CENTRAL PROVIDENT FUND AND RELATED CHANGES

[Mr Speaker in the Chair]

Debate resumed.

Mr Othman Haron Eusofe (Marine Parade): Mr Speaker, Sir, I support the proposed changes to the CPF scheme which will help enhance the retirement needs, as well as increase wage flexibility, particularly to improve the employability of older and less skilled workers.

The changes will bring some pain but I think they are necessary in order that we are able to meet the tough challenges in this increasingly competitive and uncertain globalised world. Sir, I am assured that the changes will be introduced at a gradual pace and this would give sufficient time to the members to make adjustments and adapt to the new system.

Sir, on the change to raise the monthly salary floor range for employees' contribution to $500-$750 from the current range of $200-$363, I believe this will encourage more job-seekers to consider jobs, including part-time work, as this will enable them to bring home more pay to meet their immediate needs. However, there is this concern that with this change, low-income workers will not be able to save more for their Medisave and retirement needs. Sir, I hope that the Government will, in times of good budgetary surpluses, help to provide more to this group of workers so that they can have more savings in their CPF, eg, the CPF Top-up scheme or Medisave scheme.

Sir, at the same time, we should also help these workers to upgrade their skills so that they can move on to better paying jobs and make better contributions to their CPF. As regards the lower employer contribution rate for workers aged 50 to 55, from 20% to 16% when the CPF contribution rate is restored to 40%, I would like to urge employers to follow the Government's example to provide a CPF Top-Up which can form part of the monthly variable component.

Sir, next, to help members to enhance their return on their CPF balances, I am happy to hear of the proposal to increase the interest paid to the Special Account balances. This is to be based on more appropriate long-term interest rates like the interest rates of Government bonds and also to make a change to the CPF Investment Scheme to enable members to participate in low-cost privately managed pension funds. Sir, in order to encourage members to make use of these facilities, a public education programme is necessary. I would like to suggest that CPF embark on an education programme to educate members on the pension scheme, explaining clearly the downside risks as well as the benefits of the scheme.

Sir, the ERC has stated its concern that the present Minimum Sum Scheme will not be sufficient for the majority of retirees and, therefore, we need to increase it beyond the current target of $80,000. I support this proposal to increase the Minimum Sum Scheme beyond $80,000.

I would like to ask the DPM whether there is any way whereby we can incorporate the Minimum Sum Scheme within the proposed pension plan scheme for CPF members.

Sir, as for housing needs, the liberal usage of the CPF funds over the years has unfortunately led to many CPF members becoming "asset-rich and cash poor" at retirement. Housing ownership has contributed to our stability as it has given our citizens a stake in Singapore's success. But I think there is this problem that the property that they purchased cannot be easily converted into cash, particularly in a period of slow property market and this has prevented members from converting their properties into cash when they need it.

Sir, we have to explore means to enable house owners to monetise their properties. I understand that the Land Working Group of the Sub-committee is looking into some recommendations. I would like to see what they would recommend because I think there is an urgent need to help those who have put money into properties to convert them into cash.

Sir, on this note, I support the proposals.

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I wish to join in the debate on this Ministerial Statement on the CPF and related changes, so as to seek some clarifications and ask for flexibility on the implementation of the proposed CPF changes.

Before I start, I wish to declare my interest that I am an Executive Director in an organisation involved in property business and I personally am a property owner. In fact, I am going to reach 50 years very soon and will be much affected by the new CPF changes. Hence, the changes I request for will have an impact on the property market. However, the points I intend to raise are for the general interest of the public.

Sir, I wish to support the various changes announced by the Deputy Prime Minister. The DPM has actually announced many changes and some are most welcome. In particular, I would like to express my happiness in the new rule to allow 10% of the purchase price for downpayment to be paid out of the CPF account. This is indeed a welcome move to enable younger employees to buy their first property.

Sir, I understand and accept the proposed changes to the CPF regime such that there will be less risk of over-exposure of the people, especially for older people, to property investments. However, there are some concerns of the public on the lowering of the salary ceiling from $6,000 to $5,000 and that these new rules will lessen the ability of the affected persons to service their existing housing loans using CPF.

Sir, I would like to raise four suggestions or questions with the DPM.

The first point I wish to make is that the proposed capping of the total amount that can be used from CPF, from 160% to 150% in the first year, and eventually down to 120% of the property value in the fifth year, means that employees who have loans reaching this limit but they could have some more balance in their own CPF Ordinary Account, are forced to use their personal savings or cash to continue servicing existing housing loans. This may pose, in some cases, severe financial or cash flow problems to these affected persons. In addition, in terms of investment options open to them, this new rule will mean that they now have limited options that can be used in the CPF funds for properties, and may have to switch to investing in other forms of investments, like shares, securities, and other forms of financial instruments. This could create rigidity in the investment options open to them. We have read recent reports from banks and financial advisers that properties have historically been proven to be a better form of investment compared to shares and equities. This new rule may impose more constraints on the CPF account holders to put their money into good investments such as properties.

My second suggestion is to request the DPM to consider allowing loans for one owner-occupied property per person to be exempted from the total valuation cap. The limit is 150%, reducing to 120% in five years' time, which would be imposed on CPF withdrawals to be used to service such loans.

This concept is practicable and workable, which is the same principle applied in the case of property tax concession where a person with one owner-occupied property is allowed to enjoy property tax concession. I believe this suggestion or flexibility of not imposing a valuation cap will be beneficial to all Singaporeans, and lessen their concerns about their ability to service existing or even new housing loans, provided it is a owner-occupied property. I sincerely feel that this suggestion is very useful and meaningful, and urge the DPM to think about it seriously.

Mr Speaker, Sir, I would like to turn to two questions that I have filed for Oral Answer. If these two questions are adequately addressed and replied to by the Deputy Prime Minister, I may consider withdrawing these two questions to be tabled for a future sitting of Parliament.

My first suggestion is not to lower the CPF contribution rates of older workers aged between 50-55 who have existing housing loans. I wish to ask the Deputy Prime Minister to consider this idea, because the older workers aged between 50-55 may be faced with heavier reliance on their cash or personal finances when their CPF contribution rates are reduced or not restored. This concession will also mitigate their concerns of their ability to continue servicing their existing loans. If their CPF contribution rates are lower (as their employer's contribution will be lower), therefore they cannot service their loans based on the present plans for their existing loans.

Sir, I particularly like the idea of the Transitional CPF Component Top-up (TCTC) which has been proposed for civil servants aged between 50-55. I think this idea is a very enlightened and laudable move. May I urge the Government to request private companies and employers who are doing well to consider having a similar scheme for their employees aged between 50-55. Their workers will at least enjoy the benefit of the CPF top-up, for companies that are doing well, and not face lower CPF contributions into their accounts.

Sir, my last suggestion is to request the DPM to consider not applying the proposed CPF changes to owners of existing properties when they re-finance loans on their properties. A person may continue to own an existing property but wish to refinance the terms of the loan with the existing bankers or new bankers, so as to enjoy the declining loan interest rates. If the new rules kick in when an existing property is refinanced, then the owners may find that they are restricted from using more CPF contributions once the limit on the withdrawals is reached based on the new rules. This may result in the owners being unable to enjoy lower interest rates if their banks are imposing higher interest rates than other bankers. I am sure that DPM does not wish to see this rigidity that creates a constraint on our people to enjoy lower housing loan rates, particularly for refinancing of existing properties. Therefore, refinancing of existing properties should not be deemed as new loans when the new CPF rules are applicable. If this is not allowed, I would like to ask the DPM to explain to us.

Sir, I hope that the proposed CPF changes may be received favourably by the Government for the benefit of all.