CENTRAL PROVIDENT FUND (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Manpower (Dr Lee Boon Yang): Mr Speaker, Sir, I think hon. Members are going to be disappointed. I am not going to defer the Bill.

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, the Central Provident Fund (Amendment) Bill before the House today seeks to amend the Central Provident Fund Act to enable the implementation of CPF policies regarding voluntary contributions, intra-account transfers and the CPF Home Protection Scheme. The Bill also seeks to streamline the enforcement and recovery of CPF contributions. I shall now highlight the major changes introduced by this Bill.

Voluntary contributions

First, on voluntary contributions. Clause 2 of the Bill amends the CPF Act to expand the definition of "member of the Fund" or "member" to include any person who contributes to the CPF Fund voluntarily. Examples of such persons are housewives and Singaporeans working overseas. To encourage such persons to save for their retirement and medical care, a new section 13B will be introduced in the CPF Act to empower the Central Provident Fund Board to receive voluntary CPF contributions from such persons. This amendment is in clause 3 of the Bill.

Intra-account transfers

Sir, on intra-account transfers, the Finance Minister had announced in February 1998 that CPF savings in the Special and Retirement Accounts will earn higher interest rate. The interest rate will be 1.5% more than the Ordinary and Medisave Accounts' interest rate with effect from 1st July 1998. In addition, CPF members are allowed to transfer their savings in the Ordinary Account to the Special Account up to a cap of $40,000 in the Special Account, with no option of reversal of the moneys transferred. In other words, once you transfer savings into the Special Account, they will remain locked up in the Special Account until age 55.

Sir, clause 4 of the Bill inserts a new section 18B to allow a CPF member to apply to the CPF Board to transfer a portion of his Ordinary Account savings to his Special Account, and to provide the limit on the amount which may be transferred. This is to allow the CPF member to receive a higher interest on his CPF savings and to build up his cash component for retirement purposes. The transfer is only permitted if the amount of savings in the CPF member's Special Account is below a prescribed amount. This prescribed amount is set at $40,000 currently, in line with the eventual cash component of the CPF Minimum Sum Scheme in the year 2003.

Home Protection Scheme

Sir, the Home Protection Scheme, or otherwise known as HPS, was introduced in 1981 to protect CPF members and their families from losing their HDB flats should a member die or become incapacitated permanently before the housing loan is fully paid up. Under normal circumstances, a member can only own one HDB flat at any one time. However, HDB gives upgraders a grace period of six months to sell off their old flats after they have purchased and been allocated their new flats. In fact, this grace period may even be extended if the upgrader has difficulty selling his old flat and HDB will consider such appeals. So there are occasions where HDB flat owners and CPF members are actually owning two HDB flats for more than six months. HPS is a compulsory mortgage reducing term insurance for CPF members who use their CPF savings to service HDB loans. Hence during this transitional period, a CPF member legally owns two HDB flats and has to pay the premiums for two HPS insurance policies.

Sir, it is not the intention of the HPS to pay insurance claims on two HDB flats for one CPF member should he die or become incapacitated permanently before the housing loan is fully paid up. Clause 5 of the Bill therefore enacts a new section 30A to provide that no person may be insured under the HPS for more than one HDB flat at any one time. This provision allows the CPF Board to automatically terminate the HPS cover for a CPF member's existing HDB flat upon the commencement of HPS cover for his new HDB flat. The CPF Board will refund the surrender value of the HPS cover for the existing flat to the member upon cessation of the cover. With this amendment, should a CPF member die or become permanently incapacitated during the transitional period when he legally owns two HDB flats, the HPS will pay the insurance claim on the new flat while the member's family can proceed to sell the existing flat and receive the proceeds of the sale after discharging the outstanding housing loan for the old flat.

Enhancing the enforcement and recovery of CPF contributions

Sir, I next turn to the amendment concerning the enforcement and recovery of CPF contributions. Currently it takes about 100 days to prosecute employers who have defaulted on CPF payments. That is more than three months to trace up on an employer who is in arrears to his employee's CPF contribution. This long period results in employers owing more CPF contributions to their employees because of the delay in the prosecution action. This delay is mainly due to existing provisions in the CPF Act which stipulate the procedures that the CPF Board has to follow when recovering CPF arrears from the employers.

Sir, CPF contributions form part of employees' salary. Employees use their CPF savings for various commitments such as housing, healthcare and insurance, apart from savings for old age. Hence, there is a need to ensure that the CPF Board deals effectively and promptly with employers who have failed to pay CPF contributions for their employees within the prescribed time, and the Board also has to speedily recover these contributions which are now overdue. A slow and protracted recovery process may encourage some employers to chalk up larger arrears at the expense of the employees. The CPF Board's role is to safeguard CPF members' interests and enforce CPF payments to ensure that members' contributions are paid promptly. Hence it is necessary to amend the CPF Act to expedite the recovery of CPF arrears. The proposed amendments in four areas will reduce the total number of days taken to recover CPF arrears to about 60 days, a reduction of about 40 days.

Public Prosecutor's sanction

Sir, the first area is on the Public Prosecutor's sanction. The existing provision in the CPF Act requires the CPF Board to get the Public Prosecutor's sanction before the Board could commence prosecution action against employers who have defaulted in CPF contributions. Since the CPF Board has always and will continue to discharge its powers fairly and impartially, the Public Prosecutor has agreed that such prior approval is not necessary. Hence, clause 6 of the Bill repeals the existing section 62 to remove the requirement of obtaining the Public Prosecutor's sanction before initiating prosecution under the CPF Act.

Notice to Attend Court

Clause 6 also inserts new sections 62 and 62A. The new section 62 empowers a CPF Board officer to issue a prescribed notice to a defaulting employer requiring him to attend court in lieu of applying for a summons of court. This amendment would allow the CPF Board officers to issue Notices to Attend Court similar to those issued by the Traffic Police. The Traffic Police found that this provision had worked well for them and 80% to 85% of the offenders have paid their fines by the composition date. Currently, Notices to Attend Court are also issued by agencies such as the Ministry of the Environment and the Ministry of Health for offences such as littering, breeding of disease bearing insects, operating as a hawker without licence, and many other offences. This amendment would shorten the recovery of CPF arrears significantly, hence benefiting employees.

Service of Notice to Attend Court/Summons

Sir, the new section 62A sets out the manner in which a Notice to Attend Court issued under the new section 62 or a summons issued by a court may be served. Under the existing provision, summonses must be served on employers personally. It is difficult to locate the employers in most of the default cases, hence usually many attempts have to be made before substituted service, such as affixing the summons at the employers' premises or advertisements in the newspapers, is allowed by the court. Allowing the service of Notice to Attend Court and summons, for example, by registered post would reduce the time taken to serve such notices or summons from about 3 weeks to only 2 to 3 days. I would like to point out that other statutory boards such as the HDB, URA and LTA already have similar provisions in their respective legislation.

Composition of offences

Sir, at present, the CPF Board is empowered to compound any offence under the Act for a sum not exceeding $200. Composition has proven to be an effective way to deal with employers who have defaulted in CPF payments. To enhance the effectiveness of this enforcement option, the Ministry proposes that the maximum composition fine be raised to $500. This amendment is reflected in clause 7 of the Bill.

Certification of Board on non-payment of contributions

Clause 8 of the Bill introduces a new section 66A to provide that a certificate issued by the CPF Board stating the amount of contributions and interest that is due from an employer is to be treated as prima facie evidence of those facts. This is to replace the need for every affected employee to attend court as a witness. The use of certified documents as prima facie evidence can be found in other legislation such as the Sale of Food Act and the Patents Act. Under the Patents Act, for example, attendance of the witness is not necessary to prove authenticity of documents or entries authorised by the said Act. A certificate signed by the Registrar can be admitted as prima facie evidence. Nevertheless, should the Court so require, the CPF Board will ensure that affected members attend court as witnesses.

Sir, the removal of the need to seek Public Prosecutor's sanction, issue of Notice to Attend Court, new service of Notice to Attend Court and the certification of Board on the non-payment of contributions will save 40 days from the arrears recovery process. It will help to prevent employers from delaying payment of their employees' CPF contributions.

Priority of Claims

Sir, currently the CPF Act gives the Board priority over execution creditors who have taken out Writs of Seizure and Sale against the assets of employers. However, the Board does not have priority when creditors attach employers' bank accounts or seize their movable properties. This had resulted in cases where employees' CPF arrears could not be recovered. Clause 9 of the Bill therefore amends section 68 of the Act to allow the CPF Board to have priority for CPF arrears over landlords who have taken a Writ of Distress against defaulting employers. The same clause also extends the Board's priority of claims to cover garnishee order in cases where creditors have attached the bank accounts of the defaulting employers.

Conclusion

Sir, in conclusion, the amendments proposed in this Bill will ensure that the provisions of the CPF Act will continue to be relevant and in line with the objectives of the CPF system. The amendments will also remove existing rigidities and thus better safeguard employees' interests by ensuring that their CPF contributions are promptly paid.

Sir, I beg to move.

Question proposed.

Mr Yeo Guat Kwang (Cheng San): (In Mandarin): Mr Speaker, Sir, I support this Amendment Bill. I welcome the further opening of the door to voluntary contributions of CPF.

Mr Speaker, Sir, in the past few years, our economy has enjoyed rapid growth and the Government had accumulated a lot of surpluses. To share the fruits of our economic success with the people, the Government initiated the CPF Top-Up Scheme which has enabled a lot of people in Singapore to have their CPF accounts topped up so as to enjoy better benefits as CPF members, such as MediShield and all kinds of protection schemes.

Based on our present economic situation, it is unlikely that the Government will continue to top-up our CPF accounts in the next two years or so. On this perspective, I must say that this Amendment Bill is very timely. It provides for people who do not have a regular employment or fixed income to have the opportunity of enjoying the benefits provided by the CPF scheme through voluntary contributions, especially for temporary or casual workers and self-employed people who do not have regular incomes, such as private tutors and housewives. With the amended provisions in this Bill, they can make voluntary contributions to their CPF accounts according to their own free will. They will not be excluded from the CPF scheme just because they are unable to submit certified statements to substantiate their incomes. By so doing, these people enjoy the benefit of being covered by the MediShield scheme for medical protection, not only for themselves but for their dependants too. With medical cost rising all the time, I think it is very important to have this kind of protection, particularly when the coverage of MediShield or MediShield Plus is being extended to 75 years.

I also welcome the amendment to provide for those people who are in arrears in contributing to their employees' CPF to be summoned directly to court. This would improve our enforcement efficiency and shorten the legal procedure to make sure that the employees will get their CPF due to them.

The ceiling for composition fine is increased from $200 to $500. This will have a better deterrent effect. I would like to ask the Minister whether it is because the number of offenders has been increasing to such a great extent that it had prompted the Government to raise the maximum amount of composition fine. If that is the case, will the $500 composition fine be enough to achieve the desired deterrent effect? At the same time, will the CPF Board exercise some flexibility in their enforcement by first allowing the errant employers the opportunity to explain the reasons for their default in payment, before an appropriate composition fine is offered?

Allowing inter-account transfer by members is a measure to be welcomed. But I do not understand why it has to be done only under certain circumstances. Can we not allow all the CPF members to transfer their money from Ordinary account to Special account at their own time, at their own convenience and according to their own wishes?

I welcome the amendment to Section 9 of the Act which gives priority to claims for any sum due to the Fund so as to better protect the CPF members' interest.

Generally, I support the Amendment Bill.

Dr S. Vasoo (Tanjong Pagar): Mr Speaker, Sir, I shall be short and sharp.

Mr Speaker, Sir, I rise to support the relevant amendments that have been made. They are useful amendments because, with the aging population and many of those who have very small accounts in their CPF, such a move for voluntary contribution would help to provide support for them. This is indeed timely because they can meet their old age needs, in terms of provision of social security. Sir, we need to provide a boost to make this scheme more successful because voluntary contributions between account holders may be helpful to an extent, but there are others who like to make cash contributions to their family members and friends. For such contributions, it may be necessary to provide some incentives for those who contribute under this scheme by way of tax deduction. This will perhaps encourage more people to transfer savings in their accounts to help others who are in need.

Sir, a lot of them, who are not covered, have very low CPF accounts. The question is whether voluntary contribution itself is going to make any significant difference. I would like to ask the Minister whether there are any other efforts or plans in which he would boost or reinforce this voluntary contribution.

The other aspect is the Special Account, Sir. The transfer or top-up of $40,000 in the Special Account is very useful. But what is of most concern to many people is that they need medical support for their old age. And to lock in such an amount in the account which cannot be moved, is not in a way helpful, particularly to those who are old and who require medical treatment. I would like to ask whether people who are participating in this scheme by topping up their Special Account can be allowed to move some of their money to the Medisave account.

Mr Chiam See Tong: May I get some clarification from the Minister? Sir, this is in regard to clause 3 of the Bill. The Minister says that voluntary contributions can be given by housewives and people who are employed abroad. I can think of other categories of persons in Singapore who will be making voluntary contributions, such as the self-employed, small businessmen, like the hawkers and shopkeepers, and of course big businessmen who are well-off, and professionals. I suppose that for small business people who make voluntary contributions, it can be said that they are in fact saving for their old age. But in the case of people who are well-off, who may own their own homes and in fact own one or two other investment properties and who have a regular income, not only from their employment but from their investments, these people may want to make voluntary contributions not for the purpose for which the CPF Act was enacted. In other words, they have got no worry about saving for their old age. They are quite well-off already. So if these people make voluntary contributions, they may be doing it for other reasons, probably to save on their income tax. So if they really do that, and they also want to enjoy their Medisave, in case there is a worse scenario situation, they are taking advantage of the CPF system. The CPF Act was set up specifically to make provision for workers to save for their old age. So if this group of people takes advantage of these voluntary contributions, they may do it for their own purpose, as I said, like tax savings.

I would also like the Minister to clarify what he means by different classes of members in the new section 13B. Are the people who make voluntary contributions a class by itself, or are they different from the regular workers who make CPF contributions? Maybe the Minister could clarify.

This point about the lock-in to the Special Account has been mentioned by Dr Vasoo. It says here with a strong word "irrevocable". In other words, if he agrees to put in this money up to a maximum of $40,000, he cannot take it out anymore until he probably reaches 55 years old. Is there any escape clause here where there is a real difficulty he could just take some funds out?

Dr Lee Boon Yang: Mr Speaker, Sir, I know time is very short and I have to rush through my response. But, first, I have to thank the hon. Members, Mr Yeo and Dr Vasoo, for supporting this Amendment Bill. I would address the points as they have raised them.

Mr Yeo asked whether there are more and more cases of employers committing offences under the Central Provident Fund Act. While the number of such cases has not risen sharply as to attract special attention, the point is that the $200 compound fine limit had been set many years ago, and I think it is time to make an adjustment. If we do not do so, there may be some employers who will say, "Since the fine is so little and my employee's CPF contribution is so large and the interest rates being what they are at the bank, I can always defer payment of the CPF contribution. I will wait until I receive a Notice to Attend Court, then rush and pay. It is still worth my while to be in arrears from time to time." But I do not think that is a good situation. We should not encourage that. We want to serve a reminder to all employers that they should pay up the CPF contribution of their employees on time rather than wait.

Is the $500 compound fine enough? I would say at this juncture, yes, because it was set at $200 some years ago. We are making a revision now. If in the years to come, we discover that, again, it is not adequate as a deterrent, we are always prepared to review it.

Will we give the employers an opportunity to explain their predicament if they are unable to pay? Yes, the CPF Board is always ready to listen to an employer if they have some difficulty. It is up to the employer to make a firm and concrete proposal to the CPF Board to repay all the arrears within a certain timeframe, including the interests accumulated on the arrears, so that the employees are not worse off. The Board will take into consideration such appeal but it has got to be assured that there is some payment coming because the Board will certainly want to safeguard the interest of the members to ensure that it does not just allow the employer to prolong the process and, at the end of the day, there is nothing to claim on behalf of the employees. I think that would be a very undesirable situation. While we are sympathetic, we also have to remember that our first responsibility is really to safeguard the interest of the CPF members.

Dr Vasoo has asked whether there could be a tax deduction to encourage more people to contribute voluntarily. Firstly, let me point out that most employed Singaporeans actually do not pay income tax already. I think nearly about 70% of the employed Singaporeans do not pay any personal income tax. So, income tax may not be that effective as an incentive. Voluntary contribution is targeted at a group of people who are not working either as an employee or as a self-employed. They do not have any taxable income. So tax incentive is also not applicable in this sense. Voluntary contribution is a totally free choice on the part of a Singaporean who wants to put some money aside for his old age, and who looks at the CPF as a very safe long-term investment, as a very secure place where he can put aside his old age savings, knowing that the interests are guaranteed and that, in fact, if he puts the money in the Special Account, he would earn a premium interest of 1�% above the normal CPF interest.

The other point which Dr Vasoo raised was, if I got it correctly, what else would the Board do to help members to increase their old-age savings. This move to increase the interest that is being paid for the balance in the Special Account is one such effort on the part of the Board. By paying 1�% interest over and above the interest in the Ordinary and Medisave Accounts, it will in fact help many members to save up much more money in the Special Account for their old age.

Mr Chiam and Dr Vasoo also mentioned the same point about irreversibility or irrevocable decision to transfer money from the Ordinary Account into the Special Accounts. Members have to understand that the Special Account represents very long-term savings. A CPF member cannot withdraw the money in the Special Account until he reaches the age of 55. So he is making a commitment to leave this money for a fairly long term, which is why the Government can guarantee that we will pay 1�% interest above the normal interest rate. The normal interest rate is calculated on the basis of an average interest rate of banks' savings accounts and one year term deposit accounts. So CPF members are getting higher interest than what they normally would get if they place their savings in a bank. We cannot allow a situation where people transfer money from the Ordinary Account into the Special Account and then transfer it out as and when they need it, ie, earn the extra interest and then take it out. That would defeat the whole purpose and the basis on which the long-term interest rate has been calculated to offer this additional 1�%.

Members must remember that the Ordinary Account is actually money available on demand for most CPF members. It is not locked up to the age of 55. A CPF member uses the savings in his Ordinary Account to pay his home mortgage as and when he needs it. He can use his Medisave to meet his medical expenses as and when he needs it. He can even draw the savings from his Ordinary Account to invest in shares. He can take it out and put it into a bank as a fixed deposit if he thinks that the rate there is better. So there are many options for a CPF member to draw from his Ordinary Account.

Putting the money in the Special Account is only one of the options, but this option carries with it certain conditions. And one of the conditions is that a CPF member cannot withdraw it at will until he reaches the age of 55. I think we have to keep it that way. Otherwise, we lose the basis for paying the additional interest on the balance in the Special Account.

Mr Chiam raised another point about different classes of members. Yes, I think different classes of members are necessary because we have employees who are CPF members. They contribute 20% plus 20%. We have the self-employed people who have to make mandatory Medisave contribution but voluntary contribution for the Ordinary Account or Special Account. So we have totally voluntary contributors who can contribute as and when they want and with whatever amount that they want to. There is no minimum contribution that they must comply with. So we need to create these different classes of members.

His other point is about people who contribute to CPF for other reasons to take advantage of income tax. Today, self-employed people can already make voluntary contribution. They, of course, have to make mandatory contribution to their Medisave accounts. But the self-employed already enjoys tax benefit from the CPF contribution up to 20% of his income or $14,400 per annum, whichever is the lower. So there is already a provision and, in fact, it is an incentive for the self-employed to make CPF contributions and to enjoy the tax benefit which all employees enjoy. And we should also not discriminate against the higher income people for wanting to put some money into their CPF accounts, because Members have to remember that even the highest income employee also makes CPF contributions of a portion of his salary, ie, up to $6,000. A person may be earning tens of thousands of dollars but he also contributes CPF up to a maximum of $6,000.

Mr Chiam See Tong: Per month?

Dr Lee Boon Yang: Per month. $6,000 of his salary per month. This is already allowed. So we should not deny anybody who wants to make voluntary contribution into a newly opened CPF account to put aside some money for his old age. I think, on balance, we should allow and welcome voluntary contributions.

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. [Dr Lee Boon Yang].

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

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 5.05 pm.

Sitting accordingly suspended at 4.53 pm until 5.05 pm. Sitting resumed at 5.05 pm