with less disruption. CPF members will still be able to withdraw part of their CPF savings at age 55. Whether the member is a low income or high income earner, when he reaches 55, he can withdraw some CPF savings to meet his immediate needs.

Sir, my Ministry will raise the Minimum Sum gradually to the target amount of $80,000. We will make the adjustment over the next 10 years. For a start, the Minimum Sum will be raised to $40,000 on 1st July 1995 and subsequently by $5,000 a year until it reaches $80,000 on 1st July 2003. The schedule of the increase is as shown in Table 1 (Cols. 955 - 956), which I understand the Clerk of Parliament has already circulated to Members. I wish to remind the House that the increase in the Minimum Sum includes adjustments for inflation over the next 10 years. In fact, if we do not revise the Minimum Sum Scheme but only carry on with the annual adjustments for inflation, by the year 2003, the Minimum Sum would be about $46,000, ie, if we just carry on with our current practice of adjusting the Minimum Sum annually for inflation, and this assumes that our low rate of inflation of about 3% per annum remains for the next 10 years. Hence, the proposed adjustment to the Minimum Sum is not as dramatic as it sounds. Table 1 - SCHEDULE OF INCREASE OF MINIMUM SUM (Cols. 955 - 956)

$80,000 in the year 2003 is less than double today's Minimum Sum of $34,600 in terms of actual purchasing power. Nevertheless, this amount will provide a retiree with a monthly income of about $450 for 20 years from age 60. In terms of real purchasing power, this $450 in the year 2003 is equivalent to $345 today. This is what one person in a two-person household in the lower income group spends today, ie, the lower 50th percentile of our household income. This assumes that we manage to keep inflation low over the next 10 years. Thus, the new Minimum Sum amount will enable retirees in future to maintain only a modest standard of living somewhat higher than the subsistence level provided by the existing Minimum Sum.

Sir, I now come to the pledging of properties by CPF members to meet their Minimum Sum requirement. The existing Minimum Sum Scheme allows CPF members to pledge their properties instead of setting aside the Minimum Sum in cash. The weakness of this is that the Minimum Sum set aside in property cannot generate cash income for the CPF member, unless he sublets, sells or mortgages the property for cash. To remedy this, we will require half the Minimum Sum, ie, $40,000 to be set aside in cash by the year 2003. To reach this target, we will require $4,000 to be set aside in cash from 1st July 1995. This amount will increase by $4,000 a year until it reaches $20,000 on 1st July 1999; and subsequently by $5,000 a year to reach $40,000 on 1st July 2003. CPF members can still pledge properties for the remainder of the Minimum Sum, ie, up to $36,000 from 1st July 1995. This will increase by $1,000 a year until it reaches $40,000 on 1st July 1999. Details are shown in columns 3 and 4 of Table 1.

Sir, under the existing Minimum Sum Scheme, every CPF member can withdraw a lump-sum of at least half his CPF cash balance at age 55. This will continue to be the case under the revised scheme. In other words, a CPF member whose cash saving is less than twice the Minimum Sum requirement can still withdraw half of his cash savings. This will help meet the needs of CPF members, particularly those nearing 55, who have already made plans to use their CPF savings immediately at age 55. The lump-sum will also provide CPF members who for a variety of reasons are unable to continue working after the age of 55 with some money to live on until they reach 60, when they can start monthly withdrawals from their Minimum Sum accounts.

Under the existing Minimum Sum Scheme, CPF members with less than $11,600 can withdraw their entire CPF balance at the age of 55. This is meant to help members with low CPF balances who would otherwise not be able to withdraw a significant amount at age 55. However, this is also the same group of people most in need of help in building up their retirement savings. We will, therefore, refine this feature by lowering the minimum withdrawal amount from $11,600 to $5,000. I refer Members to Tables (Cols. 957 - 964) 2, 3, 4 and 5 which set out four examples of how the new Minimum Sum amount will affect CPF members when the scheme is implemented on 1st July 1995 and by 1st July 2003, when it would have reached the targeted amount of $80,000. Tables - EXAMPLE 1, EXAMPLE 2, EXAMPLE 3, EXAMPLE 4 (Cols. 957 - 964)

As the monthly withdrawal from the Minimum Sum is meant to provide an income for retirement, the age at which such withdrawal commences will be pegged to the prevailing retirement age. Today, the Minimum Sum withdrawal age is 60, coinciding with our current or prevailing retirement age of 60. Hence, as we raise the retirement age progressively to 67 over the next seven to 10 years, we will correspondingly raise the age at which monthly withdrawals begin.

At present, all CPF members on the Minimum Sum Scheme may withdraw the same monthly amount in a given month, regardless of how much the member actually sets aside. The savings of members who have set aside less than the full current value of the Minimum Sum will, therefore, run out much earlier. Someone who has set aside half the Minimum Sum and withdraws on a monthly basis the same amount as somebody who has set aside the full Minimum Sum is obviously going to consume it twice as fast. This has been workable so far as the adjustments in the Minimum Sum from year to year for inflation have been quite small. But over the next 10 years, we will be approximately doubling the Minimum Sum. To allow a person retiring in 1995 with $40,000 in his Minimum Sum to withdraw from his Minimum Sum as if he had retired in the year 2003 with $80,000 in his Minimum Sum will mean depleting his savings twice as quickly. Therefore, in future, the amount members can withdraw monthly will be based on the amount they themselves have actually set aside, both in cash and pledged properties. It will be adjusted annually for inflation. However, the amount which can be withdrawn at monthly intervals will not be lower than the amount which can be withdrawn under the present Minimum Sum Scheme because this amount, which can be withdrawn under the present Minimum Sum Scheme, is already estimated to be at the subsistence level. Therefore, we will assure all CPF members that the minimum that they can withdraw monthly under the revised Minimum Sum Scheme will be equal to this amount, which is $230 per month at present, but this amount will be adjusted annually for inflation.

Sir, if the CPF member continues to work after 55, he will be required to make up any shortfall in his Minimum Sum. In other words, those who are unable to set aside the full Minimum Sum at age 55 can withdraw only half of any subsequent CPF contribution made after the age of 55. CPF members who are working after the age of 55 can withdraw their CPF contribution at three years' interval. We will be requiring them to withdraw only half of what they have contributed. The other half will be used to top up his Minimum Sum amount in his Retirement Account.

CPF members who have set aside their Minimum Sum under the existing Scheme, ie, those who have already met their Minimum Sum requirement before 1st July 1995, will continue to be allowed to make monthly withdrawals at subsistence rate, with the usual adjustment for inflation.

Sir, as with the existing Scheme, we will make annual adjustments to the Minimum Sum for inflation after it reaches $80,000 in the year 2003. We will also make adjustments to the monthly withdrawal amount under the revised Scheme.

Now I will touch on the Minimum Sum requirement for married couples. The present Minimum Sum Scheme gives a concession to married couples. They are required to jointly set aside only 1.5 times the Minimum Sum required, instead of twice the Minimum Sum. The shortcoming of this approach is that when one spouse dies, the surviving spouse may end up with less than the full Minimum Sum, if he or she was not nominated as the sole beneficiary of the Minimum Sum by the deceased spouse. This can happen. To avoid this situation, we will require couples who wish to set aside jointly only 1.5 times the Minimum Sum to irrevocably nominate each other as the beneficiary of their Minimum Sum for as long as they remain husband and wife. Otherwise, they will each be required to set aside the full Minimum Sum as individuals.

Sir, the present Minimum Sum Scheme exempts CPF members, who are receiving pensions or annuities exceeding the Minimum Sum monthly withdrawal amount, from the scheme. Where the pensions or annuities are less, they are required to set aside a reduced amount. This feature of the Minimum Sum Scheme will be retained. In other words, those who are going to receive pension when they retire or who have bought annuities which will assure them of receiving a stream of monthly payment which is equal or better than what they would obtain under the Minimum Sum Scheme, they would be able to withdraw all their CPF balance at the age of 55.

At present, the Minimum Sum is a qualifying criterion for CPF members to participate in the CPF Basic Investment Scheme and the Education Scheme. In the Basic Investment Scheme and the Education Scheme, the CPF member must have a gross CPF saving (including amounts that have already been withdrawn for housing and other investments) which exceeds the Minimum Sum before they can invest in gold, shares, or take out education loans. As the Minimum Sum is raised, the prevailing Minimum Sum will apply to these Schemes. For instance, from 1st July 1995, when the Minimum Sum is raised to $40,000 ($36,000 in property and $4,000 in cash), a CPF member must have at least a Minimum Sum in such composition before he is allowed to invest under the Basic Investment Scheme or to take out a loan under the Education Scheme. We will also be adjusting the $50,000 cash savings members must have before they can participate in the Enhanced Investment Scheme.

Sir, the other Scheme that uses Minimum Sum as a qualifying criterion is the Minimum Sum Topping-Up Scheme. Under that Scheme, CPF members who have at least twice the Minimum Sum in their CPF account are allowed to use their CPF to top up their parents' Retirement Account. They can top up their parents' Retirement Account up to the prevailing Minimum Sum amount. CPF members are also allowed to top up such retirement account with tax-exempt cash contributions. As the Minimum Sum is raised, the prevailing Minimum Sum will apply to the Topping-Up Scheme. Hence, a member wishing to use CPF to top up his parents' Retirement Account on 1st July 1995, must have at least twice the prevailing Minimum Sum, in other words, $80,000.

As is the current practice, the Minimum Sum requirement will not apply to CPF members using their CPF savings to buy approved shares of corporations which are formed when Government privatises its statutory bodies or Government-linked companies. One example is the Group A shares of Singapore Telecom. This waiver will give lower income groups the opportunity to invest in privatised statutory boards or Government-linked companies, thus helping them to enhance their old-age savings.

Sir, to further help CPF members build up their savings, the Government has decided to pay 1.25 percentage points more interest than the normal CPF interest rate on savings in the CPF Special and Retirement Accounts with effect from 1st July 1995. This was announced by the Minister for Finance in his Budget Statement. This higher interest rate will help CPF members to accumulate more savings in their Special Account by the time they reach the age of 55. For instance, projections show that the higher interest rate will enable a typical 45-year old CPF member earning $1,000 per month today to accumulate about $1,000 more in his Special Account when he reaches the age of 55.

Finally, Sir, I wish to address some concerns raised since the Prime Minister made the proposal.

Several Members were concerned that raising the Minimum Sum can cause hardship to older workers. To meet this concern, Government has decided on the gradual increase of $5,000 a year, which will minimise the impact on older workers. Those above the age of 45 will not be subjected to the full increase in the Minimum Sum. Those aged 45 now, are the first cohort of CPF members to be required to set aside the full $80,000 as their Minimum Sum. Our projections show that most of them will be able to do so. For example, a typical 45-year old worker, who earns $1,000 a month today and had used his CPF savings to buy a 3-room flat in a new town 10 years ago, will accumulate about $90,000 in his Ordinary and Special Accounts by the time he reaches 55. He can pledge his flat for half the Minimum Sum of $40,000, set aside another $40,000 of his CPF savings and withdraw the rest of it, ie, he can withdraw $50,000. If he earns a slightly higher salary of $1,200, his CPF balance at age 55 will be higher, about $120,000. He should have even less difficulty meeting the Minimum Sum requirement.

Another concern is that CPF members in the lower income group, particularly the older ones, will not have sufficient CPF savings to set aside the Minimum Sum and therefore will not be able to withdraw any CPF savings at the age of 55. However, as I have explained, CPF members, whose total savings are less than the Minimum Sum requirement, will still be able to withdraw half of their cash savings at the age of 55. Our projections show that most CPF members in the lower income group should be able to meet the Minimum Sum requirement. About 72% of active CPF members, who are citizens, who reach the age of 55 in 1995 will have Special and Ordinary Accounts savings (including the amount that has been withdrawn for their housing needs) which exceed the Minimum Sum requirement of $40,000. This is shown in Column 3 of Table 6 (Cols. 965 - 966). About 90% of active CPF members will have more than double the $4,000 cash component of the Minimum Sum after 1st July 1995. If you refer to Column 2 of Table 6, you will see the figures there. Column 5 of Table 6 also shows that more than 80% of active CPF members reaching the age of 55 in the year 2003, will have total CPF savings which exceed the Minimum Sum requirement of $80,000. Table 6 - PROJECTED NET AND REGROSSED BALANCE (IN ORDINARY AND SPECIAL ACCOUNTS) OF ACTIVE CPF MEMBERS (NRIC) WHO REACH AGE 55 IN 1995 AND 2003 (Cols. 965 - 966)

In conclusion, Sir, the revised Minimum Sum Scheme will better prepare our population for a longer retirement. The $80,000 Minimum Sum amount will support retirees at a modest standard of living. It will enable them to remain self-reliant and not suffer the indignity of having to depend on the State for public assistance.

Encik Othman bin Haron Eusofe (Marine Parade GRC): Sir, I would like to seek some clarification. However, before that, I would like to say that my GPC supports the proposal to raise the Minimum Sum amount to $80,000 over the next 10 years. I think this would be sufficient to achieve the objective of getting Singaporeans to set aside adequate savings for their old age with minimum disruption to the CPF.

We also agree to the Minimum Sum withdrawal age coinciding with the retirement age, and that half the Minimum Sum by the year 2003 be in cash. We are quite happy to note that this proposal will enable older workers to withdraw part of their CPF at the age of 55.

I would like to ask the Minister the following clarifications. First, what will be the position if the member is to die just a few years after his retirement? Will the remaining cash balance go to his spouse or to his estate? Next, will the Minister confirm that the withdrawal amount of $450 per month or the adjusted amount, if the member does not have the full amount of $80,000, be paid during his entire lifespan and not just 20 years from the age of 60 or the retirement age?

Sir, in that event, will there be an adjustment made to the withdrawal amount to take account of inflation or will this just be a fixed amount over the member's lifespan? In the event that the retirement age is raised to, say, 63 years old, will the monthly withdrawal amount be increased?

I also have some proposals for the Minister to consider. In addition to a higher interest rate of 1.25 percentage points more than the normal CPF interest rate on savings in the CPF Special and Retirement Accounts with effect from 1st July 1995, will the Government be prepared to make contributions to top up the CPF Special and Retirement Accounts of members, say, during good years when there is a good budget surplus?

Sir, if this cannot be made available to all members, at least it should be considered for members, say, above 50 years who may have problems of meeting the target amount of $80,000 when they retire. Maybe the Minister could also consider asking the CPF Board to work together with banks and other financial institutions to see whether a better monthly withdrawal income can be obtained from the amount under the scheme.

Sir, besides the financial resources, I think we also need to look at the medical needs of our senior citizens. Under the current MediShield scheme, I think the scheme applies only to persons up to 70 years old. In view of this, we should try and consider extending the MediShield coverage to the age of at least 76 years in the first instance and, perhaps, subsequently even longer. Further, could we link the Minimum Sum to the MediShield scheme for members who have retired to the extent that when they begin to withdraw their monthly income from the scheme, the payments for MediShield premiums, that is, if they are members, can be automatically paid as well? Perhaps the Minister may want to seek the Minister for Health's agreement on this arrangement.

Mr Low Thia Khiang (Hougang): Sir, what is the basis of the Government's calculation for this increase in CPF Minimum Sum?

Dr Kanwaljit Soin (Nominated Member): I have some points of clarification:

(1) Since the retirement age is legislated to 60 and since we want to have more cash in the CPF after the age of 55, would the Minister consider raising the CPF contribution of those over 55 to the same rate as those under 55?

(2) What about the husband who is working and has a CPF account but his wife is not working and does not have a CPF account? Can we ask this man to irrevocably nominate his wife? Otherwise what will happen to the wife if the husband dies and he has nominated someone else?

(3) When will the retirement age be raised to 67 and what is the plan for going from 60 to 67?

(4) We are going to link the withdrawal of the monthly subsistence allowance to retirement age. If the retirement age is 67, but if the life expectancy does not go up very much, and you only begin to take out your money from the age of 67 and the life expectancy remains at about 72 for men, as it is now, then it is not going to be long that they are going to be withdrawing their subsistence amount. So maybe we have to look at life expectancy as well before we formulate these numbers.

Dr John Chen Seow Phun (Hong Kah GRC): Sir, I am not concerned for the younger workers because I believe that they would be able to meet the Minimum Sum scheme in time to come. But my concern is for the older workers and the whole objective of the CPF Minimum Sum scheme is to ensure that they have enough money for their old age. So we must do whatever we can to help this group of people.

I would like to ask the Minister two questions: Firstly, for those who are prepared to contribute in cash to their parents' Minimum Sum, will they enjoy tax deduction? And if no, why not? Because that is a very good way of encouraging people to contribute to their parents' old age.

The second point is - I have mentioned this in the Budget debate on the CPF Minimum Sum Top-up Scheme provided by the Government - I believe that it should not be across-the-board. It should be given to those who do not have enough savings, and we must work out a set of criteria to make sure that a certain principle is upheld, for instance, if you work, we give you more. The principle is similar to the SOTUS scheme.

I would like the Minister's response to this.

Mr Choo Wee Khiang (Jalan Besar GRC): I wonder whether the Minister will consider increasing the quantum of CPF contribution for those non-employee CPF members, ie, the sole proprietors or people who are in partnership.

Mr Chiam See Tong (Potong Pasir): Sir, I would like the Minister to clarify the position of joint accounts of husband and wife. It has been said that only one-and-a-half times need be set aside. If the amount is set aside by only one spouse and if it so happens that they are divorced, how do they divide the CPF Minimum Sum? I must declare my interest. I am a practising lawyer.

Dr Lee Boon Yang: Mr Speaker, Sir, first of all, may I thank the Chairman of the GPC for Labour and other MPs who have spoken up in support of the changes. I will address the questions as they were raised by each of the Members.

The Chairman of the GPC for Labour sought a few clarifications. First, he wants to know what will happen if a member dies just a few years after his retirement. What will happen to the remaining money in his Retirement Account? There are two possible scenarios. If the surviving spouse is not a CPF member, then obviously the surviving spouse is not covered by the Minimum Sum requirement. In that case, all the money that is remaining in the deceased member's Retirement Account will go to the surviving spouse or to the nominees that he has appointed during his lifetime. On the other hand, if the surviving spouse is a CPF member, and the surviving spouse and the deceased had jointly set aside one-and-a-half times of the Minimum Sum requirement for married couples, then we will take the remaining money in the deceased's Retirement Account and use it to top up the surviving spouse's Minimum Sum account to the full amount. Thereafter, whatever money that is still left in the deceased's Retirement Account will be paid out to the spouse or to his nominees that he has appointed in his lifetime.

Sir, he has also asked whether the withdrawal amount of $450 per month will be paid during a CPF member's entire lifetime. We have structured the Minimum Sum on the basis of ensuring that a retiree will have a stream of income which will support him for a period of 20 years because that is the expected retirement period based on current life expectancy. And we have therefore taken this approach because the amount that has been set aside at age 55 and the interest earned will be used to commence the payment once the person reaches the age of 60, based on today's retirement age. We have calculated that the monthly payment should go on for a period of 20 years. So we are unable to provide payment to the CPF member for life because the Minimum Sum Scheme, as we operate it, does not have the insurance component. There is no provision in it for those who have a shorter lifespan to subsidise those who have a longer lifespan. So there is no insurance component in this sense. Each person maintains his own Minimum Sum amount and his own Retirement Account, and he will withdraw from it a monthly amount that has already been calculated on the basis of 20 years.

He asked whether the monthly withdrawal amount will be adjusted to take into account for inflation. Yes, this will be done. We have already been doing so with the current Minimum Sum Scheme and we will continue to take this adjustment to take into account inflation.

He has also asked that when the retirement age is raised from the current level of 60 to 63 or more, will the monthly withdrawal amount be increased? Let me first point out that the monthly withdrawal amount will now be dependent on the Minimum Sum amount that a person sets aside. While the possibility exists that as a person works for a longer period, he should have more money in his Minimum Sum and his Retirement Account, he should be able to withdraw a bigger amount. We will have to study, as Dr Soin pointed out, what are the changes in the life expectancy of Singaporeans in the next 10 to 30 years. We will have to study whether life expectancy in fact is going up progressively as we are raising retirement age, perhaps not on the same scale but, nevertheless, still going up, and a significant number of people, because of good health and a very healthy lifestyle, may well live longer than the current average lifespan.

Mr Othman Haron Eusofe has also asked whether we could make special concession to help members, particularly those who are in the lower income group and do not have much CPF savings. I think the same point was made by Dr John Chen. The point is taken that for the lower income group, they need some extra assistance to meet their Minimum Sum requirement and, in a sense, last year's implementation of the CPF Share Ownership Top-up Scheme was a very good start. It was a timely introduction of a concept to help the low income Singaporeans. The Share Ownership Top-up Scheme will certainly help CPF members to build up their Minimum Sum amount. The cash grant of $200 was credited to every citizen CPF member last year. And next year, the cash grant to be given to CPF members who are citizens will be $300. This will certainly help them to build up the savings in their CPF accounts and to meet their Minimum Sum requirement. In fact, the members who have bought Telecom shares under the Share Ownership Top-up Scheme will also have enhanced their asset in the CPF because they would have enjoyed capital gains.

Government's policy is to continue with such share ownership top-up scheme. Dr John Chen has suggested during the Budget debate, and he repeated earlier today, whether we can have a direct top-up for the purpose of helping the low income group to meet their Minimum Sum requirement. This idea is new. The Minister for Finance has already assured Dr John Chen that since it is a new idea, it needs to be studied and it will be studied carefully to see whether we should do such a top-up directly for the purpose of helping the low income group to meet their Minimum Sum requirement.

Mr Othman Haron Eusofe has also asked whether the Government would consider working together with the banks to improve the returns that are available under the Minimum Sum Scheme. We have already taken the first step in that direction. As the Minister for Finance had announced during his Budget Statement, to give better returns to CPF members who have opted to leave their Minimum Sum amount with the CPF Board, the Government will, from 1st July 1995, pay a higher interest to the savings in the Special Account and the Retirement Account of CPF members.

We have also decided to pay this higher interest rate for savings in the Special Account because it would help the lower income group and the younger workers to accumulate more savings by the time they reach the age of 55 and be in a better position to meet the Minimum Sum requirement. Apart from leaving the Minimum Sum amount with the CPF Board, the member can always deposit the Minimum Sum in an approved bank, or use the Minimum Sum to purchase an annuity which will give him a steady monthly income which is equal to or better than that which the CPF Board can give to him. We are actively encouraging CPF members to purchase such annuity. And on the point about receiving payment on a lifetime basis, this is one solution for more CPF members to use their CPF saving at age 55 to buy an annuity which would give them a lifetime monthly payment.

Mr Speaker: Dr Lee, can I just remind you that you are taking the time of the Ministry of Education?

Dr Lee Boon Yang: Yes, may I beg your indulgence, Mr Speaker? This is a very important matter and Members have raised many queries.

Mr Speaker: But the Minister for Education may not think so.

Dr Lee Boon Yang: The Member has also asked whether we could consider extending MediShield. I think this would be studied by the Ministry of Health. And on the possibility of using the Minimum Sum monthly payments to pay the MediShield premiums, this is something worth studying.

I will now deal with the points raised by the other Members. Mr Low has asked what is the basis for the Government's calculation of setting the Minimum Sum at $80,000 in 10 years' time. The original Minimum Sum of $30,000 was introduced in 1986 and was meant just to provide support for CPF members at the subsistence level. The original $30,000 would be able to provide members with $230 a month from the age of 60 years over a 20-year period. This monthly payment of $230 was estimated by the Ministry based on a study conducted by the Singapore Council of Social Services on what a person living alone would need for subsistence.

Sir, the intention now is to have CPF members set aside enough savings to maintain a modest standard of living, slightly higher than the subsistence level. As a benchmark, we have used the average monthly expenditure of a person living in a 2-person household in the lower 50th percentile of total households, in other words, the lower half of the income groups in Singapore. We want to reach this standard in 10 years' time. This works out to about $450 a month in the year 2003. The Minimum Sum amount that is required to support this monthly payment of $450 a month from the age of 60 years, for a 20-year period, is $80,000. It should be noted that the targeted Minimum Sum is still less than double the present Minimum Sum of $34,600.

Sir, there will be no separate adjustment for inflation between 1995 and 2003 when the Minimum Sum is being raised by $5,000 a year. This is because the yearly increase of $5,000 will include inflationary increases. However, after the year 2003, we will make annual adjustment to the Minimum Sum amount to take into account inflation.

Sir, Dr Soin has asked whether we will consider raising the CPF contribution rate for those who are aged 55 to 60. The reason for lowering the CPF contribution rate for those who are aged 55 to 60 was to ensure that people in that age group will be able to remain gainfully employed. Employers are of course concerned with the high cost of wages. And in Singapore, in the context of our time-based wage scale, the older workers invariably will cost employers more. When we raise the retirement age from 55 to 60, we have decided that it is necessary to provide an incentive to employers so that they will not try to release or find some ways of retiring their older workers. So we have granted them a 5% reduction in the CPF contribution for older workers. I do not think we should go back, or turn the clock back, so to speak. We will remain with this level of CPF contribution for those who are aged 55 to 60.

Sir, in the case of a wife who is not a CPF member, then of course the question of the Minimum Sum for the wife does not arise at all. The Minimum Sum Scheme works only for CPF members, as I explained earlier on.

She also asked when will the retirement age be raised to 67 years. We have already said that we will do so over a period of 10 years. We have just raised the retirement age to 60 years last year. We do not intend to make any adjustment this year but we will be reviewing, and we will be increasing it gradually.

I think I have addressed Dr John Chen's point about giving the lower income group some extra assistance. He also asked whether children can top up their parents' Minimum Sum amount. The answer is yes. They can do so in cash and they will receive tax exemption for that. It is already in existence. The present rules permit the CPF members to make cash contributions to their parents' Minimum Sum accounts.

I am afraid I did not quite get Mr Choo Wee Khiang's point on the self-employed. But I think the self-employed are being included in the CPF and we have already started doing so by asking them to contribute to Medisave. We will have to work with Medisave for a start and get more and more self-employed to contribute.

Mr Chiam asked about joint account for a married couple. What happens when they are divorced? What happens to the Minimum Sum Scheme? I have already said, in my statement, that to obtain the concession of setting aside 1(r) times of the Minimum Sum for a married couple, they have to irrevocably nominate the spouse as the beneficiary. But if, for whatever reason, there is a divorce, then of course the settlement will have to depend on the court. How they decide on the assets to be distributed, that will be dependent on the court's decision.

Dr Kanwaljit Soin: Mr Speaker, the Minister did not answer my question.

Mr Low Thia Khiang: Sir, can I have a point of clarification? I am surprised that the Government does not ---

Mr Speaker: Order. We have taken too much time meant for the Ministry of Education. Can I suggest to Members that they take up further questions in the Committee of Supply when we discuss the budget of the Ministry of Labour?