CENTRAL PROVIDENT FUND (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Manpower (Dr Lee Boon Yang): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

In August 2000, the Government announced that, with effect from 1st of January 2001, CPF members would be allowed to invest their Special Account savings in the lower-risk financial instruments that are suitable for retirement savings. The CPF (Amendment) Bill before the House today seeks to amend the CPF Act to allow for the withdrawal of moneys from the Special Account for approved investments. The Bill also seeks to amend the CPF Act to enable the implementation of new schemes announced by the Minister for Finance at the financial year 2000 Budget Statement and to give effect to other changes to better serve CPF members.

First, on the investment of Special Account fund. Since its introduction in July 1977, the CPF Special Account had remained the most protected portion of a CPF member's savings. Over the years, we had gradually liberalised the CPF rules to allow members to use savings in their Ordinary Account to purchase homes, invest in shares, buy insurance policies, unit trusts, or even place in fixed deposits. Only the savings in the Special Account had remained untouched. Why? Because the Special Account was seen as a member's cash savings for his retirement. The Special Account complements the Minimum Sum Scheme. This is so because, for most of the CPF members, the cash needed to be set aside for the Minimum Sum would come largely from the Special Account savings. Most members by age 55 would have withdrawn a large part of the Ordinary Account savings to finance the purchase of their homes. Hence, the Special Account would provide most of the cash savings for their old-age needs.

In November 1999, the Inter-Ministerial Committee on Ageing Population recommended that Special Account savings in excess of the Minimum Sum be allowed for investments in retirement-related instruments. The Committee concluded that there are in existence today adequate avenues for low risk long-term investments which can help CPF members to enhance their old-age cash savings. The Government accepted this recommendation to give CPF members the opportunity to earn higher returns on their retirement savings. On closer study, my Ministry concluded that by restricting the class of retirement-related instruments, we did not even require CPF members to lock up the Minimum Sum. In other words, it was possible to allow members to invest all of their Special Account savings in such a retirement-related instrument.

However, the basic principle that the Special Account savings should not be exposed to high investment risk remains valid. Hence, such investment should not go to high risk high return speculative instruments. We have to make a risk/return trade-off and balance the goal of enabling CPF members to earn higher returns against the fact that the Special Account savings represent the basic safety net for many Singaporeans. The advantage of allowing all Special Account funds, including the Minimum Sum, for approved investments is to encourage our citizens to take greater responsibility for their old age security and to take financial planning more seriously.

Sir, to reduce the exposure of Special Account savings to investment risk, only lower-risk instruments would be allowed. Products that are suitable for investment using the Special Account savings include long-term bank deposits; deferred annuities; endowment insurance policies; Singapore Government/statutory board and other bonds guaranteed by the Government; and selected unit trusts and investment-linked insurance policies.

The list of approved unit trusts and investment-linked insurance policies will be based on the lowest three tiers of the Risk Classification System adopted under the CPF Investment Scheme. These comprise mainly money market, fixed income and balanced funds. Higher risk unit trusts and investment-linked policies, comprising funds wholly or mainly invested in equities, will not be allowed under the scheme. CPF members are also not allowed to invest their Special Account savings in individual stocks and gold. This is to prevent their Special Account savings from being exposed to unhedged risks.

Sir, as the CPF Act currently does not have any provision to allow the withdrawal of Special Account savings for investment, clause 4 of the Bill amends section 13(1) of the Act to allow moneys from the Special Account to be withdrawn for approved investments under existing section 77(1)(m). This will give CPF members wider access to more investment options. However, as with any investment, CPF members would have to exercise careful judgement and decide for themselves the level of risk that they are willing to take in their investment decision. If they take a long-term view and exercise prudence in their investments, they are likely to enhance their old-age savings to better meet retirement needs. But if CPF members do not wish to risk investing their CPF savings, they can keep their savings with the CPF Board which provides a guaranteed minimum return of 2 1/2% for savings in the Ordinary Account and 4% for savings in the Special Account.

Sir, I will now touch on the amendments affecting the Budget 2000 measures. Currently, under the Minimum Sum Scheme, a member may, upon reaching age 55, leave his Minimum Sum with the CPF Board, deposit it with an approved bank or use it to buy an annuity from an insurance company. CPF savings in excess of the Minimum Sum can be withdrawn.

To encourage more prudent financial planning with CPF savings, Finance Minister announced in the FY2000 Budget Statement that the current tax exemption for annuities bought with the Minimum Sum would be extended to annuities bought with CPF savings beyond the Minimum Sum. The same tax treatment would be accorded to interest income arising from CPF savings beyond the Minimum Sum deposited with approved banks.

Clause 6 of the Bill introduces a new section 15B to provide that a member who is entitled to withdraw his CPF savings may set aside, in addition to the Minimum Sum, an additional sum and deposit it with any approved bank or use it to buy any approved annuity. CPF members will enjoy tax exemption on the monthly withdrawals from this additional sum set aside.

In Finance Minister's FY2000 Budget Statement, he had also announced that the tax relief for cash top-ups for parents under the Minimum Sum Topping-Up Scheme would be extended to grandparents with effect from Year of Assessment 2001. Clause 7 amends section 18 of the CPF Act to extend the Minimum Sum Topping-Up Scheme to grandparents. This will help to strengthen the multi-generational family bonds and reinforce the Asian tradition of looking after our parents and grandparents in their old age. Clause 9 amends section 19 to provide for the monies paid to a member's grandparents' retirement account shall, on the grandparents' death, be returned to the account of the member who made the payment.

Mr Deputy Speaker, Sir, I will now touch on the CPF Home Protection Insurance Scheme and the Dependant's Protection Insurance Scheme.

The CPF Home Protection Insurance Scheme was introduced to protect CPF members and their families from losing their HDB flats should the insured die or become permanently incapacitated before their housing loans are paid up. The Dependant's Protection Insurance Scheme aims to provide CPF members and their dependants with financial assistance in the event that the insured member becomes permanently disabled or die prematurely.

Currently, under both insurance schemes, claims are not payable if the death or permanent injury of the insured member arising from deliberate self-injury occurs within 1 year from the date that he is insured under the schemes. The 1-year time bar is imposed to prevent abuse where a CPF member may intentionally join the schemes before he attempts to commit suicide. This policy is valid and will be continued.

However, there are cases where the act of suicide is committed within the 1-year period but the death happens after the period. Claims for such cases should not be accepted, as the intention to inflict self-injury within the time bar has been made clear. Similarly, the 1-year time bar would apply in cases where the insured member's death or permanent incapacity was the result of his own intentional criminal act. In such cases, the CPF Board shall not be required to pay the insurance claims if the criminal act is committed within 1 year from the date that he is insured under the scheme(s). Clauses 14 and 16 of the Bill amend sections 36(5) and 49(4) of the Act to provide for the above.

Let me qualify what I mean by intentional criminal act. I am not referring to minor offences or acts of negligence such as some offences committed while driving a car which could, in fact, result in the offender's injury or even death. In such cases, the CPF Board has been paying the claims and they will continue to do so. Intentional criminal act in this context means a premeditated act, which any citizen would know, will draw serious penalties such as drug trafficking, gang robbery and murder. For example, if a member was involved in robbing a bank and was shot dead in the exchange of fire with the police, the 1-year time bar will apply. Or, if he participated in gang robbery and murdered a victim in the course of the robbery and was subsequently convicted and executed, the 1-year time bar will also apply. Likewise if he was convicted of a drug trafficking offence and executed, the 1-year time bar will also apply.

Sir, I now move on to clause 10 which amends section 29 to enable the Minister to prescribe conditions for members to be exempted from taking the Home Protection Insurance Scheme. The need for this arose from the Board's experience of a sharp increase in the number of cases applying for such exemption on account of their private insurance coverage. In other words, there are CPF members who buy a HDB flat and say that they already have an existing private insurance policy which will ensure that they can pay up their mortgage and they ask for an exemption, and such exemption is then given. There is a real concern that some members may not be able to service their private insurance policies for a variety of reasons, maybe as a result of retrenchment, loss of job, or some other financial difficulties. It could easily happen that they would then let the policy to lapse. The result is that the member's dependants would then be completely unprotected in the event of untimely death or permanent incapacity of the member. Hence, while exemption will continue to be allowed, there should be some conditions so as to require the member to resume the Home Protection Insurance Scheme once he has allowed the private insurance or the personal insurance policy that he has to lapse. This will ensure that the family will continue to be protected and do not lose a home due to an unfortunate event.

Sir, currently, there is an upper age limit for Home Protection Insurance Scheme. Clause 10 of the Bill will also extend the age limit of such a coverage from 60 to 65 years. This will provide older members who are still servicing their mortgage loans five extra years of coverage and protection. In particular, those who have upgraded to bigger HDB flats later in life, will now enjoy the Home Protection Insurance Scheme protection for a longer period. Clause 11 amends section 30 to clarify that the Home Protection Insurance Scheme will provide cover for only one property at any one time. Clause 12 amends section 32 to give priority to the deduction of premiums over other deductions. It also enables the Board to decide how a member is to make-up for any shortfalls in premium payment and allow joint owners of the property who are husband and wife, to pay for each other's share of the premium. Clause 13 repeals sections 34 and 35 which relate to when premiums under the Home Protection Insurance Scheme and Dependants Protection Insurance Scheme are due, and the period of cover for the Home Protection Insurance Scheme. Clause 14 clarifies that the Board's payment under Home Protection Insurance Scheme shall be in proportion to the member's liability for the repayment of the housing loan. It also clarifies the Board's payment under different scenarios of incapacity or death of the member. Clause 15 amends section 39 to enable the Minister to prescribe the mode of Home Protection Insurance Scheme premium payment. This will replace the repealed sections 34 and 35, and pave the way for the CPF Board to allow premium payments by instalments under the scheme in the future.

Sir, this Bill also introduces other amendments to meet the administrative and operational needs of the CPF Board and to better serve members' needs. These include:

(1) Clause 2 to amend the definition of "wages" in section 2 so as to enable the Minister to exempt certain payments from being included for the purpose of CPF contribution. This is not intended to change the basis for calculating CPF contribution which will continue to be based on remuneration in money, including any bonus, due or granted to a person in respect of his employment. The exemption introduced by this amendment is directed at occasional payments, such as "long service awards". Such awards are given by employers to reward employees for their loyalty, for having remained with the company for long periods of time. We see no need for such awards to attract CPF contributions. In exempting such "long service awards", we will spell out conditions to safeguard employees' interest;

(2) Clause 3 to empower the Minister to appoint a temporary Chairman during the temporary incapacity or temporary absence of the Chairman, and empower the Chairman to authorize any members of the Board to exercise any power or perform any function conferred on the Chairman by or under the CPF Act;

(3) Clause 5 will allow CPF members to pledge their properties in lieu of part of the Minimum Sum if they co-own the properties with their immediate family members. This will enable such members to meet part of the Minimum Sum requirement by such pledges and enable them to withdraw some cash at age 55 from their CPF account;

(4) Clause 18 will allow the court to order the recovery of CPF arrears, in addition to the fine and/or imprisonment under section 7(3) of the Act; and to recover the CPF arrears in the same manner as a judgement in civil proceedings. This will enable the CPF Board to help members to recover the arrears more expeditiously; and

(5) Clause 19 will allow members who are legal owners of a piece of land or a property by way of inheritance to use their CPF savings for the construction of properties on the land and the servicing of outstanding housing loans.

In conclusion, the amendments proposed in this Bill will allow CPF members to invest their Special Account savings to enhance their old age savings and enjoy tax benefits announced by the Finance Minister in the FY2000 Budget Statement. It will ensure that the provisions of the CPF Act continue to be relevant and in line with the objectives of the CPF system. Last but not least, it will safeguard members' interests by extending the Home Protection Insurance Scheme cover to 65 years of age and ensure that the employer's arrears can be recovered more expeditiously.

Sir, I beg to move.

Question proposed.

Mr Charles Chong (Pasir Ris): Mr Deputy Speaker, Sir, I support the Bill moved by the Minister for Manpower and would just like to comment briefly on several clauses in the Bill.

Sir, clause 4 of the Bill proposes to amend section 13 of the CPF Act to enable CPF members to withdraw funds from their Special Account for approved low-risk investments. This amendment will provide CPF members greater flexibility to manage their own funds and, hopefully, maximise returns on the investments. However, CPF members should be reminded that money in the Special Account is risk-free and tax-free, and currently attracts an interest rate of 1.5 percentage points more than the interest rate for savings in the Ordinary Account. This means a minimum of 4% interest per annum, which is higher than most fixed deposit rates and some low-risk investments.

Sir, it may not be practical for the Government to legislate all the safeguards on CPF investments such that there will be a 100% protection for investors from the consequences of their own investment actions. However, the Ministry of Manpower and the CPF Board should, wherever possible, provide sufficient warning to CPF members that the majority of investments carry some degree of risk and that members should seek professional advice if they are in doubt. For those who are not savvy in investment strategies, it may well be worth their while to keep their money in the Special Account for the low risk and the respectable interest rate it currently attracts.

Clause 7 of the Bill proposes to amend section 18 of the CPF Act to enable CPF account holders to transfer funds into their grandparents' retirement accounts, in addition to their parents' and spouse's retirement accounts. This is a welcome amendment that will provide some financial relief for families who support their grandparents. Hopefully, this amendment will also create an additional opportunity for people to financially assist their aged grandparents and promote stronger bonds within the extended family unit.

Sir, I support the proposed amendment to section 29 of the Act that will raise the age limit for the Home Protection Insurance Scheme from 60 to 65 years of age, which is in line with the rising life expectancy and health standards of Singaporeans, and the extension of the age limit for granting HDB loans.

However, clause 14 of the Bill will exclude claims made under the Home Protection Insurance Scheme and Dependant's Protection Insurance Scheme should death or permanent disability of the insured arise directly or indirectly out of suicide, a deliberate act of self-injury or an intentional criminal act within one year of the date of the commencement of the policy. In addition to these exclusions, capital punishment of any criminal act committed within one year from the date of the start of the policy also voids any claim.

Sir, I am able to understand and support the rationale for such exclusions but would be more comfortable if there is also a provision in the Bill that empowers the Minister to grant exemptions should the circumstances of a case warrant such an exemption.

Finally, Mr Deputy Speaker, Sir, clause 18 of the Bill receives my strong support. This clause, amongst other things, will empower the CPF Board to recover money owed for CPF contributions from errant employers who fail to pay CPF contributions to the employees. The current legislation provides a fine and/or a jail term but does not have any provision to enable recovery of money owed for CPF contributions. The proposed new section 61A of the Bill will address this problem.

With those comments, Sir, I support the Bill.

Mr Ang Mong Seng (Bukit Gombak): (In Mandarin): Mr Deputy Speaker, Sir, I rise in support of the CPF (Amendment) Bill.

In this Bill, there is one clause which allows members to top-up the CPF account of their grandparents for their retirement benefits. This is a move in the right direction. This will enable our senior citizens to be provided with adequate savings for their old age. There is another point that merits our attention in that there is no age limit to the topping-up arrangement. In other words, the grandchildren will be able to transfer their CPF money into the retirement account of their grandparents, with no age limit. However, in the present Act, children are allowed to transfer their CPF money into their parents' account up to age 65 years only. There is a time limit and an age limit. There seems to be some contradiction here. Let me give you an example to illustrate my point.

For example, Mr A is now 70 years old. He was married at the age of 20, and his son, Mr B, is now about 50 years old. Mr B was married at the age of 25, and his son, Mr C, is now 25 years old. Now, Mr C can transfer his CPF money to the account of his grandfather, and can also put money into Mr B's account. However, Mr B who is the son of Mr A, cannot put his CPF money into the father's account because the latter is past 65 years of age. There seems to be double standards. So I hope the Minister will consider allowing the son to put his CPF money into the parents' account. There should not be any age limit. In this way, the benefits will be more consistent. In the old days, there were many children in the family, for example, I have 8 siblings. Now, with the small family concept, there are only two or three children, or just one child, to maintain the parents. So if the law can be consistent without any age limit for parents or grandparents, the children and grandchildren together will be able to share the cost of looking after the retirement needs of their elders.

Mr Deputy Speaker, Sir, I support the Amendment Bill.

Mr Thomas Thomas (Nominated Member): Sir, I want to say that this amendment to the CPF Act is very positive and is in harmony with the recommendations of the Inter-Ministerial Committee on Ageing Population. The Committee had expressed some concerns that CPF holders may not have adequate balance to see them through retirement and some of these measures seem to meet those concerns.

I am particularly happy about some of the amendments and one of it is that it is actually very pro-family, in the sense that the definition of a related person in the Act has been amended from just spouse to include grandparents, grandchildren and siblings. This a positive move. And there are also incentives for grandchildren to contribute to the grandparents' retirement account. This is also a good move as it strengthens the family.

I also support the increase of the Minimum Sum from $40,000 to $65,000, as well as the improvements in the Home Protection Insurance Scheme and the Dependants' Protection Insurance Scheme. And very important for us are the enhanced powers to recover arrears from defaulters. Mr Charles Chong had spoken on it and I fully endorse what he said.

In expressing my satisfaction, I also have to express some concerns and suggestions that I have. Section 2 of the Act, which is going to be amended, is to give the Minister powers to exclude certain payments from the definition of "wages". The Minister has clarified that he meant payments like long service awards. Excluding long service awards is a good thing and I support it. I also want to say that payments which are exempted from CPF should also not be taxable. I hope that the Minister for Finance would take the cue and not tax on long service awards and one-off incentive payments which employers give.

At the same time, I also want to express a bit of concern which workers have. How far would the Minister use his powers in granting exclusions and exemptions? We know that whenever there is financial difficulty, employers will scrimp on cost and there is also some concern on whether this provision will be used to increase the amount of exemptions, resulting in lower CPF contributions in the long run. I hope that this provision will, in the long run, be used very discreetly and sparingly, with the workers' interest at heart.

On the question of increasing the Minimum Sum from $40,000 to $65,000, it is positive and meets the recommendations of the Inter-Ministerial Committee on Ageing Population. But the question is how many of our CPF holders will be able to meet this Minimum Sum. The other question is: can retirees live adequately on this sum? We know that CPF will not fully replace earnings, so the Ministry and the CPF Board should also come out with more education, in addition to what they are doing now, to tell people how much they need to have in order to maintain the same lifestyle comfortably.

If CPF is extremely important, then the question is: CPF has been cut at least two times during the recession period, and now that the economy is doing well, when is the rate going to be restored? Can it be restored quickly enough? Cutting CPF is painful and workers suffer. The same people who need the protection of CPF have suffered most. Parallel to enhancing the safety net for CPF, the Ministry must also tell us what is the progress in developing the flexible wage system and how much of push is there so that the workers' interest is fully protected.

I also want to say that CPF only covers wage earners. It does not cover those who are not wage earners. But even for these non-wage earners, the contingent workforce is going up. The number is going up. We are also encouraging people to be entrepreneurs and self-employed, and these people are not covered. At present, there is provision for some of these self-employed who have applied for licences to contribute to Medisave. Can provision be made for more people to be covered by the CPF and at least be part of the social safety net that is in place? I also observe that there will be amendments to section 39 which talks about different classes of members. I would like to ask what is being meant by "different classes"? Will there be different types of schemes for different types of employees?

Finally, just a suggestion for the Government to take up, that is, to enable people to have more money in CPF. At the present moment and also in support of pro-family policies, a lot of people use CPF to buy their homes. However, our national servicemen do not contribute to CPF. So maybe, at this time, we can also make provision to increase the national servicemen's allowance from the present $240 to market rate, ie, whatever an 18 or 19-year old boy would have earned outside, and put the additional amount into CPF. When they complete their national service, they have some money in their CPF account to pay the deposit for a home and start a new family very soon.

On that note, I would like to support the Bill.

Mr Tay Beng Chuan (Nominated Member): (In Mandarin): Mr Deputy Speaker, in principle, I support the CPF (Amendment) Bill introduced by the Minister for Manpower to further improve on the implementation of the CPF system in Singapore and to enable every Singaporean to have adequate savings for use in their old age.

As a matter of fact, after years of implementation and with the continuous review and fine-tuning by the Government, the CPF system in Singapore is sound and has contributed greatly to the economic development of Singapore. It is now a model of our national policy. It is also a very important national policy that the policymakers from other countries would like to learn and emulate.

From the perspective of nation-building, the CPF system is not only a compulsory national savings scheme. Its greatest effect is that it has laid a very solid foundation in our labour-management cooperation and relationship. Prior to the financial crisis, the CPF contribution rate for employers and employees was 20% on each side, totalling a high of 40% of the employee's salary. This compulsory high savings rate is a rarity in the world and it is something which other countries will find difficult to follow. If there is no strong support from labour and management, it would be extremely difficult for the Government to implement the CPF system in Singapore. Therefore, the Government should treasure this spirit and strengthen this tripartite relationship among labour, management and Government. So when adjusting the CPF contribution rates and formulating related regulations, the Government should be prudent and careful not to ignore the interest and feelings of the employers and employees. Otherwise, it will lead to some very serious consequences resulting in mutual distrust among the parties.

To the employers, CPF is a very heavy monthly expenditure. The quantum of the CPF contribution rate will affect their short-term and long-term business cost. To most employers, the 20% contribution rate is too high and is not conducive to the maintenance of Singapore's long-term competitiveness. Therefore, when the Government reduced the CPF rate to 10% during the financial crisis, the business community was very grateful. However, with the Government's eagerness to raise it back to 16% by January next year, the feeling of gratitude has faded. In fact, many employers are not comfortable with the signal sent out by the Government and the labour side that they want the employers to not only raise the salaries of the workers to reward them for the sacrifices made during the crisis, but also to restore the CPF contribution rate to 20% as soon as possible. Many businesses are having difficulty coping with such pressure of escalating business cost. On top of that, the Government is rapidly raising taxes, rents and utility charges, and many businesses are beginning to doubt the Singapore Government's so-called "pro-business" strategy.

Sir, from information released by MTI, our economy has recovered, and this year's growth rate can be as high as 9.5%. However, to most businesses, particularly the SMEs, they have not completely got out from the financial hardship. Many of them are still having difficulties coping with the various business cost increases. Apart from a handful of large enterprises in the electronic, chemical engineering and financial industries, most industries like construction, renovation, furniture, restaurants, watches, jewellery, garments and departmental stores, are performing poorly. Many of them are having problems with cash flow, labour shortage and high business cost. On top of that, because of Government's policy of opening up, the various MNCs and Government-linked companies are competing with the SMEs in the limited and almost saturated market, and many of these companies may have to resort to retrenchment again or face closure.

According to information released by the Ministry of Manpower, in the first eight months of this year, more than 400 employers were in default of CPF contributions amounting to some $16 billion and had to face legal action. In fact, more and more enterprises are facing difficulties and these enterprises have made a lot of contributions during the crisis. At this moment, they are required to continue making sacrifices. They are not as fortunate as the employees who can ask for pay- rise from the employers and to put pressure on the Government to force the employers to restore their CPF contributions.

Mr Deputy Speaker: Mr Tay, we are discussing the CPF (Amendment) Bill. Could you try to confine yourself to the narrow field of the amendments?

Mr Tay Beng Chuan: (In Mandarin): All right. Mr Deputy Speaker, Sir, I believe when the Government was promoting tripartism among labour, management and the Government, they are very determined, because this is Singapore's way to success. However, the Government cannot unilaterally want the employers to continue to contribute to satisfy the needs of labour in conjunction with the Government's policy. In the CPF system, the Government, so far, has only asked the employers to restore the 20% contribution rate and be accountable to the labour side, but no innovative measures have been introduced by the Government.

At this point, I would like to take this opportunity to urge the Government to consider the predicament of the businesses, so as to adopt more practical and prompt action. Maybe the Government could consider using some of its budget surpluses to make up the difference of 2% to 4% in the CPF employer's contribution, so that they can restore the 20% contribution rate sooner. By so doing, both labour and management will be more convinced with the Government's support and participation in the CPF system in Singapore.

Sir, I support the amendment Bill and I hope that the Government will consider my above suggestion.

Mr Chng Hee Kok (East Coast): Mr Deputy Speaker, Sir, while expressing general support for the Bill, I have reservations on the provision for investment of the Special Account savings by members.

When CPF savings were allowed for investments some years ago, I spoke against this measure. I urged caution then, as I did not believe that this is good for members in the long term. I believe that the general trend is for members to invest in high risk equities and stocks. As a result, I believe that today most members actually lost money rather than make money. In other words, overall, members' savings would not be enhanced by high-risk investments, other than investments in property. Sir, the point is that by investing in stocks and shares, many CPF members are poorer rather than richer. The only mitigating factor is that most members do have investments in properties and that is why they have done well.

The investment of Special Account savings in lower-risk financial instruments also means that returns will be low. Since most members do not have much savings in the Special Account, it will be very difficult for any particular member to diversify his portfolio of investments or instruments to maximise his returns. As a result, I do believe that members, with the little bit of money they have in their Special Accounts, will invest in some higher risk investments or perhaps in unit trusts.

Since the Bill will be passed, may I urge the Minister to consider setting up a Special Accounts funds management unit in the CPF, and allow members to transfer part or all of their Special Account savings into this funds management unit to be managed by the CPF Board. With the funds management unit, there is a volume with a larger scale of operations and therefore members' savings could naturally be diversified. If we allow members to invest their Special Account savings in one or two instruments, the risk is high, no matter how you put it, even with the lower-risk financial instruments.

Sir, I urge the Minister to consider my suggestion of setting up a funds management unit to manage the Special Accounts for members when this Bill is passed.

Dr Lee Boon Yang: Mr Deputy Speaker, Sir, first, I would like to thank Mr Charles Chong, Chairman of the GPC for Manpower, and all the other hon. Members who spoke up in support of this amendment Bill.

I would like to respond to the points that were raised by Members. Mr Charles Chong supported the provision for the cash top-up for grandparents, and I think most of the other Members who spoke on it also supported it. For instance, Mr Ang Mong Seng, who while supporting this provision for cash top-up for grandparents, pointed out what appears to be an inconsistency between the cash top-up for grandparents and the top-ups for parents.

Currently, under the Minimum Sum Topping-Up Scheme, the children have 10 years to top up their parent's retirement account, from the age of 55 when the parent could have withdrawn the CPF money. The time bar was introduced when we first had this Minimum Sum Topping-Up Scheme to encourage children to top up their parent's CPF account as early as possible, rather than to drag it over a long period.

In the case of grandparents, I think it will be very difficult to impose such a time bar. If you do impose such a time bar, then very few grandparents will be able to enjoy the benefit of this top-up. Because, if the age limit is 65, then there are going to be very few grandparents who have grandchildren old enough to be working and earning a salary and able to top up their grandparents' accounts before the grandparents are aged 65. So we have decided that for the grandparents' top-up scheme, there should be no time bar.

Similarly, we will, in fact, waive the 10-year time bar for the parents' topping-up scheme in the case of cash top-up. In other words, if a CPF member were to put cash into the parents' accounts, to top up the parents' retirement accounts, we are prepared to waive the need to have this 10-year time limit. It is not necessary. So it can be done away with. But in the case of those who may be using their CPF to top up their parents' accounts, this needs further study to see whether if you extend the 10-year time limit, would they be able to continue to maintain such top-up and how would it impact on the member's own accumulation of savings for his retirement. We need further study on this. For cash top-up, we will waive the time limit. But in the case of transfer from the children's CPF account to the parents' accounts, we need further study.

Mr Charles Chong also asked about the one-year time bar for those who committed suicide or has committed intentional criminal act resulting in forfeiture of their insurance cover under the Home Protection Insurance Scheme and the Dependants' Protection Insurance Scheme, and he asked whether the Minister could grant exemption in some cases. Let me point out that section 36(5), as it is crafted, states that "the Board shall not be required to make any payment if death is by suicide." And with this amendment, the result of a court conviction within one year of taking up the insurance. I think the way the section is framed, "that the Board shall not be required .", would suggest that while the dependants cannot expect the Board to pay the insurance claim under such circumstances, if in examining the case the Board considers that there are special circumstances, it may decide then to proceed with the payment. There is no injunction against making such a payment. So there is some amount of flexibility on the part of the Board.

Mr Thomas Thomas also supported the amendment and I thank him for his support, in particular, the amendment on the topping-up of grandparents' accounts, and also extending the definition of "related person" to a wider scope, so that there could be more family support. He had some concern about whether, in fact, giving the Minister the power to exempt certain payments from attracting CPF could become a loophole that could be abused by employers. Let me assure him that we are very conscious of this possibility. That is why when we crafted this amendment, we provided that the Minister can make conditions for such exemption, and the conditions will be very narrow. It will be specifically focused on long service awards and would not allow employers to take advantage of this provision to seek exemption from CPF for other payments which are normally part of wages or salary.

He also asked, in the same vein as Mr Tay Beng Chuan, about the CPF cut and when will it be restored. Our position is that we will want to restore the employer's CPF contribution to the pre-crisis 20% level as soon as we can. When we introduced the cut during the economic downturn in 1998, we thought that it might take anywhere up to five years in order to be able to turn the economy around and to restore the CPF cut of 10 percentage points. But as it is, the economy has undergone a sort of V-shape recovery after hitting the bottom. I think we are able to speed up the process of restoration. That is why on 1st April of this year, we had introduced a 2% restoration, and we have already announced that on 1st January next year, there will be another 4% restoration. If the economy continues to bounce back and remain healthy and competitive, then I think we should be able to speed up the pace of restoration. And we definitely do not have to wait for the full five years.

He also asked whether we could try to get more non-employees, the self-employed, for instance, to benefit from the CPF system. We have already, for some years, been trying to get the self-employed to contribute, starting with Medisave. There is a scheme by which self-employed people have to contribute to Medisave in order to be eligible for various trade licences and permits. It has worked quite well. Quite a large number of self-employed people are now contributing to Medisave.

I also want to point out, Mr Deputy Speaker, Sir, that in fact self-employed people are constantly being encouraged to contribute even to the Ordinary Account and Special Account of their CPF by way of tax incentives. I believe they are entitled to claim, up to a certain limit, a tax exemption on about $14,000 a year as voluntary contribution to CPF. This is one way by which we can encourage the self-employed to become members of CPF and also to enjoy the benefits provided by the scheme. As the number of self-employed or contract workers increases, we will continue to publicise the scheme with such tax incentives so that more and more of them will voluntarily sign up with CPF and take advantage of the tax incentives.

Mr Thomas raised another point which is really not connected to this Amendment Bill. This is on NSmen's allowance. NSmen are not employees. So NSmen's allowance is not a salary or wage in the normal sense. That is why NSmen's allowance does not attract CPF contribution. He asked whether we could increase NSmen's allowance to the market wage for people of that age group. I suggest that he take it up with the Minister for Defence at the appropriate opportunity. I am sure the Minister for Defence will give him a considered answer.

Mr Tay supported the Amendment Bill and expressed strong support for the amendments that we have in this Bill, but he took it beyond the focus of this Amendment Bill. He spoke at length about how tripartite support was important for the CPF scheme. I agree with him. Our CPF scheme works well because we have tripartite support. Employers support it. Trade unions support it. Government continues to encourage, refine and improve the system. It is almost an institution in Singapore in our labour market.

He expressed concern that employers are still facing difficulties although the economy has recovered sharply. We are aware that not all sectors of the economy have fully recovered. For instance, the construction sector is still not doing as well as the manufacturing or the services sector. We also understand that some of the SMEs are not doing as well as some of the larger companies. I hope that he understands that the CPF cut was, in effect, a blunt instrument to reduce cost overall across-the-board for the whole economy. It has worked in that it has allowed companies that were facing grave dangers to survive the crisis. Now that the economy has turned around, we should start to restore the CPF as soon as we could to the degree that the economy can support without doing grave damage to our own competitiveness. I think that is what we are doing. First, restoration of 2% in April of this year and from next year onwards a 4% restoration. We believe that these are changes that can be accommodated by the employers without seriously affecting their competitiveness.

He asked whether we could introduce other more innovative measures to help employers to retain their competitiveness to moderate their wage cost. The answer is yes. In June this year, the NWC recommended that employers should now start to introduce a monthly variable component in the salary structure. This monthly variable component, as is explained in the NWC recommendation, should be built up over time from wage increases that are being given to workers so that the next time we face a crisis, each company or each sector could on its own start to make adjustments to wage cost without having to wait for an overall CPF cut. If they put aside 2% to 3% each year of the wage increase into a monthly variable component, over the next five to six years they could easily accumulate 10% to 15%. This 10% to 15%, which comprise the monthly variable component, could then be the first line of defence against any sudden change or drop in business sentiment and they could immediately, at company or industry or sectoral level, make adjustment without having to wait for a national consensus on CPF cut. I would urge all employers to take this up seriously.

As I understand it, since the NWC recommendation in June this year, already about 140 unionised companies had already taken up this suggestion and had introduced a monthly variable component in their collective agreements. Many other companies are also in negotiation with their unions, whether it is company unions or industry-wide unions, to incorporate such a monthly variable component. Likewise, all the SMEs should also consider introducing a monthly variable component. The NWC recommendation was that, if this year they are going to give a wage increase of less than 3%, perhaps all the 3% should go into a monthly variable component rather than a built-in wage increase. If they are going to give more than 3% wage increase this year, they should consider setting 3% aside as a monthly variable component and paying the balance of the wage increase as a built-in wage increase. If all sectors do it, whether they are big companies or SMEs, I am sure they will achieve a much more flexible wage structure that will give us greater resilience the next time the economy runs into stormy waters.

Mr Chng Hee Kok spoke in support of the Amendment Bill but expressed reservation over the investments of the Special Account savings. Let me point out that this is an enabling amendment. This will enable CPF members to have access to their Special Account for investment purposes. It does not mean that they all have to withdraw their Special Account savings and to place this in the various instruments that we have designated. We will continue to caution CPF members that all investments carry some risks and they should be very careful in making their investment decisions. They should not rush into it, and particularly they should not go into speculative type of investment. Hence, the classes of investment instruments that can be approved for the Special Account savings are much more limited compared to the CPF investment scheme for the Ordinary Account. For instance, a member cannot withdraw the Special Account savings to buy shares on his own account. We will not allow it. Neither will we allow him to withdraw the Special Account savings to purchase unit trusts in the higher risk groups which are more weighted towards equity, wholly or partially invested in equity. So there are already some measures to moderate the risk exposure for the Special Account investor. Of course, at the end of the day, as I have said in my Second Reading speech, the member has to be prudent himself and to exercise judgment.

As to the suggestion for the Board to set up a Special Fund Management Division and to allow CPF members to transfer part of their Special Account into this Fund for the Board to manage, the Board itself cannot guarantee that its investment decision will be that much superior or that much more risk-free compared to any of the other approved fund managers that are available in the market. Yes, while it is true that if we do it as a group it will have a bigger base and, therefore, can be more diversified and have lower risk, likewise, if a CPF member were to take out his Special Account savings to buy a unit trust in one of the lower risk rated groups, one of the lower tiers of the Mercer's Risk Classification, he will be, in effect, putting his money into a bigger pool which will allow the fund managers of the unit trust to construct a properly diversified and hedged investment portfolio. So he will also have the same benefits.

I think it is better for the CPF member to make this decision for himself and to take out his Special Account savings to invest with a reliable or appropriate fund manager that has already been pre-approved than for him to leave it with the Board because there will be no additional advantage for the Board to try to serve as a super-fund manager for all the CPF members in this sense. We are limiting the choice and the access. We prefer to take an approach where we give the members a greater option. Perhaps, it is part of the process. Some may make mistakes and some have made mistakes and lost money, in the case of the CPF investment scheme for the Ordinary Account savings. Over the longer term, we believe that if members take a prudent and careful approach they would be able to enhance their old-age savings and it will benefit them. We believe our approach is sounder for the longer term than to have the Board act as a fund manager, as suggested by Mr Chng.

Sir, I believe I have addressed the points raised by Members.

Mr Yeo Guat Kwang (Cheng San): (In Mandarin): I would like to ask the Minister whether he would consider extending the age limit beyond 65 years for the Home Protection Insurance Scheme. With longer life span among our people, would he consider further fine-tuning the scheme?

In my mind, the tripartism of labour-management-Government relationship is based on the basic understanding of mutual benefit and mutual help. It is not built on the basis, as alleged by Mr Tay Beng Chuan, to put unreasonable demand on the employers. Mr Tay accused the Government of putting pressure on the employers without taking into consideration their predicament. Can that be true? Employees in Singapore worked very hard and made sacrifices during the crisis to help their employers tide over the difficult times to survive the crisis. They took a pay cut and CPF cut to help the companies reduce their business cost. The employers should not keep on asking the employees to make sacrifices whenever they are in trouble. Should the employers not take other measures to solve their own business problems? I am very saddened by the employers' lack of recognition of the employees' sacrifices.

Mr Deputy Speaker: Order. Mr Yeo, you are not speaking on the principles of the Bill.

Mr Yeo Guat Kwang: But I am asking clarification from the Minister.

Mr Deputy Speaker: All right. Please ask your clarification

Mr Yeo Guat Kwang: (In Mandarin): I would like to ask the Minister this question. There is a saying, "when you borrow you must pay back." Is it not reasonable for the employers' CPF contribution which was cut during the crisis to be returned to the workers, now that the crisis is over?

Dr Wang Kai Yuen (Bukit Timah): May I seek the Minister's explanation on the cash top-up scheme for parents? I understand that besides the time bar, there is actually another constraint on the cash top-up scheme, which is the maximum amount a child can top up for the parents and that maximum amount is based on the Minimum Sum scheme and the age of the parents. I am very heartened to say that the Ministry is prepared to lift the time bar. My question is whether the Minister is also prepared to consider lifting the maximum sum allowed so that more parents, whose contributions by the children have reached the cap, can continue to contribute to this top-up scheme. 2.00 pm

Dr Lee Boon Yang: Mr Deputy Speaker, Sir, I suppose Mr Yeo Guat Kwang's point is really not in response to my comments on the Second Reading of this Bill. He asked whether we would fine-tune the Home Protection Insurance Scheme. We are, in fact, doing it by raising the age limit from 60 to 65. If, in due course, lifespan goes even longer and people take out even longer mortgages, then we will of course look at it again. The comments on the workers' contributions to help Singapore turn around are noted. I agree with him that the workers have made great sacrifice and contribution. I think employers should take note of it. That is why I said in my response to Mr Tay that we will continue to shoot for a speedier restoration of the 10 percentage-point cut in the CPF. As long as the economy does well, we will try to restore the CPF cut as soon as we can.

In the case of Dr Wang, he asked whether there should be no limit for the cash top-up for parents. As it stands, the cash top-up is to the Minimum Sum that the parents have to set aside when they retire at age 55. There is a reason for it, because of its tax benefit. The Minister for Finance has generously allowed such cash top-up for tax exemption. Therefore, there must be a limit to how much you can top up. If we say that there is no limit to the cash top-up and it continues to attract the same level of tax benefits, then, of course, there is opportunity for some form of abuse. Because you could put $100,000 in and claim tax relief, and then the parents would take it out and it will be siphoned back. So we have to bear that in mind. But if it is cash top-up without tax benefit, we welcome it. Anybody is welcome to put money into their parents' CPF accounts and not claim tax benefit, and leave it to the parents to enjoy the proceeds according to the rules of the CPF withdrawals. We welcome any amount.

Dr Wang Kai Yuen: I think the Minister is right that there should be a limit. But I would like to remind the Minister that the limit has been increased gradually and that is tied to the retirement age at 65. And over time, this limit has increased. But for the parents who are still surviving, let us say when they reach 65, at one point it was about $30,000, now it could be about $60,000, would he consider moving all those limits up to the maximum of $60,000, for instance, rather than unlimited contribution, like he says, $100,000? Of course, if he said, like $1 million, obviously there could be abuse in that scheme.

Mr Tay Beng Chuan: (In Mandarin): Mr Deputy Speaker, I would like to clarify with the Minister for Manpower and also in response to Mr Yeo. What I said just now was that I confirmed the strong existence of Government, labour and management tripartism in Singapore. Like the labour side, the management side has also made a lot of sacrifices. As far as CPF is concerned, the employers had been contributing 20%. In many countries, this 20% is like a form of social welfare.

Mr Deputy Speaker: Order. Mr Tay, I have given you plenty of chances to speak but you went astray.

Mr Tay Beng Chuan: Sir, I am just trying to clarify my points.

Mr Deputy Speaker: Please clarify.

Mr Tay Beng Chuan: Yes.

(In Mandarin): What I would like to say is that in this tripartite arrangement, both labour and management have made sacrifices and contributed towards the economy of Singapore. Should not the Government also chip in by making its contribution and make its presence and participation felt?

Dr Lee Boon Yang: Mr Deputy Speaker, Sir, the Minimum Sum is structured on the basic needs of a person when he retires, and it is set at the point in time when the person attains the age of 55. So I think we should keep to this same framework rather than to periodically raise this Minimum Sum for the entire cohort. Because they have to set aside this amount of money, and the top-up should be made in relation to what are considered basic retirement needs of persons in that cohort. As I said before, if you have children who want to make larger cash contribution, they are more than welcome. There is no rule to stop you from making contribution in cash to your parents, siblings, grandparents or to any relatives' CPF accounts. In fact, many people have opened up CPF accounts for their spouses who are not working, housewives, for instance. Husbands have opened up CPF accounts for their wives and from time to time put some cash into it, without seeking tax exemptions. And when the Government gives various top-ups, the housewives therefore benefit. So there is no impediment if children want to put in a higher cash top-up than what is allowed under the Minimum Sum scheme for their parents. The problem is, if they want to ask for an equal tax relief, then it would create some distortion and difficulties. So I think we should stay with the present arrangement as long as it is for the purpose of tax relief. But if it is outright, generous contribution, we have no difficulties.

To Mr Tay, my only response is that Government is fully aware of the contributions on the part of the workers and of course on the part of the employers. The CPF scheme is a neutral system. It is a scheme whereby employers have to contribute and employees also contribute. CPF is part of the wages, including the employer's portion which is part of wages. It is not an additional ex-gratia payment made by the employers for nothing. It is part of the employee's wages. Therefore, when we cut it, we are in fact cutting wages. That is why we have to be so careful about cutting the CPF. That is why I explained to you earlier on, that we should build up a separate monthly variable component as soon as possible, so that we do not have to periodically rely on this rather blunt instrument of cutting CPF across the board. If we have a monthly variable component, we would have a much more responsive, flexible and targeted measure to deal with any economic downturn.

Let me assure him that employers' contribution to Singapore's economic competitiveness, to our prosperity, is fully noted.

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.