SINGAPORE ARMED FORCES (AMENDMENT) BILL

Order for Second Reading read.

The Second Minister for Defence (RAdm Teo Chee Hean): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Singapore Armed Forces (SAF) is the guarantor of Singapore's national security. A strong SAF will deter potential aggressors and enhance our security, thus providing a stable environment for the economy to thrive. It is the foundation upon which Singapore continues to prosper and progress.

The capable SAF we have today is the result of years of investment in people, doctrines and equipment. We must continue to invest in the development of the SAF if we are to continue peace, prosperity and economic progress in the years to come.

In particular, we must continue to attract good people to join the SAF. It is with this objective in mind that the Ministry of Defence commissioned a study by Towers Perrin, an international consultancy firm, to review the entire manpower management system of the SAF uniformed officers. Together with MINDEF, Towers Perrin has looked into the career structure, remuneration package, career management and performance management of the officers. Arising from the review, MINDEF will implement a total revamp of the SAF career, offering our officers a first career that is both challenging and rewarding. Amongst others, MINDEF will be establishing the new Savings and Employee Retirement Plan (SAVER Plan). The SAVER Plan will replace the Pension and Contract schemes that are currently open to SAF uniformed officers. Let me explain the rationale of the SAVER Plan.

Owing to the need to maintain a dynamic armed forces, the SAF adopts a policy to keep the SAF young. A full career with the SAF spans about 22 years. This is long enough for the officers to make a meaningful contribution to the SAF and to realise their full potential. At the same time, it ensures a healthy turnover of leadership at every level of the SAF and ensures that the SAF has a sufficient number of officers with the right training and experience to support the full range of operational requirements. We do recognise, however, that it can be very daunting for an officer to start a new career in his mid-40s, particularly when there are housing commitments and the education of children to contend with. This deters potential recruits from joining the SAF. Those who initially joined the SAF for the challenge and exciting careers it has to offer are also tempted to leave earlier in their late 20s and early 30s when they are better able to adjust to a new career outside.

We can never remove all the concerns associated with the transition to a second career. But we can make it less daunting for the SAF officers by minimising these concerns. The current SAF Pension Scheme, which was adapted from the civil service Pension Scheme was designed to reward people who stay in service until they reach the age of 55 years or above. It is not suitable for the SAF because of the shorter SAF career. The SAVER Plan will give uniformed officers financial security so that they can concentrate on the professional development of the SAF without having to worry about their second careers. Through this Plan, we hope to attract good quality people to join the SAF and to remain in the SAF for a full career.

Under the SAVER Plan, MINDEF will contribute an amount, based on a percentage of the officer's monthly salary, into an account kept for the officer. The funds in the account will be pooled with other accounts to form an investment fund known as the SAVER Fund. The SAVER Fund will be managed by fund managers appointed for the purpose. Based on returns from investments, dividends will be credited into the individual accounts of each officer. A SAVER Board of Trustees, chaired by the Permanent Secretary, and comprising senior MINDEF and SAF personnel and successful people with relevant experience from the public and private sectors, will oversee the fund managers with the help of investment advisors.

The SAVER Plan will meet the varying needs of SAF officers at different stages of their careers. The accumulated amounts in the SAVER accounts will be made available to the officers progressively. The longer an officer stays in service, the more he stands to benefit from his SAVER account. By the end of the officer's career, his SAVER account will provide him with a significant lump sum to enable him to transit to a second career.

The SAVER Plan will be implemented with effect from 1st April 1998 for all new uniformed officers. Existing uniformed officers will be offered an option to convert to the SAVER Plan and have their accumulated benefits under their existing schemes transferred to the new Plan. The benefits they have chalked up will be transferred from Pension Fund to the SAVER Fund.

This Bill will provide the legislative framework to implement the SAVER Plan. The Bill will also make consequential amendments to the Pension Fund Act.

Sir, I beg to move.

Question proposed.

Dr Ong Chit Chung (Bukit Timah): Sir, I rise in support of the Bill.

The SAF is the bedrock and indeed the vanguard of our national defence policy and strategy. Without a strong SAF, all our defence planning will come to nothing. The core or critical element in the SAF is manpower, in particular, the officer corps. We must, therefore, ensure that at all times, the SAF personnel are well motivated, ready and able to deliver the knock-out punch when the chips are down.

The SAF must, therefore, have good terms and conditions of service to attract and retain the best to shoulder the awesome responsibility of being in the forefront of our defence, and being entrusted with the training and command of our national servicemen. Over time, circumstances, perceptions and expectations change. And the SAF must, from time to time, review and adjust the employment schemes to bring them in line with the prevailing market practices. It is, therefore, timely as we move into the 21st century that MINDEF is revamping the SAF employment system and introducing the Savings and Employee Retirement (SAVER) plan. I am sure it will be a real saver and will be very much welcomed by the officer corps. The new scheme, I am sure, will keep the SAF young and will, at the same time, meet the aspirations of the younger officers for a more defined and focused route of advancement.

Nevertheless, Sir, I wish to take this opportunity to seek some clarifications and amplification from the Minister. Will the officers continue to enjoy medical benefits upon their retirement under the SAVER scheme? Will the savings accounts and retirement accounts of the SAVER scheme be subject to tax upon withdrawal of the sums? Will MINDEF allow progressive withdrawals from the various savings accounts for payment of housing instalments, as in the CPF accounts? Will MINDEF extend the SAVER scheme to the regular NCOs in future?

Sir, the pension scheme is funded directly by the Government. The SAVER Fund is a separate fund established by the Government with its own set of accounts. The SAVER Fund will be managed, as announced, by a Board of Trustees, appointed by the Armed Forces Council. My question is: will the Government ensure that these funds are well managed in terms of investments and returns, and the officers will enjoy good rates of returns from the SAVER Fund, no less but, hopefully, better than the CPF rates? Sir, if, unfortunately, the officer dies in service, will his family be given the benefits under the SAVER scheme?

Sir, I support the Bill.

Dr Wang Kai Yuen (Bukit Timah): Sir, I too support the Bill. I have a very simple question for the Minister. I would like to find out whether there is a minimum service the officer must fulfill before he can enjoy the benefits under the SAVER Plan.

RAdm Teo Chee Hean: Sir, I thank the GPC Chairman, Dr Ong, for the support that he has given.

Dr Ong has asked several questions. He asked whether the officers will continue to enjoy medical benefits upon their retirement. The existing medical benefits will not be changed. Existing officers will continue to enjoy the same medical benefits while they are in service and when they retire. New officers will also enjoy the same medical benefits that are open to them now.

The second question is whether the savings and retirement accounts will be subject to tax. The sum in the savings account is a form of gratuity. Like the present contract gratuity given to officers when they complete their contract with the SAF, it can be withdrawn in full after 10 years of service. Therefore, like contract gratuities, it will be taxable when withdrawn.

The retirement account is similar to the present commuted lump sum pension that is given out to retiring officers today. It will, therefore, be treated like the pension today and will not be taxed if officers withdraw this when they retire, ie, when they leave the SAF after age 40 with at least 10 years of continuous service. If withdrawn prematurely, the money is treated like a contract gratuity and will be taxed.

Dr Ong also asked about withdrawals from the SAVER accounts for payment of housing instalments. Under the scheme, officers may withdraw their money in the savings account progressively after the sixth year. They can use the money as down-payment for properties they wish to purchase. When the SAVER Plan is fully operational, MINDEF will further consider whether to allow withdrawal from the retirement account to help officers buy their homes. MINDEF thinks that it is a good idea to unlock some of the money in the SAVER accounts to help our servicemen buy their homes. It will provide security for officers when they retire and will encourage more people to join and remain in the SAF.

Dr Ong also asked whether the SAVER scheme will be extended to regular Warrant Officers and specialists in future. We will consider this when we have gained sufficient experience after operating the scheme for officers.

Dr Ong asked how the Government will ensure that the funds are well managed in terms of investments and that the officers will enjoy good rates of return for the SAVER Fund. The purpose of investing the funds independently is to try to obtain a reasonable rate of return for the funds and thereby making the scheme even more attractive to officers. While we cannot guarantee a minimum rate of return, we will invest prudently. To this end, we will work with the professional investment advisor who will help MINDEF to work out the investment strategy, advise on the selection of fund managers and help monitor the performance of fund managers. We have also invited several top-level executives from the banking sector and the Monetary Authority of Singapore to sit on the SAVER Board of Trustees. This is to inject professional expertise and experience in guiding investment and management of the money in the SAVER Fund.

Dr Wang asked about the minimum period of engagement. The structure of the SAVER system is such that the longer you stay, the more is accumulated in the various accounts and the more you can withdraw. And the shorter you stay, the less you get. So if you stay for a very short time, you get very little additional benefit from that. You basically get benefits which are equivalent to something like the full CPF system.

Finally, Sir, Dr Ong asked whether the family of the officer will be given the benefits under the SAVER scheme if the officer dies in service. The answer is yes, the entire amount in his SAVER account will go to his estate.

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. - [RAdm Teo Chee Hean].

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