CENTRAL PROVIDENT FUND AND RELATED CHANGES

Debate resumed.

Mr Chew Heng Ching (East Coast): Mr Speaker, Sir, I would like to express my appreciation to members of the ERC Sub-Committee for their recommendations on the CPF. I support the recommendations and would like to offer some suggestions on the greater use of private sector pension scheme as an extended form of the CPF scheme.

Sir, since its introduction in the 50s, there have been many refinements in the CPF scheme, influencing home ownership, healthcare, family protection, asset enhancement and retirement needs. And in the years ahead, we could anticipate further refinements or changes, as Singapore faces significant economic and social challenges, from an increasingly competitive global environment, maturing economy and a rapidly ageing society.

Sir, the report has alluded to the need for the Government to facilitate the provision of low-cost privately managed pension plans to CPF members as an additional option under the CPF framework. I strongly support this move and would like to offer some suggestions. This move towards private sector pension plans will allow greater flexibility for members to invest and secure their own retirement. And to make this possible, I would urge the Government to:

(a) consider allowing members to use their CPF money to subscribe to private-sector pension schemes;

(b) review some of our existing policies and rules that may pose as obstacles or impediments towards this goal, ie, our tax regime, to make it more "friendly" towards annuities, pensions and so on; and

(c) consider an "opt-out" option under the Minimum Sum Scheme.

Sir, the provision and contribution by CPF members towards private-sector pension funds would reduce the burden and dependence on a centralised state-run pension fund. I suggest the Government give more recognition and accord more flexibility on the part of those individuals who are able to look after their own financial affairs in contributing to private-sector pension schemes or insurance plans. This will enable the CPF scheme to be seen for what it truly is - to be a facilitator to members' retirement needs, rather than a burden.

In line with this and to encourage individuals to take greater responsibility for their own financial planning retirement needs, I would suggest the Government look into introducing an "opt-out" option for the Minimum Sum for individuals who are able to demonstrate that they have set aside more than adequate resources for their retirement needs through private-sector pension funds or insurance policies. And this is not limited to just those who are ranked above the 80th percentile of the wage earners.

Sir, having a rising Minimum Sum annually beyond $80,000 from June next year in line with benchmark wage growth presents a number of problems. Firstly, it creates an illusion for the less financially astute that since the number is Government mandated, it would be sufficient for their needs, which is not necessarily so. As a consequence, it may discourage members from taking greater personal responsibility over their own retirement needs, and not make additional provisions through investing or saving on private pensions or insurance plans. This may lead to disappointment in the future as, indeed, the Sub-Committee has rightly pointed out that the Minimum Sum may not go far enough to cater for rising standards of living in the future.

Secondly, by requiring members to set aside a Minimum Sum in addition to what is available from their own retirement planning under private pension schemes or plans produces an inefficient allocation of resources. Singaporeans who are able would be better placed to manage the Minimum Sum on their own and would otherwise be restricted from using these funds for more productive investments or entrepreneurial activities.

Thirdly, it is also inefficient to members who are able to plan ahead to have an increasing amount of savings tied down in their Special Accounts that have limited investment options under the current scheme. Allowing a greater use of the Special Account to contribute efficiently to private pension plans would both benefit the individuals as well as promote the development and growth of the financial services industry, in particular, the insurance companies, for which the pooling of more CPF assets could render them more viable and efficient as well.

Sir, as with any changes that will affect the lives of Singaporeans, there will be some resistance and unhappiness over some of the recommendations that affect different individuals. However, it is reassuring to hear from the Government that it will implement the changes as recommended progressively over a period of time, and as painlessly as possible. I am also certain that with greater information and more publicity, Singaporeans will understand the need for such changes, and recognise that CPF's strong emphasis on individual responsibility to secure their retirement expenditure, healthcare and home ownership is in their long-term interest.

In summary, Sir, I support the recommendations of the ERC Sub-Committee and would urge the Government to further enhance the flexibility of the CPF scheme, in particular, to give greater recognition and leeway for members to subscribe to private-sector pension schemes using their CPF money and to withdraw the Minimum Sum amount should they be able to show that they have invested in private pension funds on their own, and have pensions or insurance plan resources in excess of this Minimum Sum.

Mr Gan Kim Yong (Holland-Bukit Panjang): (In Mandarin): Mr Speaker, Sir, the proposed changes to our CPF system, as announced by DPM Lee in his Ministerial Statement, are very prudent and timely. I would like to share my views on three aspects of the proposals for the consideration of the Government.

First of all, on the lowering of withdrawal limit for housing. I think this is a wise move. Many Singaporeans are investing a significant part of their income and savings in housing, some have even exceeded their means. Lowering the withdrawal limit on their CPF savings will help to prevent Singaporeans from buying properties beyond their means, thereby ensuring that they would not be caught in a crunch when faced with a financial crisis. On the other hand, as this package will be implemented gradually in stages, it will give the people time to make the necessary adjustment, and will not create too much of adverse impact on the property market. I am sure the property developers will heave a sigh of relief. However, when this lowering of withdrawal limit has eventually come into full effect, it will inevitably affect the property purchasers because once they have reached the ceiling of the withdrawal limit from their CPF savings, they will have to pay the remaining instalments in cash. To ease the situation, I have two suggestions to make.

First, I think we should consider allowing the purchasers to have their properties revalued. If the property price has gone up, they should be allowed to raise their withdrawal limit. Secondly, so long as they have the Minimum Sum set aside in their CPF account, they should continue to be allowed to use their CPF to pay for their housing. After all, they are allowed to use their surplus amount in their accounts to invest in shares. Why do we not allow them to use the money to pay for their own property instead? I think this will enable the people to have more flexibillity in using their CPF savings.

Next, let me talk about raising of the income floor for CPF contribution. Now that we have many people unemployed, I think we should help these people, especially those in the lower income group. We must encourage them to be more flexible and adaptable. They should be persuaded to take up whatever jobs that are available to them, even if the pay does not meet their expectations. They should take these jobs first, at least for the time being. By raising the income floor, they would enjoy higher take-home pay and be more willing to accept lower paid jobs, or part-time jobs.

Thirdly, I would like to talk about the reduction of CPF contribution rates for those aged between 50-55. On this recommendation, I must say I am somewhat relieved. At least, those aged between 40-50 are not affected, at least for the time being. However, I feel that we should be more cautious in implementing this recommendation. First, the 4 percentage point difference may not be enough to make the employers decide to employ the older workers. DPM Lee has also said that from experience, most of the retrenched older workers had to accept a lower pay. From experience they have to accept at least 20% less than what they were drawing before their retrenchment, if they were to get back into the labour market. Recruitment decisions are based on many factors and salary is just one of them. The employers would normally want to employ older workers for their experience, maturity and reliability. On the other hand, if the candidate is found to be unsuitable for the job, the 4 percentage point difference is not likely to swing the employer's decision in favour of the older candidate for the job.

Secondly, I agree with DPM Lee that it would not be fair to those who had already made sacrifices and accepted a wage cut so as to retain their jobs during the crisis. During the bad time, they were told and they had accepted a pay cut to help the company stay viable in order to secure their job. Now that the economy is showing signs of recovery, they are slapped with a 4 percentage point reduction in their CPF contribution rate. This is a double blow to them. These are the workers who were more responsive to the Government's call to "bite the bullet", yet we are now cutting their pay again. This is unfair to them.

Thirdly, I feel that this will send a wrong signal that the Government endorses the belief that older workers are less productive and should therefore be paid less. I understand that this recommendation is aimed at countering the seniority-based wage system. But, by reducing the older workers' CPF contribution rate, it will unintentionally further entrench this seniority-based salary system. We may send the wrong message that seniority-based system is all right since the Government is finding ways and means to compensate for it. I feel that we should instead encourage employers to adopt a flexible wage system and reward the workers according to their productivity and contribution. In this way, we will be more competitive, and be in a position to compete globally. Of course, this is no easy task, but we should not shy away from the important task and take the easy way out. We should give the employers more time to accept and implement the flexible wage system.

Mr Speaker, Sir, I would like the Government to reconsider this move to reduce the CPF contribution rate for workers between the ages of 50 and 55. If this scheme has to be implemented, then I would urge the Government to persuade employers to convert the 4% CPF savings into a variable component of the worker's monthly salary. If any particular worker's performance is not satisfactory, this variable component can then be removed by his employer. This will ensure that the employers will not take advantage of Government policy to force the workers who had already suffered a round of pay cut to take another cut in terms of CPF contribution. In this regard, I am pleased to note that the Government has taken the lead to compensate the affected civil servants in this age group with the TCTC scheme.

Government's determination to improve our economic situation through fundamental changes in our CPF system is evident to all. However, the changes to the CPF system must be carried out in parallel with the creation of job opportunities. If there are no new job opportunities, the unemployment situation will not improve. I think we should, on one hand, improve the employability of our workers and, on the other hand, strive to attract more foreign investments so as to create more jobs. This way, we can then solve our unemployment problem at a fundamental level.

I support the Ministerial Statement.

Mr Low Thia Khiang: (In Mandarin): Mr Speaker, Sir, it takes more than one cold day for the river to freeze 3-feet deep. Indeed, the problem of CPF has been brewing for quite some time.

Soon after the economic recession in 1986, the Workers' Party suggested that the Government conduct a comprehensive review of the CPF system, in order to establish a balance between the people's needs in saving for retirement, housing and medical; and the need in maintaining our economic competitiveness. We also cautioned about the people spending their CPF savings excessively on the purchase of properties. However, in the 1990s, following a steady economic recovery and the PAP Government relaxing its regulations pertaining to the purchase of property, particularly its tactic of using "assets enhancement" as a trump card for winning the General Election, it brought about a mad rush among the people to upgrade their HDB flats or to purchase private properties. As a result, CPF members are in a situation today, which the Economic Review Committee describes as "asset rich but cash poor".

Unlike in 1986, this time round we are also pressurised by the problem of unemployment brought about by our transition into a new economy, using the means of reducing the CPF contribution rate in order to enhance the employability of people in a certain age group has become yet another goal of the CPF system, on top of its original aims of ensuring that people have the means to pay for their housing loan and medical expenses; and maintaining enough cash for their retirement.

How to resolve the tension brought about by these conflicting demands? Faced with an economic situation where high growth and high employment rate are no more, and a future where the population is aging, the cumulative pressure from all these phenomena makes the problem tougher than that in the post-1986 years. Will the recommendations of the ERC be effective? Do we need to have another economic review committee to review again soon after? We shall wait and see. While the world economy is changing rapidly and the Asian economy is shifting its focus, we have to monitor their impact on us closely. I am even doubtful that the current CPF contribution rate of 40% can be sustained in the long run.

Under this situation, we are particularly concerned with the impact brought about by the Economic Review Committee's recommendations on the middle and lower-income people. In principle, we agree with this increase in income floor for contribution to CPF, so that the lower-income people will have more take-home pay to meet their daily expenses. However, we need to look at all the ERC's recommendations in total.

Earlier on, the Government has accepted the Committee's recommendation to raise GST, and MAS has predicted that with the increase in GST, inflation will also go up. If these two recommendations are implemented simultaneously, the lower-income people will be back to square one again and still have problems making ends meet, once the Government withdraws all the offset packages that come with the GST increase. At the same time, they will lose some savings in their CPF accounts. The Committee holds the view that the lower-income people cannot depend on their CPF alone for their retirement needs. We therefore feel that the Government should clearly indicate how it is going to help these people deal with their problems after retirement.

As for those middle-income people, whose salary is between $5,000 and $6,000, ERC's proposal of reducing the contributing income ceiling will lead to a reduction in their income as a whole. Not only will they have less CPF, the extra cash in their take-home pay would be subjected to income tax too. Although they could transfer the cash back to CPF under the Supplementary Retirement Scheme, the pressure brought about by the increase in GST may make it difficult for them to do so. After all the Government has said, for those with a higher income, the impact of GST increase on them will be greater. The ERC has also recommended that people invest these extra cash on financial products that give higher returns. This will inevitably attract higher risk and, of course, the additional cash that they have will mean more income tax to pay. Compared to the current arrangement, whether the people will gain under the new recommendation is a question mark.

For people who are from the above group and whose age falls within 50 and 55, they will be the ones who suffer most. The ERC commented that their wages are higher than the younger workers on the same job based on the current seniority-based system, and this makes them vulnerable to retrenchment. The ERC claims that reducing the CPF rate for people in this age group would help them to have better job security, and encourage employers to retain or employ these older workers. I do not know how the Committee has come to this conclusion. There is no mention in the report of how the ERC has come to this conclusion. We have also doubts as to how the effects of this recommendation could be evaluated.

If the aim of the ERC is to reform the so-called seniority-based wage system so as to enhance the flexibility of the wage system and, at the same time, narrow the gap of CPF rates between the pre-55 and post-55 members, then it would involve not only those in the 50 to 55 age group. From the present situation and the discussion prior to the release of the recommendations, it would appear that the Government's target of reform will not be confined to the 50 to 55 age group. What is the Government's long-term policy on this? Should it not spell it out clearly to the people so as to alleviate their anxiety, and be better prepared psychologically?

The ERC has emphasised that this recommendation is not aimed at reducing the cost of the employers. So they encourage the employers to pay back the savings to the employees through other means. But will the employers really do that in reality? Unless the Government makes rules to compel them to do so, this recommendation is indeed helping the employers save on their manpower expenses. To those workers in this age group, particularly those who are relatively stable in their job, this recommendation weakens their capability to service their housing loans and to have more money for their retirement. Does this not run contrary to the original intention of the ERC?

As for the Special Account, the ERC's recommendation is to adjust the contribution rate from the 4-6-6% formula to the 5-7-9% formula, after the employers' CPF contribution rates are fully restored. Did the ERC consider other combinations? As people younger than 45 are more flexible in reacting to the changes in the labour market, and contributing more to the CPF, should we not increase the Special Account contribution rate for those below 45? At the same time, can we not separate the group of 45 to 55 into two sub-groups of 45-49 and 50-55? This will bring us to the formula of 7-9-9-6%. Please refer to the table which I have circulated to hon. Members. In this way, we could caution the young people to be more prudent in making their decision to purchase property and also to prepare for their retirement much earlier. Furthermore, when they have reached the age of 50 and above, not only will their CPF contribution rate be reduced, they will, more often than not, have other commitments and needs, for example, paying for their children's university tuition fees through CPF, the proposed 7-9-9-6 formula will help them be better prepared to service their housing loans.

The Committee has also recommended that the Government provide more means for the people to sell their property for cash for their retirement. We agree with this recommendation. However, the Committee has not mentioned how to solve the housing problem of these people who have sold their properties. The Senior Citizens Apartment Scheme introduced by HDB may be one option. However, this is only confined to purchases and not rentals. The Government should consider appropriate policy measure to provide rental housing option for those who do not wish to purchase a house.

As for the enhancement of the returns on CPF funds, we agree with the Committee's view. Under the present practice of individual investment arrangement, it is difficult for the investors to attain the original target of the CPF investment scheme. The Government should consider allowing CPF members to participate in other private pension investment plans, or perhaps set up a national pension investment scheme so that we can pool our resources, reduce costs and to increase the returns on investment.

In conclusion, we agree with this principle of gradual adjustment to the CPF structure so as to strengthen the CPF's original function of providing for life after retirement. The people should be more self-reliant, and start preparing for their retirement early in life. However, in a tough economic environment, there are bound to be some Singaporeans who are unable to make ends meet after retirement. I would like to remind the Government that it has to look after the livelihood and welfare of this group of people. This is, after all, the responsibility of the Government.

Mr Heng Chee How (Jalan Besar): Mr Speaker, Sir, thank you for this opportunity to join in the debate.

The ERC Sub-Committee has recommended many changes to the CPF system. The ground sees most of the changes as reasonable and necessary. This is because workers understand that it is important to have enough money set aside for old age, medical expenses and housing.

For this reason, the proposal to increase the percentage contributions to Medisave and the Special Account as CPF is progressively restored did not raise any eyebrows. Workers know that this is done for their sake.

As for the tightening of the limits on the use of CPF funds for mortgage payments, workers have seen for themselves, in recent years, how the property market has sagged. They know now that pouring more and more money into property purchases, whether it is CPF or cash, is not a sure-win strategy. So they understand why it is good to be prudent about the use of CPF funds to pay mortgage interest. Most of all, they were reassured to learn that all HDB subsidised loans and current non-HDB mortgages will not be affected.

The recommendation to increase the take-home pay of lower-income workers by moving the contribution floor band from between $200-$363 currently to between $500-$750 was also accepted as well meaning and helpful.

Sir, as we all know, the most touchy subjects are those affecting people's wallets. So the most intense feedback and interest is naturally in this area. First, workers remember the Government's reassurance that the cut in the employers' CPF contribution will be restored as quickly as possible in line with what the economy can bear. They see this stand echoed in the Sub-Committee's proposals, and they welcome that. And today, we hear DPM Lee has once again given this reassurance.

Second, they remember that the Government has endorsed the view that the CPF should not be seen as a convenient tool for managing swings in business conditions. It was for this reason that the tripartite National Wages Council proposed the Monthly Variable Component for the wage system. The Sub-Committee has reinforced support for this stand. The need to safeguard the CPF from new cuts is all the more necessary as the CPF will henceforth be refocused to provide the basic in those three key needs. Workers do not want to live in constant fear that their nest egg may be targeted repeatedly because of economic turbulence. Workers expect the Government and employers to take this seriously and live up to this commitment.

Third, many workers who are in the 50-55 years band dislike the recommendation to freeze the employers' CPF contribution rate for them at the present 16%. Why is that so? In my view, this results from a combination of anxiety and skepticism. There are workers who have ongoing commitment to service, and who have had to face increased financial burdens when the employers' CPF rates were cut in 1998. And they, like everyone else, were looking forward to progressive restoration of the cuts to ease their burdens. When they hear that their hopes of further restoration have disappeared, they feel that loss.

But, Sir, in my assessment of the feedback, I think skepticism is far stronger than anxiety. Skeptical about what? I think it is about two things in particular; one, it is about the purpose, perhaps the intent of Government's action; secondly, it is about the measures' likely effectiveness.

Sir, I said earlier that workers almost immediately understood the rationale for most of the recommendations. And they had little difficulty in accepting those. Why? It is because those recommendations are intuitive. You need more money in the old age, so you must save more now. House prices may go up or they may go down, so you had better not put too much of your old-age savings into property play. So it makes sense to workers because these are obvious logic.

But for this recommendation to freeze the employers' CPF contribution for the 50-55 year olds, it seems what is obvious to many of the workers is that they see other people going to get their restoration, but they would not get their restoration. So their natural reaction is: why are you targeting me? Do I not need the money just like everyone else? And so some may even question the Government's intent, and wonder whether it is done primarily to give employers some cost savings. And for good measure, they also question whether such a move would, in any case, be effective.

Sir, I feel that it is extremely important for the Government to explain clearly, and may I say repeatedly, through all available channels to our workers its sincere intent in this set of proposals. Older workers want to know that the Government has their interests at heart, that the Government cares for them. They want to know what the Government will do to make sure that their interests are indeed well looked after on an on-going and holistic basis. Older workers want the Government to do more to guide employers into positive behaviour concerning them so that they will have fair treatment. The specific suggestions on fair rewards, job redesign, pointed out by Mr Yeo Guat Kwang earlier, are pertinent. They want the Government to signal clearly that they are as precious to this country as any other Singaporeans. Sir, this is a frightened group. And Sir, it is not just about this particular recommendation alone. It is not only about dollars and cents either. It is about how the Government can let the workers know that it is firmly on their side.

Sir, the intent of the Sub-Committee and the Government clearly indeed is not to reduce the pay of any older worker. What I see is a Government trying its best to help by improving the cost competitiveness of older workers, so that more among the older workers might have more years of working and earning. This intent must therefore not be misunderstood.

In this regard, Sir, I am happy to hear DPM Lee's announcement earlier in this House that the Government will do more for older workers through the Skills Redevelopment Programme and the People-for-Jobs Traineeship Programme, and that the Government, as an employer, will take the lead to top-up the salaries of deserving civil service workers affected by the freeze. Let this be a clear signal to the private sector that the labour movement expects fair play for workers in the private sector and that we call on private sector employers to emulate the Government's action for civil servants.

I would like to suggest that the Government inform all employers specifically, for example, through the CPF Board, about its call for them to treat deserving workers fairly in this CPF restructuring exercise and also point out that the Government has set the example. In this way, we would ensure that all employers get the message and that no employer can misrepresent, or present incomplete pictures to their less-informed employees.

May I further urge the Government to consider the fact that, notwithstanding any improved employability to be enjoyed by this group of older workers, they do not enjoy further CPF restoration. Thus, I appeal to the Government to take this into account in future asset-sharing exercises, such as CPF Top-ups, and to give more to these workers who are missing out during this transition period as CPF is progressively restored.

At the same time, Sir, it is important for all of us to maintain our focus on the big picture. The aim of good government must be to secure a better life for its citizens. The outside world is changing fast. The inside world is ageing rapidly. The risks of dislocation are rising. Adjustments must be made, and adjustments will be inconvenient and, sometimes, painful in the short run. Yet, this House must have the fibre to do what is right by our countrymen, in order to lead them safely through the raging storms. We owe this to them.

I support the proposal.

Mdm Halimah Yacob: Mr Speaker, Sir, thank you for allowing me to join in this debate.

Sir, in discussing changes to the CPF system, I think we will need to focus on the key issues and some of the underlying reasons that led to the Committee's recommendations. A key issue that the ERC has to address is a fast ageing population and how to adequately meet their retirement needs of which the CPF is a critical component. The average lifespan of Singaporeans has been increasing over the years. As a result, in 2030, there will be 796,000 Singaporeans aged 65 and above, more than three times the number in 1999.

Arising from this, Sir, there are two issues that have to be addressed. First, people have to save much more for retirement. Second, people have to stay employed longer. The statistics on both counts are worrying. On the first point, it is clear that people are just not saving enough for retirement, despite Singapore having one of the highest savings rate in the world. In fact, only about half of the CPF members will be able to reach the Minimum Sum of $80,000 when they reach 55. For many, CPF has become the only source of retirement savings. As use of CPF funds to purchase homes became more liberal, more and more funds were channelled into housing. In 1990, $1.9 billion was withdrawn for public housing but, in 2000, the figure had increased to $8.2 billion, a four-fold increase. During the same period, private residential property purchases also went up three times from $1.5 billion in 1990 to $4.2 billion in 2000.

Sir, the ERC's proposal to increase the Minimum Sum and the Special Account contribution rate will help to address the current imbalance, and ensure that more of the CPF savings will be used for retirement. However, this by itself is insufficient. More has to be done to educate Singaporeans to be prudent in using their CPF money for housing purchases. Housing is a critical component of our social safety net, and should remain a core element of our CPF system. No amount of assistance can give the same kind of assurance as having a roof over one's head. But the era of continuous and uninterrupted high growth is over. And so is lifetime employment. People now have to take a lot more risks arising from economic and business restructuring. So, in deciding what house to buy, Singaporeans will have to take into account these new realities.

Sir, I would like to call upon the Government to do a lot more in educating Singaporeans on this new economic and employment landscape. I would even suggest that we educate people from the time they are in school about the realities of the job market and some amount of financial planning as well.

Sir, the second issue is one of employment for older workers. As people live longer, they have to work longer too. The facts, however, are not promising. Statistics show that older workers are the ones that are the most affected by retrenchments and face the greatest difficulty in getting re-employed. This is a consistent pattern throughout all the recessions. In 1998, 51% of those retrenched were older workers. In 2001, 46% of those retrenched were older workers. In both recessions, the proportion of those re-employed who were in the older age group was lower than those in the younger age group. In other words, we do have a structural unemployment problem and the older workers are the worst hit.

Sir, it is in this context that one has to view the non-restoration of the 4% for workers between the ages of 50 and 55 years. Since 1986, we have been introducing changes to our wage system but progress has been slow. The monthly variable component, for instance, has been implemented by only 4.8% of companies in Singapore. The average minimum and maximum salary ratio is now at 1.5:2.0, lower than previous years, but still high compared to many countries. Hence, our wage system has remained very much seniority-based, and older workers are placed at great risk.

Sir, I have received feedback that older workers are beginning to feel that they are now unwanted or useless. At one dialogue session with trade unionists, one of them said that we should not talk about the problem of older workers as it only makes the situation worse. But I think that not talking about the issue of employability of older workers will not make the problem disappear, as the facts tell their own story. By discussing these issues openly, we stand a better chance of raising awareness and of collectively finding solutions to it.

Mr Speaker, Sir, our older workers have contributed significantly to Singapore's prosperity and growth. What has to be addressed is the seniority-based wage system, to inject greater flexibility and make wages more reflective of the job value. Hence, I strongly support DPM's call that employers pass on part of their cost savings to deserving workers in this age group. And I am most heartened that the civil service will take the lead by implementing a Transitional CPF non-restoration Top-up Scheme for civil servants aged 50-55.

In this regard, the recent statement by Singapore Technologies, a GLC, that it will pay deserving older workers in line with the ERC's recommendations, is also most reassuring. I also call upon all the statutory boards and the other GLCs to follow suit. This will send a strong message to private sector employers that the non-restoration of the CPF is not just a cost-cutting exercise, but is aimed at enhancing wage flexibility. Hence, I do hope that the private sector employers will exhibit the same spirit shown by the Government in its capacity as an employer, and we will not have too many disputes on our hands over this issue. The NTUC will do its part, when the restoration takes place, to ask that employers pay to deserving older workers.

Sir, I also welcome the Government's move to extend the People-for-Jobs Training Scheme and increase the support period for those above 50 years to nine months, instead of the present six months. I would like to urge the Government to review other ways in which we can ensure non-discrimination against older workers by virtue of their age alone. There have been complaints from older workers who have undergone training and are prepared to take lower take-home pay that they still cannot find jobs. If employers persist in discriminating against older workers because of age, then MOM may have to consider a more effective enforcement mechanism, other than the tripartite guidelines on non-discrimination at work, to deal with this problem. MOM should also monitor the employment trends in companies and consider denying work permits to those who show a consistent pattern of not employing older workers in jobs where age is not a requirement.

Mr Speaker, Sir, overall the recommendations are balanced, but there are older and lower income Singaporeans who will face difficulties, particularly during the adjustment period. I therefore call upon the Government to monitor the situation of this group of Singaporeans and extend all possible assistance to them. I also agree with my other parliamentary colleagues from the labour movement to ask the Government to consider giving them extra shares or CPF top-ups, as and when the Government makes such payments.

On this note, Sir, I support the changes to the CPF.

Assoc. Prof. Low Seow Chay: (In Mandarin): Mr Speaker, Sir, the CPF scheme has been set up to ensure that the people have enough savings to satisfy their retirement needs. But over the past years, the conditions and rules governing our CPF system have gradually been relaxed. The people are lavishly making use of their CPF money for various purposes, such as purchase of property, shares, insurance, children's university education, medical expenses, and even for childbirth.

Because of this, any change to the employer's CPF contribution rate would attract a lot of attention as it has formed a component part of the wages of the people. So, any reduction in this rate will be viewed as a pay cut. In a bad time, a reduction in employers' CPF contribution is advocated as a means to help the employers tide over the troubled waters to ensure that jobs are saved, and the workers are asked to make sacrifices in order that they can go through the difficult period together with the employers. This kind of sacrifice is worthwhile. At this time when the economy is beginning to pick up, we are proposing to cut their CPF contributions because of new factors and circumstances. I think such an arrangement at this time warrants our further deliberation.

For whatever reasons, the effect of all these arrangements is that the workers' pay is reduced. The employers reduce their wage cost. The Government gave two reasons why they cut the CPF contributions. One of the explanations is that the people in the higher income brackets have their own means to flexibly manage their savings. They do not have to depend on this compulsory savings scheme to meet their retirement needs. They have enough means to look after themselves.

What the Government said was only partially correct. The incorrect part is that why the 20% employer's contribution from $5,000 to $6,000 is taken away. Under this new measure, before the employee could flexibly manage the $200 per month of reduced employee's contribution, he already loses $200 due to the cut in the employers' CPF contribution. I think this new measure is unfair to the employees.

Although the ERC has already mentioned in passing that the employers should try to pass on the savings to their employees, it has not given any indication of how this arrangement can materialise. I would expect that the employers will simply pocket the savings, and leave the employees to work out their own problems. There should be more concrete measures to ensure that the employees will stand to benefit from the savings of their employers, so that this saving from the employer's CPF contribution will become a component of the wages. So I hope that the Government will take the lead to pass on this benefit to the civil servants and make it part of the variable wage component, to set an example for the private sector employers to emulate.

In the report, it was also recommended that employers' CPF contribution for workers aged 50-55 be frozen at 16%. In other words, for employees in this age group, when the employers' CPF contribution rate for the other workers is fully restored to 20%, theirs will be frozen at 16%. The reason given for this proposed change is to ensure that people in this age group who are unemployed will find it easier to get a job, and those currently employed will not be retrenched so readily. I have some doubts on this measure.

First, from the way it is worded, I observe that this measure is to tackle a problem when there is retrenchment and high unemployment rate. This is the presumption for this measure to be taken. In other words, when the economy has recovered, and there is full employment, there will be no meaning to this measure, except that the wages of the workers are reduced.

From 1988 until today, the economic performance of Singapore was good for about 70-80% of the time. There were only about 20-30% of the time when our economy was bad. The contribution rate of CPF should be based on the good times and make adjustment when the economy is bad. In other words, we should not use the standard made for the bad times as a general policy. This is because when the economy has recovered, all these cuts and reductions in the CPF contribution rates are unable to be restored because it is a general policy. The consequence is that the workers are unable to make good their losses.

Secondly, are workers who are aged 50-55 really that old, that useless, or their salary is so high that they are not worth employing? If this assumption is correct, and it is also reflected generally, then we should take a look at our Members in this House today. More than 50% of our Members of Parliament are above the age of 50. From this angle, we can see clearly one point, ie, age is not a hindrance to employability. The point is whether they can get their money's worth or are they able to contribute their worth, to get their job and to make them worth being employed. Cutting of the employer's CPF contribution is not the solution to their employability.

From statistics, there are some 12,000 people in this age group who are currently unemployed. Does it mean that once their CPF contribution rate is reduced to 16%, they will automatically get employment? Before the full recovery of our economy, their employability will mean the unemployability of other people. One older worker employed will mean one younger worker unemployed. Using the same argument, do we want to cut the CPF contribution rate of these younger workers to 16% to help them get employment?

What will happen if our economy is fully recovered? The workers enjoy full employment and, again, the foreign worker population rises above 500,000. All the workers aged between 50-60 are no longer faced with the employability pressure. My question is whether we will base on the same argument to reinstate their CPF contribution. The argument is when employability is low we cut their CPF. When there is no such employability pressure, should not the CPF be restored?

From the above points raised, I have a lot of doubts about this measure. I feel that the argument of freezing the CPF of those aged 50-55 at 16% to ensure that they keep their jobs or help the retrenched workers to find jobs is weak.

Despite the strong negative opinion on the cut in employer's CPF contribution, there are also many other ERC's recommendations on changes to our existing CPF system. In general, there are measures which would be beneficial to the people. I support the Ministerial Statement to accept these recommendations.

Mrs Yu-Foo Yee Shoon (Jurong): (In Mandarin): Mr Speaker, Sir, first of all, I would like to commend the Economic Review Committee in adopting a consultative approach to discuss with the people and also to consider all the impacts on the people from all walks of life before they make their recommendations.

According to feedback from the people, this process of consultation is very good. I hope that in future when Government wants to make any new policies, it would use such a consultative approach. It may be more work but I think it is worth it.

I want to say that the CPF scheme has contributed greatly to our nation-building. Since the time of independence, we have been proud of our CPF system as it serves as a safety net for the welfare of our people. With this CPF safety net, we facilitated the implementation of the home ownership scheme for our people and took care of healthcare expenses for our people through the Medisave scheme. Apart from its role as a social safety net, the CPF scheme has also been used as a sort of buffer in adjusting the wages of our workers during the bad times. If we do not have CPF, then we would have to hit on the actual wages of our workers, and I think it would be more difficult for us to recover from a recession.

During the acute recession in the 1980s, we helped the businesses to reduce their labour costs to stay afloat by cutting the employers' CPF contribution rates. This way, most of the businesses managed to tide over the difficult times with the workers' rice-bowls kept intact.

However, after the recovery of the economy, people began to withdraw excessively from their CPF accounts to speculate on the property market. This is a genuine cause for concern. There should be some restrictions on the use of CPF money for property investment.

Many people feel that with globalisation, competition has become very intense. We should therefore have a comprehensive review of our existing CPF system. The functions and roles of CPF are becoming more and more complicated. Now, CPF is also used as an adjuster for the employability of our workers!

With regard to the ERC report and DPM Lee's statement, I would like to present my views. This adjustment of CPF income floor from $200 to $500 is very good. In 1996, when I was in NTUC, we proposed to the Ministry of Manpower to raise this income floor for CPF contributions in order to encourage more women to return to the workforce. It was then turned down. I am glad that it has now been recommended by the ERC. So, I hope that on this occasion, more women would take advantage of this scheme to get back to the workforce. Just now, the Minister for Manpower has said that we may delay this scheme because of the economic recession. I beg to differ. If we want to improve our productivity, we should encourage more women to return to the workforce. One of the important points is that we should encourage more flexible work schemes or part-time jobs for the women, particularly when their husbands are retrenched or unemployed. It will be all the more important that the women return to the workforce. They can help to support the family.

As for the reduction of CPF contribution rate from 40% to 32% for older workers between the ages of 50 and 55, this is one of the most hotly discussed topics. For workers in this age group, they will not see their employers' CPF contribution rate restored to 20% when the others finally get theirs.

According to the South West Community Development Council's job-matching data, those who are affected by economic recession and have come to us for help in getting a job, some 30.5% are from the 40-49 age group and 13% from the 50-59 age group. So, strictly speaking, those who are affected are not confined to workers between the ages of 50 and 59. Even those who are 40 and above are already affected by this retrenchment trend. I was quite surprised by the figures.

After some consultation, the Government's recommendation now is to reduce the CPF rates only for those between 50 and 55. Of course, the presumption is that by reducing the labour cost on these workers, the employers will be less inclined to retrench them and they stand a better chance of retaining their jobs. But whether or not this will create employability, I think we have to look further into it. Employability concerns not only the labour cost, but also on other attributes of the workers such as work attitude, competence, ability to work as a team, etc. I hope the Ministry of Manpower would set up a committee to look into the employability of workers who are 40 years and above and conduct more in-depth study into their employability issues. A number of schemes are already in place to help them but whether or not they are effective, we do not know. We have also introduced this incentive for lifelong learning. But has this been proven to be effective?

Another point that I would like to bring up concerns the 4% reduction in employers' CPF contribution. I would suggest we set aside 1% for a Personal Training Account in the CPF. This point has been brought up several times before. I think this will tell the workers that we do not want just to reduce their CPF, but we want to set aside part of it to set up a training account for them. Perhaps, 1% should be used to set up a training account in their CPF.

Another point is that I feel that employers should be more positive in their attitude. Over the years, we have read a lot of reports in the newspapers concerning discussions on how to reduce business cost, including labour cost. As reflected in these reports, it is always the trade unions and the Government who are actively pursuing the matter. Very little has been reported on the employers' involvement in this. We talk a lot about globalisation nowadays. But it is always the Government which is doing the talking. In other countries, all sorts of projects are initiated by the private sector, eg, IBM, AT&T, Johnson & Johnson, etc, whereby the workers are briefed on the global trend of business and the company's reaction to all these changing trends. This would enable the workers to know what direction their company is heading towards so that they could do the necessary adjustment and make early preparation to adapt to all these changes. But in Singapore, our employers are not very active. Here in Singapore, only the MCDS is doing this sort of thing. I feel that we should explain to our workers the perspective of the employers, let them know the competition that we are facing and the various aspects of globalisation.

I feel our employers should not wait for the Government to solve their problems for them. They should be more proactive in explaining to the workers the importance of training and the importance of enhancing their productivity.

Another point I would like to touch on is the Minimum Sum. At the moment, our target is $80,000 but after 2003, it is suggested that it goes beyond $80,000. I personally support this because with our families going into nuclear family units, many senior citizens need to work to support themselves. Of course, we want our children to be filial to their parents. But nowadays, we can see there are more single parents and a lot of people have no children to support them. With the increase in the Minimum Sum, better protection will be provided for the old folks to meet their retirement needs.

As for those higher income workers, we have now reduced the income ceiling for CPF contributions. I feel that they should be able to take care of themselves because they are among the top 12% of our population. The Government has introduced the Supplementary Retirement Scheme whereby the high income earners can set aside additional savings in it to earn better interest. I would like to know what is the take-up rate for this scheme since its implementation.

Many people have been investing in shares. I do not think that many of them have actually made profits from there. Perhaps, we should have more education programmes for our CPF members so that they would know how to invest wisely. I think most Singaporeans do not have a good enough knowledge on how to invest their money.

Generally, the people's reaction to these recommendations to change our CPF system is certainly not as hotly debated as the earlier 3-cent increase in bus fares. I think this is probably due to the prior consultative approach by the Government. Singaporeans are very rational. They understand that under this globlisation trend, in order to retain our competitiveness, we have to reform. But I urge the ERC and MOM to set up a committee to review and to re-assess the effect of all our training schemes so that they could be implemented more effectively and workers who are 40 and above would increase their employability.

I support the Ministerial Statement.

Mr R. Ravindran (Marine Parade): Sir, we have literally come one full circle. When the CPF scheme was set up in 1955, it started off as a very conservative scheme. In the 1980s and 1990s, we started on a liberal track and now, we are trying to be back on the conservative route.

Sir, on the whole, I congratulate the ERC Sub-Committee on its recommendations in focusing on the three key aims of the CPF, which are housing, medical care and old-age subsistence. Sir, the recommendations remove the uncertainty in the property market and, hopefully, will bring about a sustainable and rational property market.

I welcome the proposal to increase the contribution to the Special Account by 1%. Sir, I remember when I sat on the Inter-Ministry Committee on Ageing, one of the concerns of the Committee was whether, when people reach old age, they have sufficient savings in their CPF account. I am very happy to see that this recommendation has been included in the ERC and is seeing fruition.

Sir, I agree with the ERC that the amount set aside for our old-age subsistence should be increased gradually to adjust for cost of living and increasing income. I also welcome the measure to give low-income workers more take-home pay by raising the employee CPF wage band to $500-$750. I am confident that this would also encourage more to join the workforce and enjoy a bigger take-home pay.

Sir, let me now move on to the issue of employability of older workers in the age group of 50-55 years whose employer and employee CPF rates will be capped at 16%. I would like to ask the DPM whether reducing the CPF rates for this group will increase their employability. The market mechanism, as it is, determines the salary of these older workers. Many who were re-employed after their retrenchment were actually re-employed at lower salaries.

Sir, I understand that the unemployment figure for this age group is about 11%. This is due to the present economic climate. I remember watching a Channel NewsAsia interview last week which highlighted that for many employers, the reduction of the employers' CPF rate would not make them recruit older workers. Sir, I sincerely have my doubts whether this measure would really help the older workers.

For a start, I would like to ask the DPM as to how many older workers have been recruited by the Government over the last few years and whether the latest CPF cut would mean that the Government itself would set an example by recruiting older workers.

Sir, it would help to give us a better gauge as to whether this measure will have the impact that it really intends to have. My sense is that we have unnecessarily cut the wages of 89% of the workers in trying to solve this problem. In addition, I would like to ask whether we can expect the private sector to reward older workers by channelling the reduced CPF contribution to the monthly variable component of the salaried staff. Sir, as Mdm Halimah highlighted, as it is, only 4.8% of the private sector employers contribute to this or have started implementing this monthly variable component. For a start, to expect the employers to include this is itself an uphill task. And I wonder whether this will have the desired effect in asking the employers in the private sector to pass on the cost saving in this CPF cut to the employers.

Sir, as it is, it is not a mandatory measure and to expect the employers to do so without any mandatory requirement, I think is a very difficult exercise and I am not sure whether we will succeed. Perhaps, we could have carefully considered this particular measure. Upgrading their skills, creating more jobs would have been a better option and even perhaps having this as a short-term measure and reverting back to a 20% employer-employee contribution would be better when the economy recovers.

Sir, let me now move on to the changes in the CPF housing scheme. Here, there are many questions which are thrown up, which I am quite sure many Singaporeans want to know the answers. First of all, was there a real necessity to tinker with the system which has served us well? CPF members' savings were protected, as the bank mortgage took second priority to the CPF charge in private property purchases. However, this has now changed. When there is nothing fundamentally wrong with the present arrangement, why change the regime?

Secondly, once the banks are given priority in unsubsidised housing loans for HDB flats and they are entitled to take possession and sell these flats when the owners default, it throws up a bigger question. Many creditors whose debtors are staying in HDB flats will now pressure and ask the Government if private banks can now take over HDB properties and realise their loans. Certainly other creditors out there will pressure the Government to open up the HDB property to be seized by other creditors to whom the owner of the flat owes them money. And do we move on to the second stage and remove this protection for subsidised HDB flats away from these creditors?

Thirdly, to-date, HDB is very sympathetic to HDB borrowers. It grants them extended periods to pay if they are in financial difficulties, and repossession is a measure of last resort. How will the Government then ensure that such measures will be in place to provide a buffer for such people? And I am quite sure the number of people who are going to take loans from the private banks for purchasing HDB flats will only grow in number. The next time a recession comes along, I think there will be a greater expectation on the part of this group of Singaporeans to pressure the Government to pressure the banks to withhold taking action against them. Sir, I wonder whether the Government will take into account the interest of the bank or the interest of the borrowers in trying to arrive at a solution that is palatable to both groups.

Sir, the second element is that, at the moment, the interest rate in the market is very attractive. As such, many will go and take a loan. But in future, interest rates will increase and many of the borrowers will default on their loans. Again, the question arises: how do we temper the pain that the population will face when interest rates rise?

Fourthly, another issue that again arises is that when the bank repossesses the property and the mortgage sale proceeds are unable to satisfy the amount withdrawn from the CPF account, will the CPF Board pursue full legal remedies against the members? Because, at the moment, if one has paid up the CPF account and the bank is not paid in full, the bank will take legal action to recover the full amount. But with the new scenario, when the member is unable to pay up the CPF amount in full, my question is: will the CPF Board take legal action, including making one bankrupt, to make sure that his account is repaid back?

Fifthly, Sir, by allowing the 10% downpayment to be paid from the CPF account, whether this will kick start the property market and actually go against the anti-speculation measures that we have in place as far as the property market is concerned.

Sixthly, in the past, reverse mortgages were not feasible, because HDB properties were considered sacrosanct. But now, with the liberalising of the HDB property market and by allowing banks to provide loans, my question is whether reverse mortgages can be considered as a serious alternative; and, as such, whether we can allow more Singaporeans to cash out of their property while they are staying in it.

Sir, on those notes, let me once again welcome the major recommendations of the Economic Review Committee, and I am quite sure that many of the intended purposes of the Committee will see light.

Mr Andy Gan Lai Chiang (Marine Parade): Mr Speaker, Sir, thank you for allowing me to speak on the changes to the CPF scheme.

It is nearly half-a-century-long legacy, the CPF has created Singaporeans to be one of the world's highest home owning population. I congratulate the move now by the Government to take stock of the CPF and to re-evaluate it.

Sir, I would like to focus on five points. My first concern is the alarming trend that over the years, CPF has been heavily relied upon for home ownership. I feel that too much of our savings in the CPF has been devoted for our housing needs. I wish to highlight statistics to support my concern. As of 31st March 2002, $92 billion has been withdrawn from the CPF Board for the purchase of properties, out of which about two-thirds are used for public housing. From January to March this year alone, $3 billion was used for the purchase of properties, with 70% of it tied up in public housing schemes. In comparison, only $510 million is for retirement, and $114 million for healthcare.

My second concern is the depletion of the value of homes in deflationary times. As rightly put forth by the Economic Review Committee, the property market has an impact on many things. To the many Singaporeans outside this House, they are most concerned with the impact on individual household, financial condition and asset value. Let me elaborate. When property prices rise, we see a parallel increase in withdrawal in our CPF savings, which is allowed based on the formula of withdrawal at 150% of the value of the property. I agree with the recommendation that this be gradually lowered to 120%, the reason being when property values drop in a deflationary period and negative asset value is experienced as too much money has been spent on buying that asset. At present, some Singaporeans have already experienced a permanent depletion of their CPF savings as a result. The value of their properties has fallen and may not rise again to the level of their purchase price. Today, the ownership of this form of asset, if not fully paid for, may prove to be a liability if there is insufficient balance in one's CPF account.

To curb such excessive spending, we must go back to the original purpose of our CPF savings - that of meeting our retirement needs. We need to avoid a situation where Singaporeans are cash poor and asset poor when they retire. We must therefore create a public awareness programme to dissuade Singaporeans from spending on property in anticipation of a double digit growth in our economy, as was seen in the late 80s and a good part of the 90s. Those years saw the value of properties rising beyond the reach of most Singaporeans. But the booming property market has led many to throw caution to the wind. To expect such time again is but an illusion. With Singapore becoming a more mature economy towards a developed nation, growth rates of a single digit such as 3-5% will become a norm. Future growth in property prices will follow economic trends, and we will not see fast rising property market for some time to come. The need to fork out cash under the new recommendation would help Singaporeans to be more realistic in buying a home not beyond their means.

Sir, next, I wish to draw DPM's attention to the move to allow banks to participate in granting housing loans to HDB property owners. This is indeed a bold move by the Government. Not only does it allow interest rates to be pegged to market rates, it also allows banks to have first claim against the property before the CPF Board. However, to attract banks to participate in this sector, a strong resale market must be in place to allow banks to have a second hand market to dispose of properties in the event of a default by the borrowers. Here, HDB will have to monitor carefully the supply side of the market and avoid an over supply, thus encouraging buyers from choosing new flats as opposed to old ones in the resale market. Some Singaporeans have voiced concern over the banks taking on their role. They are worried that banks, being what they are, profit-making corporations will be less lenient and less ready to help the man-in-the-street during economic downturns as compared to the Government. Banks are accountable to their shareholders and are concerned about their bottom line. I would like to ask the Minister whether safety nets will be put in place to help families whose homes might be seized by the banks and left homeless.

Sir, another problem I wish to highlight is the availability of cash if the balances in CPF savings are not going to be sufficient enough to cater for retirement needs. Statistics from the CPF Board in the year 2000 show that more than 600,000 CPF members have less than $80,000, the Minimum Sum required to be maintained in their accounts by July next year. As more responsibilities in managing CPF savings are passed down to contributors to the Fund, a liberal use of CPF for investment in the Ordinary Account must surely be reduced gradually. The Ordinary Account should be encouraged to grow in the same proportion, if not more than the Special Account. This is to ensure that savings in the CPF are close to sufficient for old age. Total CPF funds invested as at 31st March 2002 stood at $26 billion. Total funds still available for investment in the Ordinary and Special Accounts are $52 billion and $12 billion respectively. Furthermore, the balance in the Special Account of $80,000 - the Minimum Sum to be maintained in the CPF account - will not meet the needs of most Singaporeans as the standard of living rises and people tend to live longer. To counter this vulnerability, the Government has recommended to increase cash available at retirement by raising CPF contribution to members' Special Accounts by one percentage point once CPF rates are restored to 40%, requiring the CPF to pay a higher and more appropriate long-term interest rate on Special Account balances and raising the Minimum Sum to be kept in CPF accounts beyond the current level of $80,000. These efforts may be too late and too little for some. As most Singaporeans have a home now and as income potential drops, as one gets older or is retrenched, the temptation to convert their property to cash to supplement their CPF increases. This then may result in a whole new spectrum of housing problems for this group of people, as they have to find alternative housing. What I foresee is a class of rental housing may eventually have to be created to meet this possible future need.

Last but not least, I would like to voice my concern on the CPF rate for older workers. Under the proposal, older workers will see their total CPF contribution capped at 32%, down from the current 36%. Their own contribution rate will also be down from 20% to 16%. This will be implemented when the Government restores the targeted CPF contributions. The Deputy Prime Minister has assured us that this will not likely to happen until 2-4 years later. The rationale for the move was to assist workers in this age bracket, as they are viewed to be at greater risk of being retrenched, but will also have more difficulty of finding work at their last drawn pay. I beg to differ. The proposed reduction alone will not achieve its good intention of retaining jobs for the 50-55-year old workers. Workers in this age bracket will have to change their mindset in order not to be left behind in a changing business and social environment. In this respect, I hope that the Government will speed up its efforts in retraining this group of people, such as in the Skills Redevelopment Programme and the People-for-Job Traineeship Programme. Moreover, the decrease in employee's contribution from 20% to 16% eventually will mean less CPF savings and a higher income tax bill for high-income earners. This may lead to employees asking for lower monthly salary with a higher year end bonus. This is because bonuses have no limits in CPF contribution as long as total CPF contributions do not exceed 40% of total income for the year. If this trend catches on, then the change in contribution rate for those in the 50-55 year brackets to 32% will not make any difference to this class of people, thus neutralising the effect of changes to CPF contribution.

In conclusion, I support wholeheartedly the recent changes by the Government to mark the broad path to CPF rate in the future by introducing fine adjustments to the system, rather than drastic changes, allowing a stable transition from a high asset based savings fund to one that has a wider investment base that will keep pace with inflation and achieve a higher liquidity ratio. We must be prudent in our investment and not allow a high dependency to occur in any one class of assets.

Mr Steve Chia Kiah Hong: Thank you, Mr Speaker, Sir, for allowing me to join in this debate.

I would like to take this opportunity to raise two concerns about the proposed CPF changes.

First, I would like to urge the Government to stop making micro decisions for Singaporeans. Whether workers between 50 and 55 get 16% or 20% CPF contribution from employers is something that should be decided upon between the employers and the employees. Why should the Government make a blanket assessment and decide for all? There could be employers out there who are still highly profitable and want to reward some of their more valued older workers with a higher contribution rate of 20%. So, instead of capping it at 16% for workers between 50 and 55, and even lower for those who are older, let them - the employees - negotiate with their firms for a contribution rate in the range that is agreeable to both parties. Should the Government not let go and stop micro managing for its citizens? Empower Singaporeans and their companies to improve their negotiation skills and take more responsibility for their own future. Why should the Government interfere in this?

Also, if some employers and higher-income employees are willing to stay at the $6,000 contribution rate, why should the Government force them and legislate to lower the maximum rate to $5,000? Please leave this decision to them. We are a developed economy. Our high income earners are not there by coincidence. They have the intellectual capacity and maturity to decide how to save and what to spend on. Give those higher-income earners the personal choice. Empower them to plan for their own retirement savings.

Secondly, Mr Speaker, Sir, I want to express support for the limits on the use of CPF funds for property investment. As a society, our savings are very heavily invested in property. This is a very unhealthy misallocation of our scarce resources. Can the Minister tell us, as a nation, what is the total amount of money committed to property? I suspect it could be near a few hundred billion dollars. Therefore, a 1% drop in value is going to wipe out billions from our asset value. The Government in aggressively promoting its home ownership policy has made Singapore very expensive. It all started when CPF was freed up for property purchases in the early 90s. So, it is a good thing that the sub-committee is addressing this issue of over-investing our hard earned CPF money into property. However, I feel that the 120% target over the next five years is not aggressive enough. The Government should be bolder and reduce it to below 100% in the long term. Having too much of our assets tied up in property is going to cost retirement problems for our aging population. Singaporeans who think that they can retire comfortably by selling or downgrading their expensive property for profits or cash should seriously reconsider their retirement strategy.

We know that property prices are determined by supply and demand. Assuming limited supply, prices can only go up if there is a constant high demand for property for the next few decades. But where is this demand going to come from? If we fail to remake Singapore from an investment to an innovation-led economy, if our economy wavers and growth declines due to our inherent high cost, then, we are going to see an exodus of citizens and international talents to more attractive cities to work and live. If and when that happens, our property values will plummet, and this is going to create economic hardship and more bankruptcy for our citizens. Those citizens who rely heavily on property assets as a means of retirement are going to be hardest hit. Therefore, I would like to urge the Economic Review Committee to look more boldly and creatively into how this problem can be prevented.

Other than these two concerns, I support the other changes as presented.

The Senior Minister of State, Prime Minister's Office (Mr Matthias Yao Chih): Mr Speaker, Sir, I support the changes.

Last week, I heard a most painful story, and I want to share this with the House. This is an interview on BBC radio, and the interview was with a woman, and she was from Argentina. As we know, Argentina is in financial crisis; peso has gone down in value; five changes of President in 12 days, and so on. This woman who was interviewed had a tailoring shop which failed. And all she had left were two pairs of scissors. Every day, she goes to the town square to sell her body to earn some money. She is 60 years old. According to the interviewer, the reporter, this is not uncommon in the city and in other parts of Argentina.

This is pain, and I hope that we will never see that kind of pain in Singapore. And to avoid big pain, we have to make small changes, incur small pains. When we tighten our girders, when we chop off the loose parts, when we tie up the shaky bits, there will be some pain. I think Singaporeans will understand enough to accept small pains when they come to avoid the big pain.

The ERC is doing a lot of work. There are seven sub-committees, and they are all busy studying various subject areas. There are working groups and sub-committees and many consultation processes going on. My wish was that the entire ERC report comes out in its entirety and then we can see the whole picture of where we want to go and how we want to go about achieving that. But, unfortunately, some things are more urgent than others and we have to make the announcements as they come. So, we announced the tax changes, and today the DPM announced the Government's acceptance of the CPF changes. Both are urgent, and both will have long-term implications.

Just last week, I was talking to a French businessman who is stationed in Singapore, and we talked about the tax changes. And he said that he loves Singapore and he wants to live here and work here, but his operation in Singapore is very small. Most of the business is done from another country with other countries in the region. But because of the tax changes, he is considering very seriously to bring the bulk of his business into Singapore and be based in Singapore and to be reported in Singapore and, more importantly, to be taxed in Singapore. We will create more jobs and we will collect more tax from his company.

So, just two months after the announcement, immediately we see this kind of reaction from the business community. And I hope that more companies will consider the tax changes in such a positive way and make those decisions that are critical to our future job creation.

For the CPF changes, we have conducted more than 10 dialogue sessions, big and small, with our union leaders. By and large, union leaders support the thrust of the recommendations, which is to re-focus the CPF system back to its basics for retirement expenditure, for basic housing and for medical care. But, Sir, by no means is the agreement unanimous as far as the details are concerned. Naturally, when there is pain, people react. Some union leaders were very concerned especially about the freeze of the employer's CPF contribution. Some were angry. Many of them argued the same points that Assoc. Prof. Low Seow Chay argued, perhaps less passionately than him, but making essentially similar points. Some even got angry with NTUC leaders and said that NTUC should be the first to ask for wage increases and not wage cuts.

But, Sir, to do nothing is to be irresponsible. Among the trade unions, we collect statistics of retrenched workers. Let me share one set of statistics which is very alarming to us, and this covered the last four quarters. In the second quarter of last year when we were in recession, those who were retrenched from the unionised companies, who were above 50 years old, was 10% one year ago. For the second quarter of this year, one year later, and we are seeing a pick-up in the economy, those who were retrenched and above 50 years old have gone up from 10% to 25%. Let us bring the age lower, down to age 40, and four quarters ago the percentage of those retrenched above 40 years old was 35%, about a third. In the second quarter of this year, it has gone up to 59%. So, workers above 40 this year, as a proportion of all workers retrenched from unionised companies, have gone up now to 59%, from 35% last year. And I puzzle over this. Why is this so? We are supposed to be in a recovery. The reason, I guess, and we are going to do more research on this, is that last year, in a recession, companies folded. So when a company closes, the whole workforce goes, young and old. This year, things are different. The economy is picking up, but companies are still retrenching. And they retrench because they merge, because they outsource, they restructure, they downsize, but they do not close the whole company. The retrenchment is selective, small departments here and there. When the company retrenches selectively, it is the oldest workers who are the most vulnerable.

So when we see this kind of trend, naturally we are alarmed. And the better the economy, the worse it is going to be. As China opens up and more companies relocate away from South East Asia, including Singapore, into China, and as the rest of ASEAN countries pick up, more and more companies will outsource or restructure and shift part of their operations out of Singapore. There will be more selective retrenchments. Hence, we need to do something for our workers who are aged 50 and above, or even 40 and above.

When we explained this to union leaders, at least in their heads they can understand, even though in their hearts they feel very concerned about the effect of a CPF freeze on the older workers. But they understand that the key problem is really the seniority-based wage system, and it was the unions that have been pressing employers to do something about it. And as early as 1986, Mr Lim Boon Heng already mooted the idea of a base-up wage system to bring the wage gap between the older workers and the younger workers closer, so that the older workers will not face this problem. And come the Asian financial crisis, the same thing happened and NTUC came back to urge employers to apply or implement a wage system that is more base-up, rather than seniority-based. Employers are very slow to apply or to implement the measure. The NWC, last year, called again for base-up system. Again, things are not moving.

So really, we have to get to the key of the problem. And the seniority-based wage system is not a common system in the world. Over the last two weeks, my officers in the international department contacted various trade union counterparts all over the world to find out what their system is. So we did a quick survey, not a scientific one, but a rough one. In the US, Canada, Italy, Germany and France, they are all paid by job rate. This is a job, this is how much we pay, whether you are a man or a woman, young or old worker, it is the same rate. When there is an increase in salary, everybody gets the same. A fresh recruit comes in at a certain salary because he is new, there is a learning curve. Within two or three years maximum, he reaches the top of the scale, and he continues there. Even if he continues to work for 20 years, he is paid for the job. He is not paid for how many years he stays in a company.

Japan and Korea are the opposite. They have seniority-based system and see how difficult the wage system is, how painful it is for their workers who enjoy lifelong employment with very high salaries as they grow older, how difficult it is to retrench and to downsize their companies.

So we have to do something quick. The retraining programmes, the job assistance programmes, they take time to kick in. A worker needs time to be retrained and to find reemployment. But, immediately, what we want to do is to keep them in their jobs as far as possible. And therefore, NTUC supports the freeze of the CPF contribution for older workers. But at the same time, the real issue is not the CPF, and the long-term solution is not in the CPF. The employers must now do their part to also help restructure our wage system. This cannot be driven by the unions and the workers. The employers must do their part. They must address the wage system so that all of us can benefit from it and have a more competitive labour and wage structure.

Some employers have dismissed the CPF freeze and said that it is not effective. Some MPs in this House too have dismissed it as ineffective. Then the answer is, if it is not effective, give it back to the workers. It is very simple - put it back as a bonus, or MVC, or whatever allowance. There is no need to argue about this. The Singapore Technologies has come out with an announcement. I thank them, and I hope that more employers will publicly make a statement and follow the examples of Singapore Technologies and the civil service and put back whatever they think is not effective, in the first place.

Sir, I think we should all take a step back and look at the broader picture and, today, we are just talking about CPF. We talked about the taxes in the previous session. As the other announcements are made from the ERC committees, we should look at the larger picture. Today, we have 14 recommendations, but most of us are focused on the CPF freeze for older workers and the property. But there are more important huge changes which deserve much more attention, for example, management of the pension funds. If every worker can get one more percentage point from his savings, over 35 years in his career, that will compound to a lot of money. That deserves a lot of discussion. We should be much more curious how it might work and get more people to talk about it and get the financial institutions to make proposals and let us look at this. Because it is not so important about how we invest our funds in unit trusts and shares, and so on. If there is a properly managed fund that can give us a slightly better return compounded over many years, it will make a real big difference to our workers' savings.

But as we look back at the CPF changes, we should not be fixated on any single recommendation. We have brought the refocusing of the CPF back to its basics. But perhaps, Sir, more than refocusing, it is really a re-balancing of the CPF system so that we get out of a trap of being asset-rich, cash-poor into a more balanced situation where the three basic needs are equally well looked after. And if the proposal works here, and I am sure they will work, this will strengthen our social safety net for our workers and retirees and, hopefully, it will also keep workers working for as long as possible before they retire.

Dr Lily Neo: Mr Speaker, Sir, my parliamentary colleagues speaking before me have spoken eloquently on the CPF changes. I should not repeat what they have said. But I would like to comment on the part concerning changes on HDB policy that DPM Lee announced earlier. I notice that our Government is shifting its stand on previous HDB policy and I am uncomfortable about this shift. Indeed, I am concerned for fellow Singaporeans over the untoward repercussions that may arise as a result of it. I shall further elaborate on this.

Singapore has one of the world's highest home-owning population as a result of the Government's consistent and sound policy over the years. More importantly, it has been successful in fostering cohesive communities amongst Singaporeans through HDB housing. And, over the years, Singaporeans have relied on the PAP Government as the provider for their basic necessity of having roofs over their heads. They have rested their trust and confidence on the Government and they have peace of mind. The Government's policy has enabled the people to enjoy affordable and hassle-free housing needs. This had translated to the people's support for the PAP at every election. Sir, our HDB policy has been sound all these years and my question is: why fix it if it ain't broke?

I have my reservations on new HDB buyers who, being ineligible for subsidised loans, have now to borrow from the private banks rather than the HDB itself. Allowing home owners to get better market interest rates from the private banks is not a sound reason here because the interest rates charged by the private banks may be better only for the first, or second, year and subsequent years may work out to be more than the HDB's interest rate. The market interest rate for banks now is 2.8% compared with the HDB's 3.75%. However, HDB's interest rate may not be more than the private banks for too long as the HDB market rate on mortgage loans is pegged to the housing loan rates that DBS Bank charges mortgagors. As and when DBS Bank adjusts its housing loan rate to these mortgagors, the HDB market rate will also be revised. The attractive first and second year interest rates offered by private banks may be short-lived during this economic downturn due to the fact that banks are flushed with funds at the moment. The interest rates offered by private banks may be lower than HDB's rate now but they had hovered at around 6% for the last decade.

In this new policy, many new HDB buyers are forced to hunt around for banks to borrow money for their HDB flats. They also have to be wary on terms and conditions of the different banks on top of the different interest rates offered by different banks. I am concerned for those who may be less savvy on this. They may have trouble looking for loans and they may even end up with unfavourable loan terms. This is definitely a disadvantage compared to the previous hassle-free HDB loan application.

This new ruling will also make it more difficult for those who are not eligible for subsidised loan and having to upgrade or change flats for whatever reasons. Borrowers in the private sectors are subject to loan criteria. They now not only have to search for loans but also to consider their eligibility for the loans. The quantum and the period of repayment of loans will become issues depending on the income level and the age of the borrowers. This new ruling therefore is a hampering factor for many in the group of people who have to change flats for various reasons and circumstances.

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

5.23 pm

Dr Lily Neo: Private banks are more stringent with loans and are stricter with compliance of monthly payments. Foremost with private banks is the interest of their shareholders. Default in payments will usually end up with repossession of the flats. The social role of HDB tends to make it a more understanding financier, that is, more forgiving of defaulters. The HDB is more willing to offer assistance and alternative payment methods to ease the burden of people in difficulty. It is a fact that several financial assistance measures are readily available for sold HDB flats. These include the extension of loan repayment period scheme, reduced repayment scheme and deferment of mortgage loan instalment payment scheme. The HDB is also more sensitive to the plight of people during economic downturns, such as this one. For example, HDB announced last month on the revised reduced repayment scheme to further help those in difficulty in loan repayment.

Sir, private banks do not have such readily available schemes and may not want to offer such schemes to those in difficulty. Prices of property may fluctuate and banks have known to reassess housing loans in tandem with this fluctuation. There is a saying that "commercial banks tend to give you an umbrella when it is sunny, only to take it back when it rains". There were many instances of banks recalling bank loans during the financial crisis of 1997. Although HDB flat prices may not fluctuate as much as private property prices, banks may still call for top-ups if HDB flat prices drop. This will hit a lot of HDB flat borrowers, the average Singaporean heartlanders, real hard as property prices usually fall during economic downturns. The other worry is that since banks always consider the tenure of properties for mortgage, those HDB flats with less than 99-year lease will be less favourable to them. This may result in a drop in prices of older HDB flats and may, therefore, affect the whole HDB resale market. How will the Government prevent this undesirable consequence? I am also concerned with the fact that the bank will have first, and the CPF second, claim to the mortgaged HDB property during forced sales in default situations. This is disadvantageous to the home owners. CPF is the most important saving of the people, and it worries me that people may lose their savings should they be unable to service their housing loans. Banks will sell the flats under mortgagee sales in default situations, ending up with less than favourable prices. Thus, the HDB owners will invariably lose the CPF part of their money. These unfortunate people also end up with no roofs over their heads. How do we address such situations? Do we have enough HDB rental flats to house these people? Does the Government have any plans to build more HDB rental flats in anticipation of such situations?

My colleagues in this House would agree with me that many of us had appealed to HDB and succeeded in allowing many defaulters to settle arrears by instalments or deferment of mortgage loans and so on. MPs cannot be appealing to the private sector financiers. How do MPs help such defaulters then? I can therefore see one of the useful roles of MPs being eroded.

I would like to ask DPM Lee whether one of the CPF proposals on the 120% cap on withdrawal limit may run contradictory to the aim of discouraging over-investment, as buyers may go for properties with higher values to make sure that the valuation cap is not breached. How do we overcome this and encourage people to consider affordability issues and not to over stretch themselves?

Sir, the new HDB policy may compel people to think very carefully in committing to a property within their means and would therefore enhance individual responsibility. However, I feel that the implications I mentioned earlier are too big a price to pay for this. The resultant repercussions, when unforeseeable tragedy hits, will be great distress to many Singaporeans. We may argue that there is a need to restructure and revamp to move forward.

Mr Deputy Speaker, Sir, I feel that there are certain policies that are part of the obligations of a good government, and even if a policy may be less advantageous to the Government, as long as it is beneficial to the people, the policy must remain.

Dr Ong Seh Hong (Aljunied): (In Mandarin): Mr Deputy Speaker, Sir, I support the Government's acceptance of the ERC's recommendation to make changes to the existing CPF system. This will reaffirm CPF three major functions as retirement fund, medical expense and housing need. But on the proposal to reduce the CPF contribution rate for workers aged between 50 and 55, I feel there is a need for further deliberation.

Deputy Prime Minister Lee has explained that the reason for this measure is to enhance the employability of this group of people. But I feel that using the CPF contribution rate alone to tackle this problem is treating just the symptom but not the cause. Why do I say this? This is because the low employment rate, relatively fewer chances of employment and higher risk of retenchment for these people are mainly due to the seniority-based wage system in Singapore. Mr Matthias Yao has already explained this in detail. I will not repeat it.

Sir, I feel that if we use just the CPF alone, before we could reap the benefits we will suffer the ill-effects first. This is because the older people who are currently employed will automatically lose part of their wages. Although the Government has taken the lead in announcing that it would pass on this part of the savings from the wage cost to the civil servants under the TCTC scheme, and Singapore Technologies has also responded to this call, we cannot ensure that all the private sector employers and enterprises will follow suit. Some employers will say, "The Government is asking us to cut the CPF contribution to help us save on labour cost", and then conveniently pocket the savings.

On the other hand, there is no guarantee that the lowering of CPF contribution rate will enhance the employability of the workers in this age group. This is because if the employer feels that the skill level or work attitude of the said employee is not good enough, the saving of 4% CPF contribution will not be enough incentive for him to change his mind. Furthermore, the lowering of CPF rates for this group of workers runs contrary to our intention to promote "equal pay for equal work". From the perspective of the employers, they will feel that, after all, the Government is adjusting downwards the labour cost from the age of 50 onwards, why should they bother to promote the practice of "equal pay for equal work". From the employees' point of view, they will also refuse to accept this equal-pay-for-equal-work system because they are being paid a lower CPF contribution. Otherwise, they would be hit at both fronts.

Therefore, I feel that the lowering of CPF contribution rate for older workers will hinder the establishment of an equal-pay-for-equal-work scheme. I think a more positive way of resolving this problem of employability of older workers is to accelerate the abolition of the seniority-based wage system through our tripartite cooperation mechanism. We must work through the public education system to change the mindset of the people in order to help establish and promote the equal-pay-for-equal-work system. With the new wage system, our people will be more willing to accept skills upgrading and retraining, as well as to adopt a pragmatic and realistic pay expectation. This is the way to enhance the competitiveness of our labour market.

Mr Deputy Speaker, Sir, I support the Government's stand on the proposed CPF adjustments.

Mr Ahmad Mohd Magad (Pasir Ris-Punggol): Mr Deputy Speaker, Sir, I would like, first, to commend the ERC Sub-Committee, led by Mr Tharman Shanmugaratnam and his associated working groups, for recommending such bold changes to the CPF system in the light of social and economic changes and, particularly, imminent changes to our population demographics.

Although the current CPF system still fundamentally serves its purpose, it is imperative that we address whatever shortcomings or whatever that has become irrelevant in the current system at this juncture, taking into consideration the demographic shifts, our rapidly aging population and the uncertainties ahead of us. A more delicate balance needs to be struck to cater to the three key needs of retirement expenditure, healthcare and home ownership, which represent the core elements of financial security, while also paying close attention to the employability needs of our middle-aged workers.

I would like to focus on two issues. First, on the recommendation for lower CPF contributions for workers aged 50-55 and, second, on limiting CPF withdrawals for housing loans.

My concern for the employability of our middle-aged workers was in fact first expressed in my maiden speech in this House in June 1997. Having experienced the strains and difficulties my family went through during my younger days, when my late father lost his job and could not find another one for more than a year, I realised how important it is to keep family breadwinners employed. Recognising then the rigidity of our seniority-based wage system, I had then mooted the idea of a more flexible wage system for older workers which plateaus at a certain point of a worker's age, and then gradually declines over time, so that their wages are more linked to skills and productivity. This is to ensure that older workers are not at risk of being first on the line when their companies downsize or right-size. Unfortunately, no one took me seriously at that time. In fact, some union leaders wondered who this "NKOB" or new-kid-on-the-block was up to. Today, it is an acknowledged fact that our seniority-based wage system is more pronounced than in other countries. As the saying goes, there is no such thing as a free lunch. Ask any businessman. With labour cost forming a large chunk of business costs in Singapore, especially in manufacturing companies, overpaid workers will be the first targets in a cut-back exercise.

I, therefore, support the proposal to keep employers' CPF contribution rate at the present 16% level for those in the 50-55 age group, even as the rate is gradually restored to 20%. This will inevitably make this group of workers unhappy. But we must be pragmatic to preserve the employability of this group of workers. I see this not only as another step in unlocking some of the rigidities in our labour market, but also a very important step. 11%, or 12,100 of the 110,000 workers in this age group, are already unemployed currently and are having difficulty finding new jobs. Mr Matthias Yao, Deputy Secretary General of NTUC, has just disclosed the grim statistics a moment ago.

Statutorily bringing down the employers' CPF contribution, in conjunction with a slew of other measures, especially retraining and skills upgrading, will help in retaining jobs. It is undoubtedly better to retain one's job with slightly lower pay than losing it, especially in the current economic climate. It is not only more difficult to get a new job, but recent statistics also show that many unemployed older workers have to settle for jobs which pay much less than their last drawn wages.

Sir, it must be borne in mind that joblessness, more so than poverty, causes tremendous strains on families, and robs us of role models, usually the head of the family. However, as Mr Heng Chee How has suggested earlier, it is important that the Government clearly explains this move, that it is done with the workers' interests in mind.

Sir, let me now turn to the subject of limiting CPF withdrawals for housing loans. It is important to stress that the changes proposed apply only to new property purchases with non-subsidised HDB loans. The Asian financial crisis and the recent economic downturn have clearly signalled to private property buyers and HDB open market upgraders that investments in property are not without risks and pitfalls. Many who have committed to property purchases during the boom period before 1997, are now finding themselves in a negative equity position. While those who are employed see this as a temporary paper loss, there are many Singaporeans, particularly those who have lost their jobs, who are facing difficulties as a result of their property investments. I know several of my grassroots leaders who have run into big trouble because of their belief that investment in property in Singapore is very safe, and that property prices will never go down, because of our finite land supply. The property measures to cap CPF savings for property purchases, therefore, build not only safeguards to prevent Singaporeans from putting in excessive commitment of their CPF savings into property investments, but will also ensure that more is set aside for retirement to cater to the continually increasing living standards. We should prevent ourselves from being dubbed a nation where its people are asset-rich and cash poor.

As our society matures, it is imperative that each citizen takes responsibility for his long-term commitments, whether it is in property purchases or setting up a business, consistent with his income and affordability levels. Unless Singaporeans shift their mindset to take personal responsibility for their actions, it will be difficult for us to evolve an entrepreneurial culture which has been identified as imperative to our future economic survival and growth.

Finally, Sir, I am glad that the various proposals of the Committee, when accepted by the Government, will be implemented in stages, in line with the restoration of the employer CPF. The recommendations serve to enhance the long-term orientation in balancing and ensuring adequacy for a more sustained retirement income, fulfilling the needs of increased healthcare cost as one ages, while also meeting the needs of home ownership.

On that note, I support the proposed changes to the CPF scheme as announced by the Deputy Prime Minister.

Mr Sin Boon Ann: Sir, thank you for allowing me to join in the debate on the Ministerial Statement on CPF and related changes.

Sir, I support the Government's intention in general as enunciated by the Deputy Prime Minister in his statement. We know that the CPF is the most basic and fundamental savings institution for Singaporeans. It allows us to prepare for our retirement, housing and healthcare needs. It differs in main from some other social security systems principally because the money that goes in does not get pooled together with others. It is not an insurance system. The money belongs to the account holder for his use. He has direct ownership of it. With that, there is also the sense that the money, which is contributed into the account by his employer, is rightfully part of his salary.

Over the years, we have liberalised the use of CPF funds. Singaporeans are now able to ostensibly enhance the value of their funds in their CPF accounts and to meet certain social needs as well. We were liberal in allowing Singaporeans to use their CPF funds, for the substantial purchase value of their properties, for investments in trustee shares, where unfortunately, for many CPF account holders, I am not sure if they know the difference between a share and a bond. In other words, the liberal tendency towards the use of CPF funds meant a basic and fundamental shift in looking at CPF as a practically safe and secure savings scheme for old age.

This raises the question of the amount that one needs for old age. At the moment, the Minimum Sum that one needs to maintain in his CPF Ordinary Account on retirement is pegged at $80,000 in the coming year. While this is a carefully calculated sum, one must bear in mind that what is sufficient is relative. For Singaporeans generally, one would have thought that what is sufficient or basic, is a function of the quality and standard of living and, of course, relative to the cost of living then. To my mind, Sir, it would seem that there would always be some anxiety that no amount of savings would seem enough to provide for retirement. One would suppose that liberalising the use of CPF funds for certain types of investments was meant to enlarge the pool of retirement funds available for the CPF account holder. This is well and fine in an economic environment where the growth indicators seem to defy the laws of gravity.

However, nobody expected the world economy to look so dismal, neither did anybody expect property prices here ever to head south. Well, this has happened. For many Singaporeans, this has meant that there is asset deflation and with that, a dramatic reduction in the value of their CPF funds. The most obvious example would be the total amount that some Singaporeans pay for their residential property. At the end of the day this may well exceed 160% in value. And for many Singaporeans, it would also mean that a substantial amount of their savings could also be wiped out if property prices continue to depreciate in value from the height of the property boom. This is not to mention that many Singaporeans who use their CPF savings to buy shares are also badly hit recently because of falling share prices.

Against this background of a mix of pressing demands of old age, a more liberal and perhaps a more risky use of CPF funds and an uncertain economic future, there is an even greater need for Singaporeans to save more rather than less for old age; which explains why our savings rate, even at present, is pegged at one of the highest in the world.

However, this savings contribution to CPF, at the moment, coming from both the employer and employee, is now seen as one of the main impediments towards getting Singaporeans employed or to stay employed. It is also depriving many Singaporeans in the lower income band from using their cash immediately since their money must now be squirrelled away to their accounts in CPF.

We therefore try to fix the problem, at least for the older Singaporeans in the 50-55 age group category, by getting a relative reduction of the employer's contribution to 16%. For the poorer Singaporeans making less than $500 a month, we try to help them by not requiring them to put their share of the contribution to the CPF account. In other words, there is no need for them to save for old age, since they are facing enough difficulties for the moment to think about the future.

Sir, while I can understand where the changes are coming from, I do have some reservations about them. I shall touch on two. Forgive me if I dwell on the issue of CPF contributions of those in the 50-55 age group. I would also touch on the CPF contributions of poorer Singaporeans.

First, the CPF contributions for the older Singaporeans in that category. The underlying rationale on the reduction of CPF contribution is to enable older Singaporeans to become more employable, either in getting employed or staying employed. What the revisions will lead to ultimately is that when CPF contribution rates are revised upwards, there will be no change for those in that age group.

Sir, I do have reservations about tweaking with CPF contribution rate even if the underlying concern is employment among older Singaporeans. When we started the CPF system for Singaporeans, it was, as I understand it, meant to deal with an issue that the market will not resolve effectively, and that is getting employees to save for retirement. In its implementation, therefore, the CPF system was generally applied across the board, irrespective of age, physical ability or gender. We have acknowledged that the CPF, as a pension system, or as a social safety net, has worked fairly well to-date. For one, there is certainty in the wage outlay for both employers and employees. Presently, the CEOs, the human resource managers and financial controllers calculate the total wage bill of the organisation in relation also to the rate that they have to contribute to CPF. Decisions to employ any employee are left very much to market forces. Often the question to hire any employee is dependent on the ability of the person concerned and his asking wages. Again, the decision whether or not to keep any employee on the payroll is determined by his contribution to the company and his cost to the company. Market forces leave the question of the amount to be paid as wages to the parties to negotiate. In the case of those who are already employed, in as much as salaries go up, salaries must also be reduced if that is what it takes to keep employment. Often, CPF contributions merely provide the framework within which negotiation of wages takes place.

Sir, we must realise that by tweaking with the present system, we are, in effect, moving from that of facilitating the operation of market forces to introducing elements that would directly impinge on the operation of market forces itself. In other words, the change in policy would hopefully lead to making older Singaporeans more attractive to the employer. What we are doing is, in my opinion, no different from setting legislation that requires employers to give reduction in salary to older workers.

I am given to understand that in Singapore, we should, where possible, leave it to the market to determine the supply of goods and services. Legislative intervention should not be introduced in the marketplace if possible and should be put in place only where market forces fail. It is for this reason that we have resisted the idea of minimum wages in our legislation, lest an inefficient and imperfect market be created. The institution of the CPF is to compel savings and not as an inducement to hire any particular group. By adjusting the contribution rate of the elderly, we have made a fundamental shift, fundamental in a sense that we have, by legislation, set wage levels to induce hiring. If true, if I may ask, are we going back on the basic economic principle of using the marketplace to determine the level of supply and demand?

If, as was originally put, the concern was getting older Singaporean workers to gain employment or to stay employed, surely the approach could well have been to encourage older workers to accept lower starting salaries or to accept lower wages, if that is what it takes to keep them employed. Having a culture where older workers are prepared to lower their wages to a level that meets the demand at the marketplace would, to my mind, be a more realistic approach towards dealing with the issue of the unemployed middle-aged. Like many of my colleagues before me, I do not think for a moment that the 4-percentage point reduction on the employer side is going to make much of a difference in helping the employer decide on the issue. Neither will the savings in CPF contribution prevent an older worker from being retrenched. The point is, if you are good, you are good, irrespective of age. Also, if the company's business is faring badly, cutting CPF contribution is not going to make a difference. And I suspect that even the Government is not sure whether reducing the rate of CPF contribution by the employer is going to help save jobs.

Besides, cutting CPF rates across the board for the older workers is akin to using a blunt instrument for a surgical operation. By a stroke of the pen, it affects all employees who fall into the category, irrespective of whether they are effective, efficient or productive. The question which should legitimately be asked by those affected is why should those who are capable be made to suffer for those who are not as able to get a job or are about to lose their jobs. Is the Government being fair to these people?

Rather than embark on a policy that has no certainty of saving jobs or getting jobs for older workers, and telling employers to pass the savings back to the employees, perhaps the Government should consider adopting the approach of encouraging older workers to accept lower wages to make themselves competitive at the marketplace and perhaps to continue to emphasise on training and retraining to upgrade the skills of these workers. This approach has the advantage of leaving wages to be determined efficiently by the marketplace, and thus avoid the application of a blunt instrument that has the effect of throwing the baby out with the bath water. Additionally, the Government should consider tax benefits for enlightened companies to hire or keep on their payroll older employees. The use of tax incentives gives a more positive edge to the solution, rather than the choice of CPF reduction.

There is one other concern. Today, we allow the CPF contribution rate for the older workers to be reduced because we think that this will help with employment. Does that mean that the Government in future is prepared to recognise other categories of employees as well? Would the Government, say, lower the CPF contribution for the disabled to make them more employable? Would the Government increase the contribution for foreign employees to create a more level playing field between a local and foreign employee? The point is, making a special exception for any particular category of employee may be creating a precedent that may well open up the floodgates for the others. Once we allow this, it will be easy to see how easily this may be opened up to other possibilities as well.

Sir, I turn now to my second point and that is, very briefly, compelling the poor to save. Our CPF system is targetted at those in the category of 10th percentile and the 80th percentile. What this translates into is that the poor Singaporeans in the relevant category will not benefit substantially from the most important form of the safety net when they retire. The proposed policy of not compelling Singaporeans whose income is below a certain benchmark of $500 a month to save is, in effect, aimed at helping them to improve their cash flow. However, while the intention is well meaning, the larger issue is whether such a move really helps them in the longer term. The truth of the matter is that by allowing them not to contribute to their CPF account, the Government may just be postponing the problem for them. How are they going to provide for themselves when they retire? It does not look like the State can avoid the issue of the welfare of these Singaporeans, many of whom, through no fault of their own, are caught up in this situation. And because they are Singaporeans, it is our duty and responsibility to carry them, whether presently or for the future.

If we accept this responsibility, I would suggest that the Government help these poorer Singaporeans to build up their CPF accounts by making monthly contributions on their behalf. This move has the benefit of giving those Singaporeans a sense of security that there will always be a place at the dining table for them even if they are poor. It does not give out cash directly and thus avoid the problem of potential abuse. But for future Singaporeans, it will be fairer for them as we will not be passing the problems of the present generation for them to shoulder.

Sir, over the weekend, I attended the Remaking of Singapore retreat. During the retreat, a question was raised as to what our vision for the future of Singapore is. Sir, that question sets many of us thinking. For many, defining the future vision for Singapore as a set piece against a broad canvas is not something that we have given serious consideration to. All of us gathered here in this House do have a vague notion. I am sure that the future Singapore that we want will be a place where we can pursue happiness, fraternity, freedom, equality and justice and ideals which can be carried out in an environment that seeks to maximise the human potential that every Singaporean is endowed with. Beyond those ideals, we are not very clear. Perhaps it is evolving all the time. However, what I am clear about is that future Singapore must not be a place where the older Singaporeans feel that they are second-class citizens by virtue of their age, and because they can no longer effectively contribute to the economy. I am also clear that future Singapore must not be a place where poor Singaporeans feel that they have to eat out of the hands of fellow Singaporeans, and be made to feel the part of a grateful supplicant. What we must not do is to rob any class of Singaporeans of their sense of dignity and self-worth.

Sir, if at the end of the day, policies - not just policies pertaining to the changes to the CPF - would result in any Singaporean feeling less than worthy, then I feel that Singapore and all Singaporeans will be poorer for it.

Mr Ong Kian Min (Tampines): Mr Deputy Speaker, Sir, the recommendation by the Economic Review Committee to refocus the CPF system on retirement expenditure, healthcare and home ownership is timely, perhaps even overdue. It is hard to argue against the principles set out in the report. But we have to be very careful in their implementation, as any change to the CPF system would naturally lead to changes in the flow of funds into or out of properties and could have a significant impact on the property market, public as well as private. Therefore, we should not make changes to the CPF system without considering the necessary changes that should be carried out in the HDB property market, which represents more than 85% of all household units within our shores. To do one without the other could lead to adverse and undesirable consequences.

Sir, I would like to focus on the proposed changes arising from the review of HDB's market rate loans and to supplement some of the points brought up earlier by Mr Ravindran, Mr Andy Gan and Dr Lily Neo, as I think this will have far-reaching consequences. I have three concerns.

The HDB has all along been a monopolistic supplier of affordable housing for the masses. One of the reasons Singaporeans buy HDB flats is the safety net it provides in bad times. People look to the Government for shelter and, in Singapore, the Government is expected to provide a roof over our heads. Section 51 of the Housing and Development Act provides that no HDB flat shall vest in the Official Assignee on the bankruptcy of the Singapore citizen owner, and no HDB flat shall be attached in the execution of a decree of any court. Now, with the proposed move by the HDB to discontinue granting market rate mortgage loans, HDB flat buyers will have no choice but to obtain such loans from private commercial financial institutions. My concern is that when repayment is in arrears at times of difficulties, these commercial financial institutions will be tougher, less sympathetic and faceless in forcing the disposal of the HDB flat compared to the HDB. This will lead to an increase in the number of people who will be made homeless without a roof over their heads.

Sir, this is not a small matter. For the year 2001, the number of bankruptcy orders issued was 3,247, and in the first five months of this year, 1,457 persons were declared bankrupt. Under the present system, if someone owns an HDB flat and has difficulties servicing his HDB loan repayment, he can approach the HDB for the repayment to be rescheduled and his creditors cannot touch his flat. He can continue to own his HDB flat and his family members can continue to live in it, even when he is made a bankrupt. With the changes to the rules, if the loan for his HDB flat is from a commercial bank, his flat would be forced sold as part of the bankruptcy proceedings, and he and his family members would be left without shelter. I would like to ask DPM where can such a family turn to. What are the options open to him? This is a fundamental change in the structure of our housing safety net, and one that we should not undertake lightly.

Is there an affordable rental housing market that those in need can turn to? If not, how can we create one? I understand it is the HDB's intention not to be the provider of subsidised rental flats in a big way. And under the present rules, HDB owners are not allowed to sublet their flats unless under very specific situations. So, where are the affordable rental flats going to come from, if not from the HDB and the existing pool of HDB flats? I would like to urge the HDB to relax its rules on subletting, as this must surely be consequential to its decision not to continue granting market rate loans. I cannot see how the HDB can say to a HDB flat buyer, you must get your loan from a commercial bank and bear the risk of being evicted if you default, and yet not allow the owner to rent out his flat for extra income, or to order his life in such a way that he would be able to meet his financial obligations. But, on the other hand, if rental of HDB flats is relaxed and a large number of HDB flats is suddenly released into the rental market, the impact on the private property rental market will be tremendous.

Sir, another HDB rule that has to be reviewed is that the buyer of a resale flat cannot resell the flat within the 30-month minimum occupation period. Now, what if a buyer had taken a market rate loan and, say, 12 months later, he could not afford to service the loan due to a change in his financial circumstances? Can he sell the flat to lower his financial burden? Can he buy another and smaller resale flat? Previously, the flat owner could go to the HDB and reschedule his repayment if he has financial difficulties. In future, the commercial bank is not going to be so understanding nor patient, and may even impose very punitive default interest rate which applies when the borrower is in arrears on his repayment. The flat owner will then be caught between the devil and the deep blue sea. Therefore, if we want to go the free market way for mortgage loans, then we should also go the full haul and such HDB restrictions should be removed totally or relaxed significantly.

Sir, my next concern is about the change to give the mortgagee bank the first charge over the property in priority to the CPF Board. The present system where the CPF Board has the first charge and the sale proceeds of the property would first go to the CPF member's account to satisfy any withdrawals made and interest that would have been earned, has been with us for many years and has served us well. I say this because although the bank has a second charge, the borrower still has personal liabilities to the creditor bank to meet fully any shortfall in the repayment. So, if the outstanding bank loan is $600,000 and the property is sold for $800,000, but $300,000 has to go back to CPF, the borrower continues to be indebted to the bank for the shortfall of $100,000. And the bank will sue and enforce for that amount.

Now, if we reverse the order, and the borrower owes CPF Board the $100,000, how will the CPF Board enforce for the money to be paid into the member's CPF account? Will the CPF Board make him a bankrupt? This being the case, with CPF Board being a less "tough" creditor compared to a bank, I fear that buyers of property will become more adventurous and take more risk than necessary in deciding to make a property purchase. Somehow, people still do not quite treat their CPF money as their own money, and they do not feel the pinch so much when they lose it or spend it. A clear example is Medisave. People have no qualms about being warded in expensive private hospitals if the expenses can be deducted from their Medisave account.

Sir, my next point is about reverse mortgage. I know this issue has been discussed on many occasions in the past, but I think it is worth revisiting at this juncture. The intention of the proposed changes to the CPF system is to refocus on three areas - retirement expenditure, healthcare and home ownership, and also to fix the relative proportions of these three sub-accounts. In the past, many people had over committed in properties and are now left with proportionately insufficient funds for adequate healthcare and retirement expenditure. This could also be caused by unexpected illnesses that have led to an increase in medical expenses. I believe reverse mortgage is one way to realign the respective proportions and allow the CPF account holder to shift some of his funds that are locked in the HDB flat into funds that are available for medical and retirement expenses. I would like to urge the Government to review its policy on reverse mortgage.

Sir, subject to the above concerns being considered, I support the changes.

Mr Ang Mong Seng: (In Mandarin): Mr Deputy Speaker, Sir, I agree with the views of Mr Matthias Yao. It is always better to resolve a minor problem before it evolves into a major one. Let me give you an illustration.

Last month, I injured a finger while playing volleyball. I thought it was nothing serious and simply applied some traditional medicine on it. But three weeks later, it became swollen. I had to see a specialist. After an X-ray examination, the specialist said that it was not a very serious problem, but it would take another six weeks before it would heal. I had to wear this cap on the injured finger and it is very troublesome. The specialist also told me that had I consulted him earlier, say, within one week of the injury, he would have cured it in a few days' time. This example shows that if you have any problem, you must first try to understand it as early as possible and find the correct solution for it. So, when we talk about future economic development, we have the Economic Review Committee (ERC) established to look into it, and the ERC recently made some recommendations concerning changes to our existing CPF system.

Sir, after the announcement was made, I went on my usual round to the coffeeshops to hear the views of the public. This time round, the reaction is not as strong as the time when the transport fare hike was announced. No doubt, there are some discussions about the CPF changes. But our people are generally very rational in trying to understand and accept the changes to the CPF. Some residents feel that these changes are timely; while some still have doubts.

In the last Parliament sitting, we debated on the fare increases, and the feeling was that the people of Singapore were beginning to show concern for national issues. The people are watching, and they do not miss any changes that the Government proposes to make. This is good!

There are two views on this. First, they support the recommendations of the ERC. At present, if your monthly income is $200 and above, you have to contribute to CPF. But now, you do not have to do so unless your income is $500 and above. This means the lower-income people would have more in terms of take-home pay. This recommendation has the support of the people. This will help those who do temporary work and odd jobs. They like it because they will now have more cash to take home every month. At this bad time, this change is a piece of good news to them.

At the same time, this will also help those people who are unemployed and are looking for jobs. At the moment, when jobs are not so easily available, they will be more prepared to accept lower-paid jobs, because they do not have to deduct money from their pay to contribute to CPF. Psychologically, they will find the lower wages more acceptable.

Sir, there are some residents who have a different view. For those in the age group between 50-55, the employers' CPF contribution will be frozen at 16%. The proposal is based on two points. One is to encourage the companies to employ older workers and, secondly, to lower the labour cost to keep the business viable and for the workers to keep their jobs. Theoretically, it is a very good policy and measure. But, in reality, is it really so? Singapore is a pragmatic society. Many employers and companies employ people according to the cost they have to bear. The meagre 4% saving on CPF contribution makes very little difference to them. For example, to employ a fresh university graduate with a pay of $3,000, 20% CPF means the company has to pay $600. But for a 52-year old senior officer who is paid $5,000, 16% CPF amounts to $800. The total wage cost is still higher than that of the fresh graduate. There is not enough incentive for the employer to take in older workers when they can get better qualified and more productive younger workers at a lower cost.

I feel that this measure will not be very effective. These older workers started working when they were young. They have made great contributions to the company to lay the foundation of the company. Such efforts and contributions should not be ignored. In the world, there are many, many 50-year old people who are very important. So, we cannot deem a worker to be less productive or too expensive the moment they turn 50. As a matter of fact, to many great people, life begins at 50. Take China, for example, most, if not all, their leaders took on top leadership position only when they were over 50 years of age. Even our very own Prime Minister Goh Chok Tong was 50 when he took over the helm to become the second generation leader to lead Singapore into more prosperity.

The number of people who are aged between 50 and 55 now is quite big, because they are the ones born during the baby boom years after the second World War. They have gone through various stages of our nation building and have rendered meritorious contributions to the development of Singapore. Without such people, Singapore would not have been so successful and so prosperous, economically and socially. In community services, those in the age group of 50 to 55 are the most active. They take part in various community activities and contribute tremendously to the future of Singapore. They are a very important group of people.

Another point is that the new generation of citizens are getting married late, between 26 and 28. At 50, their children will be about 18 to 20 years old, and attending polytechnic or university. The financial burden peaks around this time, at between 50 and 55. To cut their CPF amounts to cutting their income, and that will undoubtedly enhance their financial burden. This is a very important issue which the people are very concerned with. In order to solve this problem, Dr Low Seow Chay asked whether, during the bad times we reduced CPF contribution rate to 16%, and when times are good, do we not have the moral obligation to have it restored to 20 percentage points? So, every few years, we have to make some adjustments.

Sir, the NTUC has also raised the issue of flexible wage system. I think this is a good system and many companies are adopting the new system. I am just thinking whether we can also have a flexible CPF scheme, ie, between age 50 and 55, the CPF contribution rate can range from 16% to 20%, and companies, which are able to gauge the contribution and performance of their employees, can decide how much to pay for their respective employees' CPF. If this employee can make a lot of money for the company, why should the company cut down the CPF by 4 percentage points? In this way, it will allow the company more flexibility in making the CPF contributions, and that will encourage the workers to work harder and do better. The companies will therefore have more autonomy to exercise their own judgment to decide on how much CPF contributions to pay to the individual workers. We should not fix the rate at 16% across-the-board. There may be 100 people or 1,000 people working in the company. They cannot have the same level of performance. So, we should allow the company to decide on its own. But the Government now decides that for age 50 to 55, the company has the right to fix the CPF at 16%. I think that the ERC should revisit its decision.

Another point is about HDB's proposal to transfer the housing loans to the banks. There is a rule which says that if the people want to downgrade from a bigger flat to a smaller flat, they cannot borrow from the HDB. So, they must borrow from the bank. Now, HDB allows every citizen to buy two flats, ie, a small 3-room flat or to upgrade from a 3-room flat to a 4-room or 5-room flat. So they will have two opportunities to enjoy the subsidies from HDB.

If a citizen started off with a 3-room flat and then upgraded to a 4-room or 5-room flat, when he grows old and all his children are married and not living with him, then he would find that he does not need the bigger 4-room or 5-room flat. Now, he wants to downgrade to a 3-room or smaller flat. But, he cannot borrow from the HDB and has to borrow from the bank. By that time, because of financial difficulty due to economic downturn, he would have to sell his bigger flat to buy a smaller one. In those circumstances, he would still have to borrow from the bank. But banks are commercial institutions. If you are old and have financial difficulties, then it is unlikely that the bank will lend any money to you. This will become a major problem for the old citizens. I would suggest that the HDB be more flexible towards the older citizens, particularly those who are in financial difficulties. When they need to borrow money, then they should be considered on a case-by-case basis.

Generally, I support the Statement of Deputy Prime Minister Lee.

Dr Chong Weng Chiew (Tanjong Pagar): Sir, drastic times call for drastic measures. In all the years that Singapore has been governed by the PAP Government, I am glad to note that we have not shied away from tough but necessary measures. The recommendations of the ERC, led by Mr Tharman, and what DPM Lee had announced today are no different. Though I agree and support the measures introduced, what we have heard are fundamental paradigm shifts in the way we organise Singapore. Paradigm shifts are very subjective to judgment. Who would have thought that when we introduced the stop-at-two family planning policy more than 30 years ago, we would have runaway success rates so much so that we are facing procreation problems instead?

In my mind, Sir, the net result of the changes introduced today is the shift of greater individual citizen responsibility. Allow me to highlight one such change and its possible consequences.

The raising of income floor from $200 to $500 would be beneficial and encouraging to part-time workers. Sir, I am concerned, however, that the lifting of the monthly salary of an employee not liable for CPF contribution to $500 might be negative on our low-income home ownership scheme. I am aware that this change would result in a worker earning $500 or less having more money in his pocket. Hence, if he wants a flat of his own, he now would have to put more money aside from his take-home pay every month for this purpose. However, this is an ideal situation. Our home ownership in the last 10 years has not changed much. The percentage of the rental section of the population remains persistently at 10% of the HDB population. This is despite the fact that in the last 10 years or so, income has gone up and the trend in property is towards upgrading, and there are also Government measures to help them own their own place. Yet, the percentile remains where they are all these years.

I appeal to the Government to consider softening the requirements for the low-income group to own their own homes, perhaps by reducing the deposits even further to 5%. Also, I do call upon the Government to step up public education on individual financial management and to further educate the virtues and importance of saving for rainy days.

Sir, let me go to my second point. In some academic circles, there is a view that Taiwanese or Hong Kong Chinese, when faced with economic difficulties, rely on themselves to survive. Singaporeans, on the other hand, when faced with a difficult situation, would ask: What is the Government going to do about it? Our Northeast Asian neighbours' resilience can be seen from the hundreds of thousands of savvy Taiwanese businesses in mainland China. This is despite the restriction imposed by the Taiwanese government and other communication difficulties. There are also reports that Hong Kong unemployed are quick on the mend to take up jobs in mainland China, which they previously shunned in order to survive. Singaporeans, on the other hand, look to the Government for solutions or directions when confronted with a difficult situation.

Sir, the point that I wish to make is with reference to the recommendations of the ERC to enhance the returns of the CPF balances through more varieties of investment instruments, including the low-cost, low-risk pension plans. I am fully in support of this move of introducing the low-risk pension plans. However, I am also of the view that at present, there are too many types of CPF pension funds and it is confusing to Singaporeans. There are the many Henderson funds, three or five arrow Japan, US or European growth funds, technology-related funds, and so on. Do we think our average Singaporeans are economically savvy enough to make an informed choice when investing their CPF balances? I think not, as the percentage of the people using their CPF to invest in stocks and shares and making money is a dismal 10% or less. While I laud the ERC's intent to boost the returns of Singaporeans' CPF monies, I would urge the Government to educate the public on investing their CPF monies wisely. This is to echo what hon. Member Mrs Yu-Foo Yee Shoon has mentioned earlier on. Otherwise, instead of boosting their retirement nest, they might have lost everything, for example, if they have invested in technology-related funds earlier on.

Next, I would like to raise a point on the reversal of charge position. The stated intention of the recommendation of the ERC is to allow for Singaporeans to have more monies themselves when they retire, instead of depending on their children. However, by allowing banks to be the first creditor, instead of the CPF, runs contrary to the stated intention. This is because, as I have highlighted earlier on, Singaporeans are dependent on the Government and not investment savvy enough. Thus, they might not have known the full risk involved in real estate investment and indulge in it with their CPF monies. When banks have the first go, there is almost not much left to be returned back to the CPF when things go wrong. I am afraid the public might be lured by the prospect of profitable property speculations and overlook the risk involved. The prospect of one losing his retirement nest is real. Is the Government educating the public adequately? I call on the Government for more efforts in educating the public in more prudent investments and the managing of their savings.

In summary, I applaud the tough but necessary measures. However, in this paradigm shift, I urge the Government to adequately educate Singaporeans, not only the educated but also particularly the lesser educated Singaporeans, on the duties of greater individual citizen responsibility.

Mr Zainul Abidin Rasheed (Aljunied): Mr Deputy Speaker, Sir, thank you for allowing me to join in the debate on CPF changes.

Sir, CPF is a highly sensitive issue. In 1984 when the issue of CPF withdrawal age was discussed, it was almost explosive. The Howe Yoon Chong Report on the Committee on the Problems of the Aged was almost derailed when Singaporeans were not ready for its recommendations to change the withdrawal age of CPF balance from 55 to 60, and then 65.

For me, Mr Deputy Speaker, Sir, for any potentially explosive subject, it is a matter of T&T (treatment and timing). Not only must one package and present it well, timing must also be right. Judging from the reaction we have heard about the ERC's recommendations and the endorsement expected and now confirmed by DPM, I believe we are doing all right. Allow me, Sir, to congratulate the ERC for a job well done. The press briefing, which Senior Minister of State Tharman Shanmugaratnam and the team had, was excellent. And they practically covered all the areas, including the concerns felt by the public. Even my trade union friends spoke well of the treatment given by the ERC, especially when they addressed the expected concerns of the labour force.

Sir, CPF had for a long time been seen as a sacred cow in preserving our ideals of democratic socialism. But true to Singapore's pragmatic approach to policies and changing realities, even the CPF had been subjected to many changes.

Sir, many MPs yesterday celebrated Racial Harmony Day and, for some, it might be considered as insensitive to talk about slaughtering sacred cows. But let me assure you that, even in Islam, when in real emergencies, even pork is considered halal than Muslims.

This latest round of changes again reaffirms Singapore's confidence on our system of governance in willing to make bold changes, when necessary. Singaporeans should take note of the signal sent out by the changes and make their own preparation for the uncertainties of the future challenges, as emphasised by DPM. The decision not to restore fully the CPF rate for workers aged 50-55 is one example. It must be a painful decision, but it must surely be more painful to lose your jobs compared to a reduction in pay.

I am sure, Sir, there will be those who would look at this decision as a breach of trust, as the Government has promised to restore CPF for all. But for those who feel that way, I would like to urge them to please think again the employment problems facing the age group are real and better to be realistic than to lose out altogether.

Having said that, I would like to share the sentiments expressed by hon. Member Halimah Yacob that employers pay deserving workers between the ages of 50 and 55 either in the form of monthly variable component, or bonus. Similarly, I would also like to call on the Government to give CPF top-ups, or Singapore Shares, to such affected groups of people when the economy permits. Singaporeans should also welcome Government's caring initiative to implement a Transitional CPF Top-up Component (TCTC) for civil servants aged 50-55, such that when CPF is restored for the others, they will receive in the TCTC part of what they would have received had their CPF been restored.

I would also like to urge the companies which could afford such measures to implement them for their staff and win better loyalty and productivity. Nevertheless, the underlying point worth emphasising is that times are changing and whether for the 50-55 age group, or younger workers, training and retraining are cornerstones workers need to pay special heed to. Especially for the 40-50 age group, they should be thankful that the CPF restoration is possible, but do take a serious look at their skills level.

Mr Deputy Speaker, Sir, I am glad the Government has decided to extend the SRP and PJTP training schemes. I feel that DPM should consider extending the schemes not only till 31st October 2003, but for at least two years. The problems of employability for the not-so-young will be with us for some time and they will need continued help.

Finally, Sir, the many changes recommended for CPF and other related areas, particularly, housing and healthcare, are well meaning. But in the nature of changes, the Government should monitor the consequences of those changes and make necessary adjustments after a period of time, say, six months later, after experiencing the results and outcome of these changes. As the saying goes, "The only more painful experience learning from experience is not to learn from experience."

I support the statement on CPF and related changes, Sir.

Dr Jennifer Lee: Mr Deputy Speaker, Sir, despite hon. Member Mr Matthias Yao's attempt earlier to redirect Members' interest to other subjects in the debate, I am afraid I remain rather fixated on the proposal to keep the employer's CPF contribution to 16% for workers aged 50-55 years. Let me say that DPM, Mdm Halimah Yacob and Mr Yao have all talked about the concerns that we have for the older, lower skilled workers. Myself and, I think, many other Members who have spoken before me recognise that it is a concern and that it needs some urgent attention. We recognise that this proposal to lower the employer's contribution rate is a sincere attempt to address the problem.

But I am not convinced that this is an appropriate or an effective solution. So the argument is not about the fact that there is a problem. The argument is about whether or not this is really going to be effective, in fact, whether it will be counter-productive. Companies will continue to hire and employ workers who are productive and make useful contributions, regardless of their age. Companies will not employ workers who are unable to get the job done, regardless of the 4% discount, so to speak, on their CPF cost. All that we are going to achieve with this move is to disadvantage those productive workers in the 50-55 age range, who are gainfully employed and make it harder for them to build up their retirement nest egg.

In addition, we will further reinforce the perception and the practice of treating older persons universally as a group, as being worth less and contributing less. Government has said, on previous occasions, that we must move away from using CPF as a convenient but blunt instrument to lower cost in economic hard times. The Economic Review Sub-committee on CPF has said that we should refocus the scheme back to the fundamentals of providing for people's basic needs in their retirement. And indeed, the other proposals, such as restraining the amount to be spent on property and increasing the Minimum Sum, are clearly steps in this direction. But this proposal to cut the contributions of 50-55 year olds is slipping right back to the old habit of using CPF to fix a problem that should be addressed, at source, in other ways.

The root causes of the group of older workers having difficulty finding jobs lie, firstly, in their lack of skills, or ability, or willingness to fill available jobs; and, secondly, their relatively higher cost due to our seniority-based pay system. The real solutions to this problem therefore involve reskilling these workers, where possible, and this has been covered at length in terms of the efforts we are making in skills upgrading, also in getting them to accept different kinds of work that Singaporeans currently find or think unattractive or beneath them, and also in getting companies to look at redesigning jobs so that older workers are able to manage in areas where physical strength is an issue.

The next group of solutions would be pushing harder to shorten salary scales and increasing performance-based remuneration so that the factor of higher cost of older workers due to the seniority-based system becomes a non-issue. These are the real solutions, not the convenient quick-fix of holding back on CPF restoration. Mr Yao and Mdm Yacob have talked about the efforts that we have tried to make in getting companies to address this to shorten those salary scales, and that it has been very tough. My concern really is that, if you take that pressure off by taking the easy route, and legislating CPF is actually very easy - we have some debate on this in Parliament and at the end of the day, we go ahead and do it. It is an easy thing to do. But it is not necessarily the right answer. In doing it, you are taking that pressure off constantly pushing to really fix a fundamental problem, which is those seniority-based pay systems. By doing this, in fact, and we can argue about the effectiveness or otherwise, it is counter-productive. You take the pressure off, people will stop and say, "OK, we have fixed part of the problem. CPF for this group is less." So there is less pressure to go for the real root causes. That, I think, is a concern.

DPM has said that we will not neglect and continue to work on flexi wage systems and skills upgrading programmes. But these are the other things that if we do not have the pressure on, I think we might end up relaxing a little bit or waiting for the next time that we need to go on for more CPF related changes. The Committee has said that these changes will enhance the flexibility of our overall wage structure. And the Committee has called upon companies to make up to their productive older workers through variable bonus and other such payments. I am not so sanguine that this is going to happen.

Truly, how many Members of the House really believe that this is going to happen. Productive older workers will be rewarded in a good company with variable bonuses and such in the same way as productive younger workers. But they are not going to be selectively given more, just to make up for the CPF cut that the Government has mandated.

I think there was a newspaper article on SingTech, and here was one company which was supposedly saying they would respond. The headline was very nice, and it said, "SingTech to compensate older workers". However, if you read the content of that article, basically what the CEO of SingTech said was that good, older workers will get the same reward as the younger ones, not that they will get actually more, to compensate and make up for the CPF cut.

To reiterate, CPF is a scheme to help people with their retirement needs. It is not a way to fix wage cost problems and it is not a way to enhance the flexibility of wage structure for workers. Anything we do through legislation, and CPF contribution rates are legislated, never enhances flexibility. Legislation, on the contrary, builds rigidity into the system. Not only is CPF a blunt instrument but, in this instance, it is a wrong instrument. I ask the Government to reconsider its acceptance on this proposal.

Mdm Ho Geok Choo: Mr Deputy Speaker, Sir, it is clear to us that the main objective of the Sub-Committee's recommendations is to strike a balance between the social objective of ensuring adequate funds in the CPF for retirees and the economic objective of maintaining the cost competitiveness of our workforce. Both objectives are noble and enlightened ones and there must be a flexible balance between them.

In previous years, this balance could be shifted one way or the other without extracting an onerous price on the part of the employees. For example, in the 1986-87 recession, CPF rates, then standing at a hefty 50% were slashed by more than half, to get us out of that recession quickly and decisively.

However, those were the days when the cost of living was not as high as they are now. A reduction in the employer's contribution to the employee's CPF then could and did materially reduce business costs, while still enabling workers to sustain themselves after retirement.

As I see it, Sir, we are now caught in a conundrum, not mainly of this country's own making, but for which lower-income employees have to bear the brunt of this latest revision.

I say that this conundrum is not of our own making because I fully understand the imperative of keeping ourselves globally competitive in an age when less developing countries are aggressively challenging us for precious investment dollars. Wage cost is, of course, one part of the total business costs that investors look into before making investment decisions.

However, the feedback of many is that, in re-juggling our CPF system to achieve wage competitiveness in our labour force, one group of workers may be suffering the main burden of such an adjustment, that is, those between 50-55 years old.

The Sub-Committee's recommendations to keep employers' contribution to 16%, while also reducing the employee's contribution to 16%, is meant to ensure the employability of this group of employees in a more competitive environment.

Yet, many in this age bracket are faced with the prospect of ever-increasing costs of living expenses over the longer term. They may get to enjoy a higher take-home pay in the shorter term, but over the course of their retirement years, with employer's contribution capped at 16%, they may actually not have enough in their accounts to see them through to the end of their lives. It has been advocated that reduction would make it more appealing for employers to retain the services of those in the 50-55 age group. Employers will not have to retrench them in view of their higher costs. However, such a view has certain embedded assumptions.

Firstly, the Sub-Committee is correct to assume that most companies in Singapore are paying their staff on the basis of a rigidified seniority-based grade system. But there are also companies in Singapore that have already shifted to a performance-based system or a competency-based one, according to which, age does not matter in the determination of one's salary. We should be encouraging more companies to shift to performance-based compensation.

With the proposed reduction in the employer's contribution rate to 16% - when younger age groups see theirs going up to 20% - would it signal to the business sector that it is all right to discriminate against older workers simply on the basis of their age? If performance is what really matters, why should age be the basis on which some people get less for doing the same, if not more, work than those of the other age categories? Furthermore, would not such a recommendation reinforce stereotypes among employers that older employees are less productive than younger ones? How can we ensure that such a perception does not get ingrained into our system?

Secondly, there is also the assumption that companies are driven to retrench these older workers by virtue of the increase in business costs, as represented by the employer's CPF contributions. However, there have been some voices emanating from respectable members of the business community that the 4-percentage point reduction, by itself, is probably not sufficient enough to make a major impact. In other words, there is no compelling reason for us to assume that, by swallowing this bitter pill, older workers will automatically face better job prospects than before. As we all know, since 1999, employer's CPF contribution rate for all workers was cut to 16% from the previous 20%. Has this 4-percentage point reduction substantially contributed to increased prospects of employability for older workers?

The Sub-Committee also cites the figure that out of the 110,000 workers in the 50-55 age bracket, 11% are now out of a job. There might be other explanatory factors that account for such a figure. For example, many of those in this age category might have taken early retirement. Furthermore, many in this age category might not possess enough skills, knowledge and education necessary for the new economy. In other words, the Sub-Committee's assumption, that cost is the main factor determining the employment prospects of these employees, may be a dubious one. While I believe that cost is one reason that affects the employment prospects of older employees, it is one among many.

Some of the other crucial factors could include the need for retraining and upgrading the knowledge base of these employees, the need to prevent age discrimination in the work place, and the need to move towards a purely performance-based salary system, one that is free from prejudices.

Sir, on a related matter, the Sub-Committee has also recommended a reduction in the CPF Ordinary Account rate from the present 22% for those aged 50-55 years to 14%. This will mean that many people in this age category may have difficulty servicing their housing loans, as less money would be available for investments in housing. This could also substantially affect those in their 40s.

In view of this, what other measures would the Government take - assuming that the Sub-Committee's proposals are accepted - to ensure that this group of home-owners would not find themselves in a situation where they would have to default on their loans, or find it difficult to cough up sufficient cash amounts to ensure their own serviceability?

Mr Deputy Speaker, Sir, on the impact of the lowering of the CPF contribution ceiling from $6,000 to $5,000, many find themselves in a double-bind. Not only will they see the employers' contribution to their CPF accounts capped at the current 16% for the first $5,000 they earn when every other age group see theirs going up, they will also be subject to zero contribution from the employers for anything they earn above $5,000. If the recommendations are accepted in its entirety, they are requesting that the Government also look into their needs and not blithely assume that they can take care of themselves.

In raising the CPF wage bands from $200-363 to $500-750, we increase the take-home pay for the low-wage and part-time workers, helping them to meet their current needs and encouraging more to enter the workforce. The downside of the recommendation is the concern that this category of employees will have very little in their CPF. It would be very difficult to build up sufficiently for their retirement, housing and health care, ie, for their future needs.

The cap on the maximum use of CPF for housing is a prudent recommendation, and the announcement of a pension scheme to enhance the investment value of our CPF savings gives a ray of hope for better yields. It would be good for public education to be mounted, so that CPF members are instructed and informed on how the scheme would work.

This calls for a fundamental shift in the mindset of our decision-makers and people. The challenges include managing the mindset, timing and readiness of implementation of the recommendations of the Sub-Committee. The revamp of the CPF is one of the many items in the remaking of Singapore. We must not lose our perspective when we experience change. This is where we must seek a balance in handling differences and coping with change. Very often, we know that we are besieged with both rational and emotive feelings that swing like pendulums in this whole exercise of remaking Singapore into a globally competitive nation of resilient and entrepreneurial people.

If the Government should accept the recommendations, it is urgent for us to demonstrate our actions to assist those affected, through giving them a channel for dialogue. I would like to urge the Government to constantly reinforce and encourage employer groups to share their gains from the cost savings. Employer groups must be conscious that they do not end up giving lip service and, on their own, to walk the talk.

In all NWC deliberations and recommendations, the tripartite parties must continue to urge employers, who could well afford, to make up to the deserving ones in the above-50 age group for the difference in their CPF contributions.

The proposal has advocated wage flexibility as a reason for the reduction in CPF but, in the same breath, it has also mentioned that CPF should not be tinkered further. I support the philosophy of having wage flexibility for a more viable business operation but, where in the longer term it is necessary for us to review the CPF rates for reinstatement for this category of people, we must not close the door there.

As rightly pointed out, we are concerned that Singaporeans may not have enough savings for their retirement, explaining the need to reverse the contribution to 40% for those below 50. Not too long from now, the majority of our working population would be in the above-50 age category. With the bulk of the working population in the above-50 age group, it begs the question whether they would be financially sufficient for their retirement needs and, therefore, a review of the CPF may make sense. Instead of using age as a factor for CPF rate, company financial performance could be used to determine the CPF rate payable.

Further, if it makes sense to do so, the Government could facilitate these organisations by way of tax incentives in proportion to the number of employees in the age group of 50-55 who have been retained in service or are being employed from among the unemployed. Such incentives would address the so-called wage costs of the 50-55, without disrupting the CPF.

Yes, I agree that we want to nurture a resilient group of people capable of looking after themselves but, at the same time, while weaning off from mum's milk, we must also make available and accessible cow's milk. For example, employers must be encouraged to mount more financial planning programmes for their employees reaching 50 years of age, and more awareness must be created in financial planning for this group of people. In this, perhaps the Government could also facilitate by subsidising and supporting such financial planning programmes for the affected people.

Sir, on this note, I support the Ministerial Statement.