MEDISAVE (Contribution rate)

Mr Low Thia Khiang asked the Minister for Manpower whether he will consider lowering the Medisave contribution rate for Central Provident Fund (CPF) members aged 60 years and above so that they have sufficient funds in the CPF Ordinary Account to pay for housing mortgage loans.

Dr Lee Boon Yang: Mr Speaker, Sir, the Government recognises that as a result of the CPF reduction implemented on 1st January 1999, CPF members who have committed all their CPF Ordinary Account savings to housing would need assistance to tide over the difficult period. It is with this in mind that the Government has introduced the bridging loan scheme and a range of HDB assistance measures to help CPF members who are affected by the CPF reduction. These measures help to minimise the impact of the reduction in Ordinary Account contributions on CPF members' ability to service their housing loans.

As at 30th June 1999, 126 CPF members have applied for the bridging loan scheme. 89 of them are for the servicing of private property mortgage loans. This is less than 0.1% of the total number of CPF members who are fully or partially using their CPF savings to service their private property mortgage loans. The balance 37 CPF members who applied for the bridging loan are HDB mortgagors on market interest rate. According to HDB records, from December 1998 to May 1999, slightly less than 10,000 HDB mortgagors (about 2% of total HDB mortgagors) have been assisted under the various HDB assistance measures. These measures include the rescheduling of mortgage loan instalments, converting mortgage loans to reduced repayment scheme, allowing working family members as joint-owners to help settle mortgage arrears or requesting HDB to allow mortgage arrears to be settled by instalment plan. The CPF cut has thus not caused severe difficulties to many CPF members.

Hence, it will not be appropriate to reduce the Medisave contribution rate for CPF members who are aged 60 and above. In fact, they are the ones who need more savings in their Medisave Account. The Medisave contribution rate of 6-8 per cent takes into account the greater need for CPF members to save for their hospitalisation expenses as they grow older. The Member for Hougang may wish to know that if a CPF member's Medisave Account has reached $22,000, any additional contributions to his Medisave Account will overflow automatically into his Ordinary Account. This will avoid an excessive build-up of Medisave balance and allow the members the flexibility to use the contributions for housing or other purposes. For these reasons, we will maintain the Medisave contribution rates.

Mr Low Thia Khiang (Hougang): Does the Minister agree that even before the economic downturn when the CPF rate was cut, CPF members who have reached the age of 60 and above, their total CPF contribution was 15%, and 8% of the 15% had to be contributed to Medisave, which I think renders very little money in their Ordinary Account to service the housing loan? So for those who are still serving their mortgage loans and have difficulty in paying, would the Minister consider allowing these people to temporarily give a lesser contribution to Medisave to help them tide over the period?

Dr Lee Boon Yang: Mr Speaker, Sir, the reduction in the CPF contribution for those who are aged 60 and above has been in place for some time already. So CPF members who purchase property should have made their calculation on the basis of their existing CPF contribution. When we raised the retirement age from 60 to 62 effective this year, there was a slight reduction in CPF contribution for those aged above 60. But that was a very, very small adjustment only and would not have caused additional difficulties to those CPF members who are still servicing their mortgage loans.

As I have explained in my answer, in fact, the 8% contribution for older CPF members is really necessary, because they are the ones who are most in need of accumulating savings to meet their medical expenses. If we were to allow them to use these Medisave savings to finance their mortgage loans, we might expose them to other dangers later on if they should suddenly fall ill and need to be hospitalised. They would still end up facing a problem. So it is better for us to remain focused on what we are trying to do.

What is Medisave for? Medisave is for you to save to prepare for your hospitalisation expenses. If you have sufficient CPF contribution now, even with the reduction, you should emphasise on putting aside the amount that you need for your medical expenses. That is first priority. The rest, if you have additional savings left over to service your loan, fine, by all means. If you have other difficulties, eg, if you are in a HDB flat, as I have already explained, there are many measures offered by HDB to assist home owners who have difficulty paying their mortgage loans. If you are in the private sector, when I look at the figure, it is such a small percentage of people who are affected and who have to apply for the bridging loan. If they want to, more can come forward. They are welcome to come forward and apply for the bridging loan, and we will help them through the bridging loan, rather than erode the savings for medical expenses which they would need sooner or later.