CENTRAL PROVIDENT FUND AND RELATED CHANGES

Resumption of Debate on the Deputy Prime Minister and Minister for Finance's Statement [22nd July 2002].

Question again proposed. 12.59 pm

Dr Mohamad Maliki Bin Osman (Sembawang): Mr Speaker, Sir, thank you for giving me the opportunity to participate in the present debate on the proposed changes to the Central Provident Fund. Sir, this is a difficult time for Singaporeans. It is not easy to strike a balance between taking care of the welfare and emotional well being of Singaporeans, and dealing with the hard facts of the economic realities.

I am pleased to note the comprehensiveness of the measures proposed and announced by DPM Lee yesterday at ensuring that our economy remains competitive and our workers remain employable in a highly gloablised and competitive world.

Much has been talked about the group of older workers whose employers' CPF contribution has been proposed to remain at 16% when the full restoration of CPF rates takes place. Essentially, they will be experiencing a 4% cut in their salary.

Sir, I remember when I was doing research on the elderly population, there was the classification of the young old - those aged 60-75, and the old-old - those aged 75 and above. The classification is often times based on their level of economic and social activity. The proposal involving the 50-55 age group seems to suggest a need to classify another group of "elderly". Perhaps we need to call them the "younger old", or maybe "the not so young", or maybe "the not so old". Whatever we call them, they seem to be a new group of workers that we are concerned about since their age is a determinant in the present debate.

Sir, the unemployment figures, especially those involving this group of workers, are a cause for concern. The profile of unemployed persons as at June 2001, documented in a Report on Labour Force 2001 by MOM, showed that although workers aged 50 and above make up only 14% of the unemployed, which is proportionate to their proportion in the population, they take the longest time to regain employment. The median duration of unemployment for this group of workers is 14 weeks. They were also found to be more vulnerable to under-employment. It was also reported that job seekers with primary education and below took the longest time to regain employment. Thus, it can be extrapolated that the older workers with lower educational qualifications are the most vulnerable.

Sir, it is thus understandable to see the measure as a way of reducing the cost of employing older workers. It is based on the assumption that wages of the workers are a key inhibitor for them to regain employment. We first need to understand how the cost of employing these workers has risen. Many speakers in the House have spoken of the seniority wage system, ie, with the seniority comes the practice wisdom that they have acquired all these years. This practice wisdom would then be the value-add that they bring along to their employers.

Sir, one would hope that the wages of the workers are pegged to their performance or productivity, taking into consideration the practice wisdom and the value-add that they bring along. However, we have heard arguments from the employers that they can find younger workers doing similar jobs done by older workers at a lower price. Is this really so? If this is so, the issue is thus to look at the wage system, ie, ensuring that the wages are based on performance and not age. Yes, perhaps we have inherited a wage system that has structurally created a stumbling block to our economic system. We need to replace this stumbling block to something that is small, agile and flexible, to ensure that age is not a factor in determining wages, but rather performance.

Sir, while the proposed changes in the employers' CPF contribution of workers aged 50-55 suggest that the wages of this group of workers are a significant inhibitor to gaining employment, I wonder if it is a valid assumption.

The Report on Wages in Singapore 2001, published by the Ministry of Manpower, showed that the relationship between age and wages is mediated by the skills level of the workers. It noted, and I quote: "The pace of wage increase with age is more pronounced with the highest skilled workers as their work is generally knowledge intensive." For example, the median gross wage of managers aged 30-35 was $3,930 compared to $5,005 for managers aged 50-55, a 40% difference in favour of the older workers.

The report, however, continued, and I quote: "The impact of age on wages is less among lower skilled workers. Here, wages generally peaked earlier." In June 2001, the median wage of cleaners, labourers and related workers aged 30-35, for example, was $1,582 compared to $1,298 for workers aged 50-54 years old, a difference of 18% in favour of the younger workers. Another group of lowly skilled workers are the plant and machine operators and assemblers. There is little difference in the median age of the young and older workers in this group with those aged 30-35 earning a median income of $1,878, and those in the 50-54 age group earning $1,810, a very, very small difference.

Sir, if we evaluate these statistics and the earlier figures on the profile of the unemployed, with specific reference to the workers in the 50-54 age group, we can infer that perhaps wages are not a significant factor in their ability to seek re-employment. The wages of the older workers with lower skills and education are already lower than the wages of their younger counterparts. Lowering the employers' CPF contribution rate may not be the solution to ensuring their employability. Indeed, it is their skills set and its relevance to the available jobs that are critical. However, Sir, a 4% reduction in salary may mean a lot to this group of workers. I would like to thus echo the call made by Mr Ravindran yesterday for this reduction to be a temporary measure, and for it to be restored when the economic situation improves for this group of workers with their improved skills set.

Sir, I am glad to note that the Government will extend the People-for-Job Traineeship Programme and the SRP as these programmes will serve the needs of this group of workers. The challenge is to entice these workers to take advantage of these programmes.

Sir, I think much has been asked of the workers - from wage restraint to wage cuts to now, cuts in CPF contributions - all in the name of staying competitive and keeping costs low. However, what are we asking the employers to do? What have we done to educate employers to play their part in ensuring the employment market remains buoyant? Employers have been given much handouts in the recent Budget, especially with regard to tax cuts, etc. However, it is rather surprising to note their attitude towards issues related to the employment market. Yesterday, Mdm Halimah shared with the House that only 4.8% of companies have implemented the monthly variable component in the wage system. It was rather surprising to me to find out, Sir, from the Report on Wages in Singapore 2001 survey that 64% of firms studied indicated that they had no wish to introduce the MVC in their wage system. This is despite efforts by the labour movement in encouraging them to do so. I wonder what is the proportion of these firms which currently use a performance-based appraisal system in deciding remuneration for their employees.

Sir, such blatant attitudes of the employers will continue to plague the already harsh employment landscape for our workers. We will continuously have to return to the workers to make the adjustments and, of course, the CPF will end up being the easiest target. I would encourage the Government to introduce measures to encourage employers to move into the flexible wage system, perhaps starting with some incentives, if not, some legislative measures may be necessary. I am glad that as an employer, the Government has set an example for the private sector to follow. But I would suggest that the Government also study why such examples are hard to follow.

Sir, one can say that this is a chicken-and-egg issue. But the proposed cut in the CPF rates for older workers has got a deeper implication. We need to look at the issue beyond the economic consideration. Sir, I believe the economic productivity of these workers is also dependent on their emotional and psychological well-being. The current economic gloom will certainly affect the psychological and emotional well-being of these workers. If we keep asking the workers to continue sacrificing their salary, it will continue to dampen their spirit. At the same time, while I acknowledge that our society is aging, we need not hasten the pace by confirming that the 50-54 age group is indeed a new group of elderly people. I think they have much to offer and reducing the CPF rate may perhaps send a different message to them. We should try to remain as youthful as we can for a longer period of time, perhaps we should classify them as the "older young", instead of the "younger old", still up and about, and certainly able to contribute to the economy.

I think we recognise that changing the CPF rate is not the only solution to the problem. Indeed, there are larger issues, eg, ensuring that the wages of these workers are commensurate to their productivity, regardless of their age or gender, going by yesterday's session on Questions for Oral Answer.

In this regard, Sir, one perception that exists, following the recommendations put forth by the ERC sub-committee that the employers' CPF contribution for these workers be reduced, is the underlying value that older workers have lower economic value as they grow older. I think no matter what we say, we cannot deny that such actions can lead to such perceptions. Age has always been equated to wisdom and productivity with the caveat of the presence of the relevant skills set. We need to ensure that we are not accused of ageism. I recognise that the argument can be raised that we have already lowered the CPF rates for workers aged 55 and above. This was more palatable as it was pegged to the then retirement age of 55. But palatable or not, the current measure, I think, is just as equally, if not more, bitter in taste. Perhaps it is not the right medicine for the sickness.

Sir, we need to evaluate the value behind our treatment of age and economic value and viability. These two should not be equated - ideal as it may be - just as other demographic factors like gender, ethnic group, should not be linked to economic productivity and thus wages. Sir, it is a frightening thought to be told on my 50th birthday that I am too expensive and my economic value has dropped by 4%. I would ask if my performance had not deteriorated, why should my salary be reduced. The statistics I quoted earlier have shown that in some sectors, older workers are already earning lower wages, and I believe it is not due to their age but rather their skills set and productivity.

Sir, any reduction in CPF contribution from employers is a reduction in the total income of the individual worker. To the lower skilled worker, it would be significant. This is even more critical if he is taking a loan with a bank to mortgage his HDB flat. He may be one who falls into the category of HDB market interest rate loan. I would like to address some of the implications of the new initiative announced by DPM Lee yesterday on the intended target group.

Sir, although the new policy applies to the new loans or refinanced loans, we should study the potential effect using the experiences of the current group of home owners who would fall into the target group.

I would like to ask DPM Lee or HDB what is the proportion of the current group of home owners who would have been affected by the new policy. From the records of HDB, what is the proportion of this group of home owners who have a history of defaulting payment on their mortgages? What is the profile of this group of home owners? Were they also defaulters of other payments, like utilities and other bills? How many of them are on the verge of being declared bankrupt following failure to meet their financial commitments to other creditors? These latter creditors are likely to be the commercial banks who we intend to send them to with the implementation of the new policy. These are the cases that we have seen in our individual constituencies. Today, they come to us for assistance in negotiating instalment plans, tomorrow they will come to us looking for a roof over their heads for themselves and their children.

Sir, while I see the need to make Singaporeans more responsible for themselves and for the Government to let go some of the hand-holding, there is a need to do this incrementally. Sir, behavioural changes are best achieved incrementally.

Sir, I believe that if we can study the trends of what happened to this group in this economic crisis, it will help us prepare for eventualities when the new policy sets in. We have to accept that there will be no more safety nets for this group of people. Should they default, and by our previous experience, many will, and should the flats be repossessed, we will have a problem in our hands. Sir, I do acknowledge that we cannot save everyone nor should we protect them. They should be responsible for their own actions. But the current economic crisis tells us that there is a group that ends up in a difficult situation due to no fault of theirs - they are structurally unemployed and need time to upgrade themselves to regain employment. The HDB has used its own discretion and exercised moral responsibility in extending different schemes to this group to help them tide over difficult times. But the commercial banks will not care. They will look at the bottom-line. Also, what will happen to those who already have problems with their creditworthiness? What will happen to them if the banks refuse to grant them the loan? Sir, we need to study this further before implementing it.

Sir, I believe that the recommendations put forth by the ERC sub-committee and endorsed by the Government have the interest of the people at heart. We are indeed going through rough times and major shifts have been recommended. For Singaporeans to be convinced that these measures are for their good, we need to give them hope and direction. I seek the Government's indulgence in looking at some of the issues that the other Members of the House and myself have raised as we work together to give Singaporeans this ray of hope that things will indeed get better for us.

Dr John Chen Seow Phun (Hong Kah): Mr Speaker, Sir, thank you for allowing me to join in the debate. I would like to join my parliamentary colleagues in speaking up for the workers in the 50-55 age group.

Sir, the Government has accepted the ERC's proposal to lower the CPF rate for workers in the 50-55 age group to 16%. This is the current rate for the employers' contribution for all employees, lowered from 20% due to the current economic condition. Although there is presently no difference between the CPF contributions for workers in this age group and those below 50, there will be a 4% difference in the CPF rate once the full 20% is restored. This has been causing unhappiness and concern among those affected. These workers fear that housing payments may be affected as well as their retirement funds being reduced.

The Government needs to balance the harsh economic solutions to help our companies survive with the welfare of our workers. It must balance companies' cost of doing business with the retirement needs of our older, less well-off employees. In my view, the Government can and must chip in and help bridge the gap between the two competing needs.

In the past, the Government helped the lower income group through the various rebates - asset enhancement schemes, New Singapore Shares and generous one-off CPF contributions. This helps narrow the disparity between our high income earners and the less fortunate. However, we need to adopt a more targeted approach towards those affected by the Government's own measures. We do this for the GST increase and we should also do this for the CPF reduction. This is not only fair but will also show that we still care for our workers from the previous generation who have contributed to Singapore's success.

Mr Speaker, Sir, although I agree that lowering the employers' CPF contribution for older workers would enhance their employment opportunities, I do not think that we should lower the total monthly CPF savings of the lower paid workers. Therefore, my proposal is for the Government to subsidise or pay for part of the CPF for older workers below certain income levels to help them remain employed. This measure can be put in place for a limited period of, say, five years. This should be long enough for other younger workers to adjust their financial and retirement plans. As an example, affected workers earning up to $1,200 per month can have the 4% cut in the employers' CPF contribution be made good by the Government. Those earning more will enjoy the same benefits of those earning $1,200. In my calculations, this will work out to approximately $60 million per year when the CPF rates are fully restored. The affected workers will then have up to $2,880 restored to their CPF balances when they reach 55 years old. This sum may be small to those who are well off, but will mean a great deal to those in the lower income bracket, struggling to make ends meet.

Sir, the Government has decided to compensate the civil servants in the 50-55 age group through the transitional CPF top-up. My question is: why not also extend this to other Singaporeans? Sir, I hope that the Government will consider the merits of my proposal when implementing the measures proposed by the ERC.

The Minister, Prime Minister's Office (Mr Lim Boon Heng): Mr Speaker, Sir, first, let me bring us back to fundamentals. What does the CPF mean to each person?

Over the years, Government Ministers have consistently stated that the basic objectives of the Central Provident Fund (CPF) are savings for retirement, medical treatment and housing. But what is at the top of each person's mind? Last week, NTUC conducted several discussions with union leaders. After attending the discussions, one of my colleagues, in her early 30s, a graduate, married with two children, sent me this observation, and I quote:

"At different stages of our life, we have different expectations of CPF. For me - and my cohort - CPF is for housing. Which is why most of us do not really bother about the Minimum Sum or Medisave retention sum, but more concerned on how much is left from my Ordinary Account (OA) for housing.

For those in the late 40s, they could have grown-up kids. The working group may have slightly better savings and income, and therefore may aspire to upgrade. So CPF for housing again.

That is why in the dialogue sessions over the last few days, we do not hear people complaining that the 4% freeze will affect their retirement income, but that it will affect their mortgage loans. Which shows most are committing almost the maximum of their OA into housing.

Urgency to save for healthcare needs will come at a later stage. Children will want to use their Medisave for their parents, so that their parents can draw out the excess from their CPF when they retire. I do that for my parents, and I understand most of my friends do that too.

For those not married, they should have more savings relatively - as they have less to spend on.

In fact, though not many have achieved the Medisave Minimum Sum, with MediShield, it may not be that inadequate.

I think insurance would serve as a good source of income for many retirees in future, to complement CPF savings. The reach may not be that extensive in the past, but personally I think it is a good scheme of forced savings with protection.

To me, retirement income should be financed with individual savings, insurance, and subsidies from children, if any."

However, my colleague knows a single mother who worked hard to raise eight children, but they seem too caught up with their own families now, giving her little support, if any. I told my colleague that I have seen tears well up in the eyes of 70-year old residents seeking help at meet-the-people sessions when I ask them how many children they have. They know the next question I would be asking is: How much support do they give you each month? Voice breaking, the answer would be "Not much." And yet they would defend their children saying that life is hard for them too.

Sir, if there is a disconnect between Government and people, it is because people look at the immediate while the Government takes a holistic view. Any unhappiness that people express is understandable because changes affected their immediate needs. The CPF is for their needs over a lifetime, especially their retirement needs. What we should take care to do is make sure the adjustments we make do not cause undue hardship. I believe the ERC's recommendations that the Government has accepted, have done that. It will squeeze some people, but not unduly.

Sir, the ERC has restated the principle of the CPF. That is important. We did not have such a clear set of principles before, so the CPF had become different things to different people, and I have illustrated from the comments of my colleague, for many people, CPF is for housing.

Now, the ERC has clearly stated that the CPF is for the broad majority of Singaporeans - those above the lowest 10% and below the top 20% by income. The lowest 10% will need help through other means. The top 20% should be able to plan for themselves.

For the broad middle 70%, what does the CPF provide? Retirement expenditure, healthcare and home ownership - at the basic level. At the basic level, I think is a point that should be highlighted, so that we will not continue to have misconceptions of what the CPF will provide for us. Perhaps, it would be better if we define even more clearly what we mean by basics. Because basic housing differs from one person to another. Basic medical care also differs from one person to the other. And if we can define what is basic, then we will know that beyond the basics, it is our individual responsibility to plan and save for what we desire to have. Then perhaps like what my colleague does, take up insurance-linked investments.

But not everybody is like my colleague. I regard her as belonging to the top 20%. For the broad majority of Singaporeans, their CPF savings provide them their basic needs in retirement. For more than the basics, they should save what they can, and their children should support them.

I think we should all remind ourselves that pensions have a history of about 150 years. Our CPF has a history of barely 50 years. Before pensions and CPF, parents raise their children, and children support their parents when they grow old. This cycle has not changed. For the broad majority of people, CPF supplements the traditional compact between parents and children. Without it, demographic changes will put the traditional compact under severe strain.

Sir, for a long time now, the CPF, working with the HDB, has been more of a housing society to most Singaporeans than a fund for retirement. With Singapore's rapid growth, it has allowed many Singaporeans to upgrade their homes.

Today, more than 90% own their homes. The quality of our housing is already high by world standards. We cannot expect the same fast pace of upgrading to continue. What happens to the Swiss standard of living? The Swiss are blessed with more land, and great natural beauty. Many Swiss live on landed property. For those who live in Swiss cities, surely we do not see the majority living in fenced-in condominiums complete with swimming pools! That is why I said, by world standards, the kind of accommodation that Singaporeans have now achieved equals the best around the world.

Sir, the total CPF contribution rate will be 40% up to the age of 50 years. It means the CPF will continue to help each one buy his first property. Those who wish to upgrade will have to plan and save separately. The Ordinary Account will be less, most likely not enough for upgrading without other savings. Beyond the age of 50 years, the CPF will concentrate on helping the individual save for retirement spending and healthcare. The prudent valuation limit on use of CPF funds for mortgage payments will prevent the erosion of hard earned savings. This will contribute to a more stable property market.

But it will not prevent bubble-like price rises in the future. However, the swings may not be as wide as in the past. And future leaders will do well to remember that in dealing with such situations, they should not cause demand to rise further as that would merely pump up prices. The property price index chart, on page 4 of Business Times today, is instructive. The chart is similar to the one that Members can find in the Cost Review Committee Report of 1996. Any measure that has increased demand has merely pushed up prices.

That is why the feedback I get from my colleagues in the NTUC and my grassroots, after yesterday's announcement, is why are we allowing 10% cash payment and 10% from the CPF for private housing, because that would create demand. And they asked me why is it that we do not have other complementary measures to prevent the over-consumption of housing. For example, should we not institute a rule on how much of the monthly wage should go towards mortgage payment? People would then be able to cope with the payment over the life of the loan, knowing the changes that may happen in the economy which may even cause some of them to be out of work from time to time.

The other point that they told me was that we should not allow the so-called ballooning schemes that became popular in the early 1990s. These are schemes where one does not pay the principal sum; one only services the interest payments. They feel that this is a trap which we should not allow our people to get into. These are prudent suggestions which the banks and other financial institutions, when they issue housing loans, should bear in mind.

Having said that, I hope it is now a bit clearer what the CPF will do for people at different stages of life. In the early years, it would be to help them to buy their first property, as well as save up some for their retirement and medical needs, the principal one being for housing. But, in the later years, it would be to save up for retirement spending and healthcare. Seen in this light, the change in the long-term contribution rate for those in the 50-55 age group cannot be described as discrimination against them. And we should never use the term "ageism" lightly.

Addressing the seniority-based wage system

Our wage system is seniority-based. As my colleague, Matthias Yao, said yesterday, our system is uncommon. I studied wage systems in different countries in the 1980s. So I know our seniority-based wage system is inherently flawed. I knew then that it was uncommon, because other countries used a different principle. My younger colleagues in the unions did not take my word for it. They checked for themselves, as Mr Matthias Yao said yesterday, and confirmed what I found out almost 20 years ago - that the prevalent system applied elsewhere was one based on job rate.

Only the Japanese have a seniority-based system similar to ours. From the late 1980s, Japanese companies have had to change it. The Japanese MNCs knew after a period of time that the average wage costs go up under that system and they become uncompetitive. They tried to change, progress was slow. But they have persisted. Let me quote from the article "The Death of Lifetime Employment" in the publication Look Japan, August 2002:

"The second mainstay of the customary employment system in Japan, seniority-based pay, has also changed. An aging society with fewer children is one of the underlying factors. A salary curve that rises sharply along with employees' age was acceptable in times when there were a greater number of young people. The total personnel costs could be suppressed during times like that, because a greater number of people are paid lower wages. But in an aging society, it has become necessary to revise the seniority-based salary, to keep down total personnel costs. An increasing number of enterprises are raising the proportion of performance-based wages as an incentive for higher performance."

So, the Japanese realised that and they have been making changes. And, as Mr Matthias Yao said, the right way is the job rate. We have pushed that since 1986. At least, I have pushed for it since 1986. Although years of modification has narrowed the gap between commencing and maximum salaries, on average, an office clerk in the age group of 50-55 is now paid 60% more than one in the early 20s doing the same work; an electrician, 40% more; and managers, 200% more. These are from the same statistics that Dr Maliki mentioned earlier. With these gaps, the 4-percentage points less in employer's contribution means they will still be paid more than those with shorter service. So I do not think this can therefore be described as discriminating against the young-old or the not-so-young, as Dr Maliki has described them.

Dr Maliki was right in pointing out that in some other classifications, eg, cleaners, the increase in wage levels across the age profile is very minor. In fact, we can find somewhere the wage level actually drops. But we have to understand why this is the case. In many cases of production, the length of work of the employees is short. And there are not so many in the older age group. In the case of cleaners, there are not so many in the young age group. Most of them are in the older age group. So, we have to understand why that is the case.

But working with the unions, we know what is provided for in collective agreements and, typically, there is a salary scale, with a commencing salary and a maximum point. We know the people are paid according to length of service, still very much so. Not as much as it used to be, but still there is a very significant gap. If I were operating a hospital and all my employees belong to the mature group or have been working a long time, then I know that if a new hospital were to set up and employ young people under our system, the new hospital is going to be more competitive than the old hospital. That is why we have got to restructure our wage system to that based on the job rate and on performance.

Helping older employees avoid structural unemployment

There has been another good reason for the reduction in employer's contribution to CPF, ie, to help employees in this age group. They may not see it as such. But retrenchment figures show that a higher proportion of them are laid off when companies restructure. Mr Matthias Yao gave some figures yesterday. We expect restructuring to continue. So, why should we place them at higher risk, especially when they also find it hardest to find re-employment? Ministry of Manpower data shows that workers above 40 years take longer to find re-employment. Mrs Yu-Foo Yee Shoon informed Members yesterday of the experience of South West CDC, where the workers looking for jobs, and having a hard time, are those aged 40 and above. Members can get a good idea of the problem, if they spend time in their CDCs helping those looking for jobs. Age, not educational level, is the key factor, as what the Ministry of Manpower's information tells us. So, is it age discrimination? Or is it the seniority-based wage system?

A separate 4-year Department of Statistics (DOS) study of 14,000 workers retrenched from October 1997 to September 1998, during the Asian financial crisis, shows that a significant number are now not working - almost 30%. It is a sign that we have structural unemployment. And, unfortunately, we must expect more to come. The DOS findings for those who found re-employment were sobering. More than half had wage cuts; one in seven had their earnings halved; another one in five suffered cuts between 25% and 50%. Those who suffered wage cuts were the older ones, aged 40 and above. Again, age, not education, was the key factor.

So, to help them avoid the trap of structural unemployment, we have to do several things. Bring their wage levels closer to their productivity, so they stay in their jobs. Altering our seniority-based wage system to pay by performance is the way forward, but it takes a long time. Not restoring the employer's contribution to CPF will help, at least right now. Mr Gan Kim Yong disagreed yesterday, saying that cutting CPF for older employees will only entrench the seniority-based wage system. But employer's contribution to CPF is also part of total wages. Lowering it will narrow the gap between top-end wages and commencing salaries.

Certainly, adjusting wage costs is not enough. I fully agree. In addition, we should retrain them and redesign jobs to raise productivity. The unions have pushed for it. They say employers are not retraining enough. I hope that Members who are in management positions in their respective companies will give retraining of their employees a greater push, and they will be the ones who can make the difference in the redesign of jobs so that their employees can be more productive and paid more. So, I am saying that Members can make a difference. Do not leave it to the unions and union leaders to push. If the Members of Parliament do their part in their respective companies, I think we can make more progress.

The ERC's recommendations, therefore, address several long-term issues, and they help workers over their lifetime. Certainly, to some workers, the small changes may hurt. The effects can be mitigated, and employers would do well to make transitional payments to those immediately affected when CPF is restored for those below 50 years. For those working in unionised companies, I am sure they will get their transitional payments. Others have said it is unfair to some older workers who are value for money and, therefore, unfair, because the CPF will not be restored. Here, I fully agree with my colleagues from the unions that employers are free to pay them in cash.

Here, let me just make a note that the report in today's Straits Times about the TCTC may give people the misunderstanding that it will be a top-up into the CPF. I do not think it is intended to be a top-up to the CPF, but rather a top-up where the employees, in this case, the civil servants, will get it in cash.

Finally, let me highlight another recommendation that has not attracted much debate, that the CPF should be used as a counter-cyclical tool only as a last resort. Twice the CPF has been used to help us out of recession. Each time, we have devised new, flexible elements into our wage system, learning from the experience of the recessions. This statement in the ERC's recommendations means that in future recessions, employers should not expect the employers' contribution to CPF to be cut, at least not so readily as in the last two times. And they would have to work out the wage structure for their own companies to cope with the cycles of business. The CPF will now focus on providing the broad majority of Singaporeans with their basic needs.

Mr Chiam See Tong (Potong Pasir): Sir, I thank you for allowing me to join in the debate.

Sir, despite what the Minister has said, I would like to speak on the issue of the non-restoration of CPF for the older workers. I also, like many of my colleagues here, feel for the older workers. They have given their best years to build Singapore to what it is today. I think it is very unfair of the Government not to give them their due in respect of their CPF. I do not think the 4-percentage point savings on the part of the employers will be an incentive to the employers to want to employ older workers if they do not need them in the first place. Employers employ any worker if he can contribute to the bottom line of their companies, regardless of his age. More importantly, I think to deliberately cut older workers' CPF, which is really their salary, is a wrong move. By doing so, the Government is sending the wrong signal to the business community. The Government is really telling the employers that it is all right to discriminate against older workers regardless of whether they can do the job.

I also think that, from the legal point of view, this cut in salary is quite unconstitutional. Article 12 of the Constitution says that all persons are equal before the law. By cutting the CPF, the Government is making the law discriminate against older workers. I think the unions should look into this.

The older workers do realise that in these difficult times, when they get retrenched, and if they are offered an alternative job, they will most probably be offered a lower pay. Most of these older workers accept that. However, with the cut in CPF, as pointed out yesterday, I believe, by Mr Sin Boon Ann, they shall suffer a double penalty. They will get a lower pay as well as their CPF will be taken away from them.

Hon. Members have made many credible suggestions and I do not think it is wise of me to repeat them. The Government and unions should explore them. Whatever it is, I think it is wrong not to restore the CPF of the workers between the age of 50-55. I hope that the ERC shall rethink this issue in the meantime before the restoration of CPF comes into effect.

Sir, it is strange that I should be speaking, as an Opposition, for the restoration or non-cutting of the CPF because, as far as I can remember, it was the Opposition in the early days, when the CPF was as high as 50% of the workers' salary, that we, at that time, were asking for a cut of the CPF. Times have now changed.

Ms Irene Ng Phek Hoong (Tampines): Mr Speaker, Sir, the changes to the CPF rules announced yesterday signal a fundamental change in the social compact between the Government and the people in some important aspects.

For a long time now, the Government has been described as an over-protective nanny. The Government looks after the people in almost all aspects and the people trust the Government to look out for their interests, almost unquestioningly. This is especially so when it comes to planning for their housing and retirement needs. Now it seems that the Government has taken out the scissors to cut some apron strings.

Sir, I support the principle of encouraging greater personal responsibility which is behind some of the CPF-related changes announced yesterday. The question is whether the people are ready for it and whether they understand why this is necessary at this particular time.

There have been so many major changes announced in quick succession, a whole slew of them, and this has left many workers, especially the less-skilled and the older workers, reeling with confusion and anxiety. They do not know what to make of the changes, or how to adjust to them. They certainly do not understand the term "bank origination".

The Government needs to simplify its explanations and pitch it at the average Singaporean. It needs to assure the public that these changes are necessary at this time and that the Government will help them through this transition period, holding their hands merely for a while more before leaving them on the other side of the busy street. And that the Government would put in place pedestrian crossings and covered linkways so that they can go about their own way, come rain or shine.

Sir, take the changes to the use of the CPF for property purchases and the divestment of HDB market rate loans to banks. This will take effect on 1st January 2003 at the same time as the GST increase.

I am especially concerned about the impact on HDB flat owners who had over-invested in their properties during the boom years. Often, I meet residents who continue to live in five-room or executive HDB flats when they cannot afford to do so, and often because they have been hit by the economic downturn.

Many residents have come to see me to write to the HDB to defer payment of their mortgage loans. An increasing number has sought help to downgrade to a smaller flat or a rental flat. Some are divorcees who have just sold their matrimonial flat or widows who no longer need a big flat. They want to live more prudently in a smaller flat. Some just want to cut their losses earlier after realising that the burden is too heavy for them and they want to sell their flat before the required five-year period for minimum occupation is due. But HDB has strict laws on this.

When I asked them why they sought to buy such big flats in the first place, they often replied that it was because the Government had encouraged them to upgrade, and also because they thought they could rely on their CPF for most of the payment. They took the Government's word on this with simple faith.

Now with the new changes, HDB flat owners who want to downgrade, can no longer go to the HDB for market rate loans and they can no longer enjoy the flexibility of the HDB in deferring payments. They now have to go to banks for loans and need to pay 10% of their 20% downpayment in cash before they can buy a flat, when before they could pay the 20% downpayment entirely from their CPF. This may well be the knock-out blow to Singaporeans hit by hard times and who are forced to downgrade.

Their options for rental housing are presently limited. To qualify for HDB rental flats, the applicant must have a combined income of less than $800 a month. In addition, the applicant must not have sold an HDB flat within 30 months at the point of rental application.

I urge the Government to review the HDB rental policies and to also look at how the non-subsidised rental housing market in Singapore can be encouraged to provide rental housing for a wide range of income groups, especially the lower income.

That said, I am aware that we also have to examine the larger implications of this. In Singapore, it is almost a sacred tenet that each Singaporean should own a home to give him a stake in the country. But in many other developed countries, such as America however, renting is a lifestyle decision for many Americans who do not want to be burdened with mortgage payments. Some of them would rather save the money for investing in new businesses and to give them greater mobility to travel abroad to work in different cities and countries.

Another aspect of the changes announced which worries me is whether our banks are up to the challenge of providing loans to the lower middle-income and the lower-income groups. The buzzwords for banks today are profitability and efficiency. I am not sure how ready they will be to cater to the lower-income individuals affected by the changes.

And with the change to allow banks to have their first-charge on mortgage loans, I am not confident how readily they can listen to the lower-income's pleas for compassion. Perhaps, it is time for us to look at encouraging the establishment of non-profit housing cooperatives. These cooperatives would be able to negotiate a better deal with the banks on behalf of their tenants and to also safeguard their interest as a group.

For example, in Canada, non-profit housing cooperatives receive money from the Government to help the cooperatives subsidise a certain number of housing units or apartments. The housing charged for this unit is adjusted to the income of the household. If a household qualifies for a subsidy, their rent is usually set at 30% of the household income plus charges for utilities. It is a model worth looking at.

Another change which troubles me is the CPF cut for workers above 50. I understand the rationale of the Government and support its aim to increase the employability of the older workers. I also applaud the move of the civil service to take the lead in giving back cash to its older workers, part of what they would have to forgo because of the CPF changes. However, I question if this is the best way to go about it. I have argued against cutting the CPF of older workers in the Budget debate at length, so I will not repeat my points. But I just want to add one more point. So far, the proposals introduced to help older workers stay employed are often piecemeal and ad-hoc, introduced separately, one at a time, without an overarching framework. Seen separately, it can send a wrong message to the public. For instance, the CPF freeze for workers above 50 can be read by many as a move to make life harder for the older workers. And it is no surprise that people look at the policy in isolation and question if it is effective in encouraging employers to hire older workers.

But if it is introduced together with other measures directed at employers to change their mindset towards the older workers and with legislation to protect older workers, it would give a more accurate signal of the Government's intent, which is to help them stay employed and that the Government has their interests at heart.

The Manpower Ministry, on its part, has put in extra effort to help older workers but I must say that this is often lost on the public. It has put in place very good programmes like providing higher level funding support for the training of older workers. I would urge the Government to pull together all these schemes and to set up a comprehensive national programme for older workers to address the problem of unemployed older workers and to send the signal that they are valued as assets.

This is what Finland has done with some success. Finland is one of the rare countries to have taken a comprehensive grip on age policy. It launched a national programme for older workers in 1997 and this is implemented in cooperation with various Ministries and its social partners. It serves as a good example of Finnish tripartite cooperation. The partners have tried to improve the position of older workers at their workplace and there has been extensive commitment to this goal on the employers as well as the employees' side. The goal of the programme was to improve the employment rate among older workers as well as to influence people's attitude towards aging and older workers.

The measures of this national programme are focused on helping to solve the problems of unemployment through training, information and legislation.

Sir, in Singapore, we are going through a period of rapid change. And there is a danger that our social compact that has been built between the people and the Government through the many decades may be fraying. Even as it is being restructured, I urge the Government to take steps to strengthen this social compact, and build on the trust that the people have on the Government.

Mr A. Nithiah Nandan (Nominated Member): Mr Speaker, Sir, thank you for allowing me to join in this debate.

I have been a union leader for the past 26 years. All these years, my top-most priority is job preservation and creation. Hence, it pains me when I see workers retrenched. The pain gets worse when retrenched workers are unable to find new jobs. Older workers are hardest hit. In my own union experience, especially in the past few years, I have noticed that older retrenched workers have greater difficulties in finding new jobs. In my experience, the challenges we face now on the economic front and job market are the most severe. As a union leader, I am equally concerned of the other basic needs of workers, ie, adequate housing, healthcare and a decent living standard in retirement.

In addressing these concerns, I welcome the Economic Restructuring Committee's recommendations on changes to the CPF system. Its objective of refocusing the CPF is timely and necessary. I welcome the intent that the changes to the CPF will be gradual.

Sir, I wish to express these views on the proposed CPF changes. First, the raising of the employees' CPF contribution wage band to $500-$750. This means that workers earning within this wage band and below would have a higher take-home pay from now on. It is also an incentive to encourage those who are economically inactive to enter the job market. Relatively, it will help the lower income households more.

But raising the CPF band alone will not solve the problem. We should find ways to redesign jobs that are currently done by foreign workers to make them more attractive to our local workers. There is also an urgent need to educate our local workers not to shun these jobs, through the media or grassroots organisations. Other than the CPF changes, the Government should implement a complete set of packages to reconcile the housing, medical and retirement needs of the lower income workers and their families. This would ensure that they are not worse off in the longer term.

Sir, now, I would like to touch on the recommendation to freeze the employer's CPF contribution at 16% for those in the 50-55 age group. In the debate yesterday, 25 MPs spoke. In today's debate, Dr Maliki, Ms Irene Ng and Mr Chiam See Tong also spoke on it. It may seem to the outside observer that the NTUC MPs are for the freeze, and everyone else is against it. I too support the freeze. Why do we support it? The other solutions proposed by the MPs are all very good solutions - retraining, upgrading of skills, more productivity and value added merit-based wages. These are all sound solutions and proposals. They have been around for years. They are not new proposals. But let me ask hon. Members: how many employers send their workers for retraining, not just for their present jobs but to prepare them for long-term employability? How many employers have implemented base-up wage system, which was proposed by the labour movement in 1986? The reason why we need to introduce a freeze now is not because we do not know the solution. It is that those who should implement the solution are slow and reluctant to do so. This freeze should achieve the desired effect of retaining older workers, improving their employment prospects, and I agree that these measures to achieve greater wage flexibility would help preserve jobs.

Sir, we can choose to do nothing about it and let events unfold. Mr Chiam has mentioned that a couple of years ago, the Opposition had called for a cut in CPF. I was one of them who objected to the proposal. He is right - time has changed. Of course, time has changed right now. And we are calling for this freeze because, as trade unionists, day to day, we have to help workers who are unable to find jobs, and for those who are out of the job market, to bring them back into the workforce. These are the difficulties we face today.

As responsible trade unionists, we have to do something. Of course, any freeze will hurt, but there are other measures to help them, which I will touch upon later. But doing nothing will actually put the older workers into a greater pain and, without jobs, actually there is no CPF at all. They and their families are going to go through a great extent of suffering. Each day, when retrenched workers approach us, especially the older ones, we have great difficulty to find them jobs. Of course, I do agree that employers should not discriminate against older workers. But we just cannot live with statements without doing anything. So, we need to do something concrete, and we hope these steps will help.

The world has changed. Time has changed. With globalisation and competition from the region and other newer economies emerging, there are greater difficulties, especially older workers face more difficulties. So, we believe that with this freeze, and with other measures which are in place, it would definitely help them to get back their jobs. But if that is not sufficient, then I think the Government should monitor the situation and, as Members have suggested, if necessary, we can incentivise good employers and disincentivise bad employers. If, eventually, legislation is needed, then we can explore it. But right now, we need to immediately introduce some measures, and this measure of freezing the CPF for those aged 50-55, we believe, will help.

Sir, I strongly urge employers not to treat these measures as a cost-cutting exercise. They must take the ERC recommendation seriously and pass back part of the savings to deserving employees, either in the form of bonus or monthly variable payments. I am glad that the Government as an employer will be setting an example. I urge private sector employers to do the same. Forms of payment can be flexible depending on the company. As this is a recommendation, there may be employers who are doing well and yet keep all the savings to themselves. If this happens, it will be unfair to this age group of workers. Hence, I call upon the Government to set up a tripartite committee to monitor the situation and, if necessary, introduce appropriate measures against such bad employers.

Sir, the move to freeze employer's CPF contribution at 16% for those aged 50-55 years old will cause some hardship. These older workers have made sacrifices and contributed significantly to our nation's early years of economic development and nation building. Many workers in this age group have skills and experience. They should not be made to feel useless. Their concerns are real and they rightfully deserve more help. Will they be able to service their mortgage loans? Will they have sufficient funds for their retirement? These are fundamental questions.

Sir, our nation has built up considerable strengths, capabilities and resources in the past 30 years. The older workers have contributed to these achievements and resources. I urge the Government to provide special assistance to them. Earlier on, Dr John Chen has mentioned that the Government could top up the CPF of such older workers, and I support his call. The Government should explore topping up, if not in full, at least in part, to help such workers.

Sir, I have a specific request for DPM to consider. Yes, reducing the employee's CPF contribution for those aged 50-55 years old by 4% will enhance their spending power, but it will also erode their CPF savings in the long term. They may have to pay higher taxes and lose out in the CPF interest of their savings. Sir, I suggest that the Government consider giving an option to the employee either to take the cash or let it remain in his CPF account.

Finally, Mr Speaker, Sir, I wish to stress an important point which Mr Lim Boon Heng had earlier touched on. CPF cuts have been used in the past to pull us out of recession. Every cut is painful for workers. Employers should not expect another CPF cut if a recession occurs. It is time that employers built up the flexible component of wages, especially MVC without any further delay.

Sir, the Government has accepted the CPF recommendations and it has announced some measures to help workers, especially the older ones. This is encouraging. As the CPF recommendations will be implemented gradually, I urge the Government to monitor the situation closely, as it has many implications, and do more, if necessary.

Sir, I support the changes to the CPF system announced by the Deputy Prime Minister.

Dr Ong Chit Chung: Mr Speaker, Sir, thank you for allowing me to join in the debate.

Sir, there is no doubt that the CPF system has served us well over the years. It has become an icon of Singapore. However, the world has changed. It is now a globalised economy with intense competition from countries like China. And the Singapore population profile and economy have also changed. The population is greying and Singaporeans are living longer. We need therefore to provide more for old age and retirement. As the environment has changed, so must CPF.

The CPF system ain't broke, but we can modify it to maximise its usefulness and effectiveness for the individuals as well as for the economy. I therefore support the new measures, as announced. Nevertheless, I wish to raise some points of concern.

First, one area of concern is the reduction in CPF rates for the older workers aged 50 to 55. In truth, these older workers will suffer a potential pay cut or stagnation. There is already a bias against employing older workers. The new move is intended, in this context, to lessen the seniority-based system and to make older workers more employable.

But I wonder if it will work that way in practice. Those who do not wish to employ or retain older workers may, in practice, not be moved by such measures at all. Will it not instead perpetuate the view that this group of older workers is less useful or less relevant? I hope not.

Sir, in some circumstances, those aged between 50 and 55, give of their best, contribute significantly to the economy over many years, drawing upon their wealth of experience, their wide networking and their tested skills.

Sir, some older workers will also suffer from the drop in CPF payable from $6,000 to $5,000 per month. It will therefore be a double hit. With the decline in the CPF portion, which is tax exempt, and the increase in the cash portion, their taxable income or tax liability will also go up. In this context, I urge the Government to launch a public education programme to emphasise the merits of employing older workers, and provide more funding and avenues for the training and retraining of these older workers.

Sir, in view of their relative decline in CPF contributions, I urge employers to reward good workers from this group through bonuses and monthly variable components. The private sector should, in particular, walk the talk and join the public sector as well.

Sir, the other area of concern is the related move by HDB to get more HDB home buyers to go to the market and borrow from the banks, instead of relying on HDB financing and mortgages. This is good news indeed for the banks. But, HDB interest rates are very reasonably priced for the HDB home owners, whereas market interest rates from banks are expected to be higher, especially over time.

HDB has so far been quite liberal in giving loans to potential HDB buyers. In the new situation, what happens if the banks refuse to give loans to some HDB buyers, looking closely at their credibility or creditworthiness? HDB is quite understanding and friendly on mortgage default cases, whereas the banks are likely to be commercial-driven and tougher in enforcement. When residents come to see us at the meet-the-people sessions, we, as Members of Parliament, could write to HDB and appeal for more time, leniency, easier payment terms, ballooning scheme, delayed payment, and so on. HDB, I must say, is rather obliging and rather helpful in all these appeal cases.

Now, in this new situation, it will be impractical for us to write to the banks or to pressurise the banks in any way, and the commercial-driven banks are likely to be tougher and adopt a no-nonsense profit-driven approach, as they should be.

I heard my colleague, Ms Irene Ng, talking about cooperatives, and I know there is the NTUC Loan and Thrift Cooperative. Maybe the NTUC Loan and Thrift Cooperative can play a more significant role, a higher profile, in helping out some of the HDB residents.

Sir, HDB Home Ownership Scheme and mortgages have been part and parcel of Singaporeans' way of life. We have got used to it. It is an important channel of bonding between the Government and the people. Will the change or emphasis to commercial bank loans diminish this very vital bonding or social compact between the Government and the people? I hope not.

Further, for those who, for one reason or another, are not able to buy or own an HDB flat, will the Government provide more HDB rental housing for this category of people? As we all know, currently, there are very few HDB rental housing available, and the conditions are very stringent.

Sir, the CPF holders can use the CPF for purchase of company shares from the Stock Exchange. Many have lost their hard-earned CPF money on speculation in shares as most individuals are not market-savvy or have no time or skills to keep track of movements in the market.

I wish, therefore, to ask if it would be better to confine the purchase of shares through unit trusts or, better still, just allow investments in the private pension funds where there are professional managers to keep track and manage the funds or the unit trusts.

Sir, I support the new measures.

Miss Penny Low (Pasir Ris-Punggol): Mr Speaker, Sir, thank you for allowing me to join in this debate. I have a few points to highlight.

First, there is a need to better communicate the intentions and the objectives of the policy shifts that are being proposed.

Sir, the proposed CPF and HDB loan changes have far-reaching consequences. It signals a fundamental shift in the way individuals base their decisions as well as how institutions, especially the financial institutions, have to adjust to the new rules of the game, ie, be it tapping into the CPF market or HDB loan market. To this end, we have heard that the vested parties, meaning the banks and the fund managers, have been actively exploring and re-modelling their business plans in order to maximise their gains and minimise their losses in the sea of change. But, what about the individuals?

Many individuals I spoke to appear to be quite nonchalant about some of the proposed changes. Except issues with immediate or obvious impact, many people paid little attention to the rest of the proposed changes either because they did not understand or feel the impact, or were not aware of the issues at hand. As such, I would like to urge the Government and the relevant authority to consider mounting an "inform and educate" campaign to better inform Singaporeans of:

a) the intentions or the rationale behind the proposed changes, so as to achieve a greater buy-in;

b) the changes and their related consequences, whether they are immediate or long-term; and,

c) what are some of the coping mechanisms available.

The changes proposed may have genuinely good intentions. However, given the current public mood, which is somewhat sceptical and negative, any good intentions may be wrongfully misinterpreted and suffer dire consequences. Like a good father who does what is right for his children, our Government must do more to communicate and achieve a greater buy-in from the people. United, we stand.

Second, Sir, who are the intended beneficiaries of the proposed changes? Ultimately, I believe it must be the people - our Singaporeans. But, no one policy would satisfy all. Hence, it is believed that with these changes, the economy will become more competitive and our people will benefit in the long term. However, to quote the famous economist, John Maynard Keynes, "In the long term, we are all dead." Hence, while we make changes for long-term benefit, we must also urge our Government to intervene to provide short-term and medium-term reliefs and stimulus. To this end, our Government has done so in the economic arena. However, our economy is built on our people and, therefore, we should also then turn our attention to the people, and focus on the group of people who are most immediately affected by these proposed changes. These people would include:

a) the 50-55 years old or, in fact, when the policy kicks in in about three years' time, the 48-51 years old today;

b) the group of people who are also affected by the lowering of the income ceiling for CPF contribution; and, of course

c) the group of people who are hit by this double whammy.

I would like to ask: who are these people? Has there been a detailed profiling of these people who would be affected by these changes? Can we commission a study to enable a better understanding of their needs, and how to help them? Some quick areas of concern would be:

a) what is their average income?

b) what is their average loan repayment per month - whether it is mortgage or car loans?

c) what is their consumption pattern like; and

d) what is the average age of their children - are their children financially independent or are they of school or university-going age where financial resources are most needed?

Only when we can better understand the demands and profile of these affected cohorts of people, can we then design help that is relevant and helpful and effective to them. Hence, since the intended beneficiaries are our fellow Singaporeans, let us hear them, see them and better understand their needs from a human angle, and not just mere statistics on a Government chart.

3 Es - Empower, Enhance and Enable

Third, I think there is also a need not just to empower the people but to enable and enhance the individuals' ability to look after themselves, at least financially. I am in full agreement with the spirit of empowering the people and moving the decision-making process to individuals. With the proposed lowering of the income ceiling from $6,000 to $5,000 for CPF contribution and the raising of the income floor for CPF contributions from between $200-$363 to between $500-$750, there will be an increase in the disposable income of the people, as we put more cash in the hands of the individuals. This is a good move, only IF we can safely assume that people are generally financially savvy.

Sir, I would like to declare my interest here. As a financial consultant who has seen clients directly as well as trained hundreds of financial advisers, I find the financial literacy rate in Singapore to be rather low, despite our high income. Perhaps over the years, we, as a nation and as individuals, have acquired income and wealth at an accelerated pace, and we have not paid much attention to financial education to help us better manage our hard-earned resources. Sir, man has two legs, but the creature called "money" has four legs, two wings and perhaps, in the IT age, a super-jet as well. Hence, unless we learn to better manage our resources, we will always be giving endless chase to money and the increasing cost of living. For some, they will always be in the phenomenon called "Money No Enough".

Similarly, for Singaporeans who are affected by the lowering of the CPF contribution at age 50-55 and those whose mortgage loan repayment quantum may be affected by the proposed changes, they may not even get over the transition phase that DPM Lee spoke about yesterday - unless conscious efforts are there to help them make wise adjustments in financial decisions, some may be permanently stuck.

Hence, we must go beyond empowerment of the individuals to enable the people to make choices/decisions whose consequence or desired outcome is congruent with the action they are about to take. I would like to advocate that the Government put in place a comprehensive system to help educate Singaporeans on financial decisions, and this should not be mere financial calculations alone, but also take into account individual's financial goals and objectives. Sir, I am advocating that the 3 Es - empowerment, enhancement and enablement - be tackled holistically.

Fourth, the move from HDB origination market rate loans to bank origination market rate loans.

For those who move to bank loans currently, they may enjoy a lower interest rate. As such, many people, especially those who are suffering from financial hardship now, may be tempted to switch to a lower monthly instalment payment. However, in the larger scheme of things, as many of my parliamentary colleagues have spoken, banks are driven by commercial motives and do not have a social obligation to mortgagors. The HDB versus private banks' treatment of default cases is vastly different. HDB has frequently exercised compassion and put in place many schemes to help hardship cases, for example, the reduced or delayed repayment system, re-calibration of loans, no penalty interest-only repayment, so on and so forth. My fear is genuine hardship cases may not enjoy the same privileges as those under HDB loans and be forced out of their homes more easily.

Although some may say this policy may affect only a minority, the question is: should people unwittingly fall into this negative financial situation and banks force sell their HDB flats, is there any measure put in place to help provide a roof over their heads? Given the nucleus family criterion that HDB imposes, many of them will need a roof over an entire family's head to ensure that the grandparents are not left on the streets, children can continue schooling and the adults can also focus their energy and effort at correcting their financial situation, so as to prevent it from spreading to become a family and a social problem.

In addition, if we move HDB loans into the free market, are we also ready to liberalise some of the current HDB restrictions and move the guidelines closer to the free market?

Next, the loan restriction from 150% to 120%.

I echo Minister Lim Boon Heng's point on this scheme sounding a little bit like the balloon scheme. I think it is a very good move to restrict loan quantum. However, to put the payment and the burden of the payment at the back end itself does sound and remind me of the balloon car loan scheme where the cash upfront is minimal but the back end or the later part of the loan will eventually catch up with the debtor in due course, especially if one has not made wise calculations of his ability to pay, or has miscalculated and thought that he is going to be selling the property in 10 years, or has not properly invested the money saved upfront for later repayment. This is made worse when there is asset devaluation, or when loan interest rate catches up. One may then be forced to repay the loan in cash sooner than the original calculation.

Last, but not least, the relaxation of the 20% cash downpayment on housing loan.

There has been much talk about over investment in the property market and how CPF was used to fuel all these bubbles, and talks about how escalating land cost has made Singapore uncompetitive. This liberalisation of 10% downpayment in cash and 10% downpayment in CPF sends a mixed signal to the market and the people. Is there a need to cushion the impact of the changes on the property market? Already there is a suspension of the 16th May 1996 anti-speculation capital gains tax on property. Who are we helping in this exercise of lowering the 20% downpayment in cash? I hope the Government will seriously reconsider this proposed change.

Last, but not least, I would like to register that the CPF changes, on the whole, will benefit Singapore in the long term. I hope that the Government would better communicate with the public, and also look after those people who are directly affected, especially in the short and medium term.

Sir, I support the recommendations.

Mr Zainudin Nordin (Bishan-Toa Payoh): Mr Speaker, Sir, I rise in support of the proposed changes to the CPF system, as described in the Ministerial speech.

Sir, since its inception, the CPF system has been part and parcel of the working lives of all Singaporean workers. The success of this system is greatly due to the fact that we believe its principles and concept. It is a good system. It has served us well. It is one of the basic tenets of our social security system. As opposed to the common pool retirement fund systems that exist in many other countries, our CPF system is based on individual compulsory savings for retirement for every worker. Through CPF Board facilitation, thousands of our workers and their families are able to benefit from the fruits of their labours during their twilight years.

Sir, when there were hints that the system was going to be reviewed, many were worried. Understandably so, because we are comfortable with it and many depend on their CPF savings to purchase property and some use their CPF accounts to invest in stocks. Naturally, the idea of the Government tampering with something that works and is not broken is unnerving and disturbing.

But we also understand times have changed. We have just gotten through the worst economic recession of our short history and we are still not out of the woods. The world and the regional economic landscape have changed. Tight labour market and full employment that we have enjoyed for many years are no longer the order of the day.

It is a relief that after lots of speculations, discussions and consultations that have taken place, here we are and the ERC has spoken.

This topic, Sir, is very important and it touches across the whole strata of our population. I believe that it has been handled very, very well and it speaks very well for ERC. It has managed to get the views of the stakeholders and the masses before the recommendations are made. I believe that the workers understand that some of these changes are necessary and that we have to do it, no matter how painful it is going to be.

But, Sir, I can assure you that there are many out there who still do not understand how these changes will have an impact on their lives. Many are just hoping that positive change will come about. We should continue to engage the people and get their views because this process of communications and consultations will minimise misunderstanding. Naturally, there will always be disgruntled people who will be bitter and cynical of whatever effort that we intend to do, or change.

Mr Speaker, Sir, as we ponder upon the means and ways to make these changes and adapt, there are several issues which, I believe, I can highlight which deserve some attention from the House.

Our older workers are constantly grappling with rapid changes and the need to acquire new skills and knowledge. Many of them are struggling and some of them are resisting these changes. Now, we are telling them that their CPF is going to be affected. How then can we assist them to manage this change? Can we be sure that the proposed CPF change will help them to be more employable? As it is, Sir, many have tried to re-profile themselves and acquire new skills, but yet they still struggle to get new jobs. We know that it is not going to be easy to assess how effective this measure is going to be, but we are surely going to be judged for this decision. So let us not make it more painful and assure those who fall under the age bracket of 50-55 years and are directly affected by this change that, if they need help, the help is there for them.

Sir, we have heard for many years now that there needs to be a change in mindset towards the way we pay our workers, that is, we should move away from the seniority-based wage system and move towards the task-based and performance-based system, irrespective of age. The progress has been slow. Many Members, union or otherwise, have lamented in this Chamber of the slow take-up rate from the private sector. I believe we should seriously look into how this could be changed.

Mr Speaker, Sir, the seniority-based wage system is so entrenched and rooted in our economy that, I believe, maybe evolution is not enough, but rather a revolution is what we should start. May I be bold to suggest that the civil service, as the largest employer, should lead the way and revamp its wage system, rather than making minor changes here and there?

Sir, the initiative to allow CPF members to invest in approved private pension funds is laudable. This gives the workers opportunity to decide on alternative schemes. They should be responsible for their retirement and if they feel that the returns from the pension funds are better and thus enhancing their safety net, so be it. My only concern is for the workers to be informed of the pros and cons of such schemes. Let them make informed choices and be responsible for their choices.

In conclusion, Sir, I support the move to fine-tune the CPF system, and I believe that it is necessary to prepare ourselves for future challenges.

Dr Warren Lee (Sembawang): Mr Speaker, Sir, thank you for allowing me to join in the debate on the motion before us.

The new CPF measures for workers above 50 years of age will surely have the effect of flattening the wage pyramid for employers, as many are still using the seniority-based system for a variety of reasons. Although many may say that this is but a small gesture and that few jobs will actually be saved, I think we are making an important signal to investors and employers that Singapore is serious about remaining competitive when addressing total wage cost.

Mr Matthias Yao yesterday brought up statistics to show that it was the older workers who are more likely to be retrenched as companies restructure to face lean times ahead. So this measure is about helping to ensure that older workers will be able to keep their jobs for as long as possible while pursuing retraining, a second career, or new business of their own. We want our people to be prepared to be entrepreneurs. But if we ask, we find that many of them would only have assets, the HDB flat. We may then need to be prepared to provide large amounts of rental housing again, if Singaporeans, having lost their flats through business failure, are not to be left to fend for themselves in the streets. I support suggestions that will reduce the amounts available to service housing loans through the CPF, and that is a good thing, because there is currently a temptation to upgrade to a housing unit that one can ill afford. This move towards making commercial loans for those who have had two or more subsidised housing opportunities from HDB would force people to consider carefully if they could really afford their fancy new home, or their expensive renovation loan.

Many Singaporeans are having smaller families and the traditional support system based on the extended family can no longer be relied on. We have been told that many Singaporeans will be retiring with less than half the recommended Minimum Sum of $80,000 in their CPF accounts and this situation will certainly continue for many years. For many of these Singaporeans, their main asset in old age is the HDB flat. I hope the Government would consider revising some of the HDB policies, as Ms Irene Ng has said, so that these people will not face unnecessary obstacles in monetising the last asset to support themselves in their old age.

Let me quote you an example. I recently met a 73-year old man at one of our meet-the-people sessions. He told me that he had been trying, without success, to sell his 4-room flat for the last two years. He had been a skilled workman, had led a frugal lifestyle, but had exhausted his CPF savings in helping to look after himself and two elderly and sickly siblings. As the siblings have bought a 4-room flat less than five years ago, they would be ineligible for rental flat had they sold the flat, and they would also not have been able to buy a resale 3-room flat on the open market after paying back HDB for their rental arrears. These people were desperate because there was no way that these three 70-year-old people would have gotten a commercial loan. They also had less than $1,000 left in their CPF at that time.

The Government would need to consider making reverse mortgages on HDB flats and easier option, or furthermore to tweak policies meant to discourage property speculation, such that they would not pose problems for elderly people such as these. The move towards commercial loans for third time HDB flat buyers would initially not affect the majority of HDB flat dwellers. But, I think, as many Members do, the commercial banks will never be as generous as HDB in dealing with those who have difficulty in servicing their housing loans. Perhaps, HDB would need to revisit again this business of providing basic rental housing, whether heavily subsidised or not, to those people who need to cash out their flats due to inadequate CPF savings, or to those who have lost their flats due to retrenchment, or business failure.

My last point is that the Government should also not forget those who have very little by way of CPF because they are petty traders, or they are self-employed, like taxi drivers. Some of these people have come to see me saying that as they did not even have enough spare cash to put into their Medisave accounts and keep their contributions up to date, they faced difficulty in renewing their licences to operate as petty traders. For these people, surely we must find a way to help them because if they, at this point in time, do not even have the means to pursue their trades and their occupations, they really feel that they are at their road's end. For this group of people, how can the current CPF measures help them? I hope that the ERC and the Government will also consider the plight of these low wage earners and those who have really no business in their shops and stores.

Mr Ahmad Khalis bin Abdul Ghani (Hong Kah): Mr Speaker, Sir, I support the proposed changes in the Deputy Prime Minister's speech. However, like some of my colleagues before me, I wish to express some concerns, specifically in relation to the market rate loans for HDB flats. Some of my points have been raised by my colleagues earlier, but I still wish to reiterate one or two salient points.

Firstly, among those people who wish to take market rate loans in the purchase of HDB flats, many of them are fully aware of the implications and ramifications of bank loans. Many, I believe, are not fully aware of the terms with regard to forced closure, how and when they operate. Many are not aware that banks normally have the right to utilise the accounts of the borrowers held in the lending banks. Many also are not fully aware of the quantum of principal and interest in their monthly instalments, coming to an unpleasant surprise whenever they come to a stage when they wish to redeem the loans. There will be those who will find themselves in these unpleasant situations, and the problem is that when they come to it they are not prepared for it.

Secondly, there is another group of people who, even if they are aware of these terms and conditions, do not have the financial nimbleness or capacity to overcome them. We can say that they have a choice - if they are fully aware of the pitfalls of bank loans, then do not take bank loans, do not buy a flat. This is not really a choice, for owning an HDB flat is really almost akin, at least in Singapore, to the basic need of having a shelter for one's family and oneself. For this group of people, it is not exactly a real choice to say, "Do not borrow from a bank." These are also the same ones who are hardest hit during a macro economic downturn or an individual financial setback.

So, what happens when they default on their housing payments? This brings me to my third point, ie, the readiness of banks to meet financial hardship defaulters halfway. This point has been raised by some of my colleagues earlier. Let me just reiterate my agreement with it, especially the difference in approach, attitude and philosophy between the HDB as a lender, and banks as lenders. It can be argued that the right of the bank to foreclose, to take legal action, is the same as the rights of the HDB presently. Therefore, the argument is that the rights, duties and obligations of HDB flat owners, ie, borrowers, vis-a-vis the banks after 2003 are the same as the rights, duties and obligations of HDB flat owners now vis-a-vis the HDB.

Legally, that is correct. But only legally, because, actually, it is different. The difference has been enunciated quite eloquently by my colleagues earlier, but the main difference arises from the fact that the HDB has a social mission. In my very short stint in this House, I have heard the Minister state clearly that the role and function of the HDB is, primarily, to provide basic housing to all Singaporeans at affordable prices. And even when HDB acts as a lender, we see this reflected in their actions. Therefore, when we have defaulters as a result of an economic downturn, we have the HDB bending backwards, sideways, forwards, in all directions, to help accommodate the awkward positions that the HDB flat owner is in.

I can imagine, even as I speak now, one HDB officer paying attention to a HDB flat owner, trying to give a proposal that would work out for him, either a deferment of monthly payments or an extension of housing loans, thereby reducing monthly quantum sums. Try as I might very hard, it is quite difficult for me to imagine a bank officer doing the same thing. This is not to put any blame on the banks. It is in the nature of banks to run on a commercial basis, and a purely commercial one. They have to answer to their shareholders. Profit making is their bottom line. If there are loan defaulters, bank officers will have to answer to their shareholders, "What actions have you taken?" There is, therefore, great pressure on banks, in the case of defaulters, to take action, file writs of summonses, enter judgments, enforce judgments, ie, to foreclose.

On the other hand, I appreciate the rationale for the changes that are proposed by the Hon. Deputy Prime Minister, one of which is to enable the HDB to focus on its core role. I also understand that these changes are in line with the desire to allow commercial transactions, including property loans, to be governed more and more by the forces of the free market. This also accords with the need to prepare Singaporeans for the new economy. The changes also would jolt ordinary Singaporeans to realise that, ultimately, they cannot rely on statutory boards as another safety net or source of security. But we, Singaporeans, ourselves, have to plan and prepare for our own future and security.

Sir, while I agree with these changes, in view of the concerns that I have raised, I would like to urge the Government to consider embarking on a very thorough public education programme on the changes - not only what they are, but what they imply, the ramifications of loans, as I mentioned earlier - what they actually mean to those people who take loans, eg, the usual terms that banks would normally apply. I believe my hon. colleagues, Ms Irene Ng and Miss Penny Low, have alluded to this prior to my speech.

Next, I would also urge the Government to consider allowing some of these buyers to still obtain market-rate loans from the HDB after 2003. There can be a cap on their income or a cap on the amount of loan that they can take, in order to prevent abuse. Perhaps, we can also put a cap on this break period, say, until 2006 or 2008. The idea is to soften the otherwise abrupt learning curve. I think this would go a long way to help.

Sir, save for the concerns I have mentioned, I support the proposed changes.

Dr Amy Khor Lean Suan (Hong Kah): Mr Speaker, Sir, in my opinion, the title of the just-released report by the ERC Sub-Committee on CPF and Wages is most apt. "Refocusing the CPF system" is a bold call for the system to return to its basics. It was originally conceived as a compulsory retirement savings scheme. Requiring both employers and employees to participate helps the workers accelerate the accumulation of retirement resources, and make the employer an indispensable part of the workers' retirement plans. The CPF system has served the nation well. However, over the years, the system has grown considerably in complexity, as its role crept outwards to include housing, healthcare, and even as a macro economic management tool. It is time for the CPF to strip clean of the clutter accumulated over the years and re-focus on its core objectives. In some ways, for the average workers, the CPF system is also a deferred social safety net.

The stated goals of the refocusing exercise are: ensuring adequate retirement resources, reducing excessive consumption, and promoting labour market flexibility. The unstated goals, as some observers have pointed out, seem to be that of encouraging greater personal choice. An increasingly capitalistic approach is being taken. The safety nets are being slowly removed.

Sir, I support the principle of personal choice and accountability, but would urge that this principle be tempered by special consideration of the lowest 10th or, indeed, perhaps even the lowest 20th income percentile of the population who are more vulnerable and who are less able to make the best choices for themselves. We need capitalism, doused with a great deal of compassion for the less able.

Furthermore, Sir, whilst I support the spirit and essence of taking the CPF back to basics, I urge the Government to apply a gentle hand and move gradually in implementing the changes to the system. I note that this is indeed the tone of the Government's response to the report.

Let me now turn to three areas of the ERC report and the Minister's response which I wish to comment on. Retirement adequacy

I support raising of the Minimum Sum, higher contributions to the Special Account, Medisave Account, and the need to take a long-term view of CPF, instead of relying on it as a counter-cyclical macro economic stabilisation tool. In so far as property investment is concerned, I am pleased to note that the report offers a very balanced and circumspect view. While pointing out the dangers of over-consumption, it does not vilify property investment per se. I quote:

"It is rational and sensible for Singaporeans to invest in property. Not only does this provide their families a roof over their heads, it also gives them a substantial asset that offers added financial security in retirement."

Sir, this statement rightly puts in perspective the fact that property investment per se is not the villain it is made out to be for our current woes, as is fashionable to allude to nowadays. On the positive side, many economists have recently pointed out that rising house prices in the US and Europe are helping to keep their economies afloat after the battering their stock markets have received.

In the final analysis, it is really our greed, our oftentimes misplaced optimism, "irrational exuberance", that property prices will keep heading north that have caused many to over-invest in property. Indeed, the stock market is more famously irrationally exuberant than property. It is true, however, that current CPF rules have exacerbated the problem, and the recommendations of the Sub-Committee and the Government's response will go some way to reverse the problem.

Sir, the report points out - correctly in my view - the need to have more flexibility to be able to convert the property asset into cash during a person's twilight years. Like the authors of the report, I would like to urge the Government to explore more exhaustively ways and means to monetise a person's housing assets, to enable that person to enjoy as reasonably comfortable a retirement as possible.

At least three possibilities have been mentioned in the report, which I wish to comment on briefly. The basic point I wish to make is that, presently, various obstacles hinder monetisation through these possibilities, and several HDB rules will have to be re-evaluated and changed for the possibilities highlighted to be workable.

Subletting

Sir, currently, subletting of the entire HDB flat by elderly lessees to augment their retirement savings is subject to various criteria, which are that:

1. the lessees must be aged 65 years and above;

2. they must be living in a 3-room or smaller flat;

3. they must have occupied their flat for at least 25 years; and

4. they must have no outstanding mortgage loans.

Sir, I feel these restrictions are stringent and seriously inhibit the ability of elderly lessees to sublet their entire flat for additional retirement income. Based on the current set of restrictions, only a handful of retirees will be able to make use of this avenue to augment their retirement income.

Given that the current retirement age is 60 years, as well as the fact that more may be forced to retire early due to structural unemployment, we should consider lowering the minimum age requirement from 65 years to, say, 60 or 55 years old. Furthermore, subletting of the entire flat should not be allowed only for elderly lessees of 3-room or smaller flats. Rather, it should be open to all retirees, whether they live in a 3-room or bigger flat.

However, for a start, to prevent abuse, this could be liberalised to include both 3- and 4-room flats. As the scheme stabilises, it could be extended to bigger flat types. This would allow retirees greater and freer choice in monetising their assets for old age.

As the objective is to allow retirees to augment their income by subletting their HDB flat, if they so wish, the restriction that they must have occupied the flat for at least 25 years and that they must have no outstanding mortgage loan are not only onerous but also appear superfluous. The rationale for these stringent conditions appears to be a concern that public funds to build subsidised flats for their owners are being used to help lessees generate income. Since subletting of a whole flat is, in this case, only allowed for retirees, the worry of such a public outcry is unfounded.

Reverse mortgage

Second, reverse mortgage. In concept, reverse mortgage is a useful device. However, there are risks to the financial institutions offering it. Properties with an ageing lease will be hard to dispose of in the event of default, especially given that CPF itself currently does not allow withdrawals for properties with leases shorter than 60 years. Pricing those risks properly would imply a relatively high interest rate, but this means a double whammy - low valuation plus high cost of servicing the loan through lower annuity.

This is probably the reason why reverse mortgage remains unpopular, with only NTUC Income offering the scheme for private properties and with few takers. Furthermore, current reverse mortgage proposals are for a fixed term of, say, 10 years. This means that the property owner faces the risk of losing his property if he is unable to pay the reverse mortgage loan with interest at the end of the term. This is a significant drawback of reverse mortgage today.

Nonetheless, in view of the need to allow more ways for retirees to monetise their assets, the Ministry of National Development could and should explore various reverse mortgage schemes together with the financial institutions for the benefit of HDB lessees.

Downgrading

Elderly HDB flat lessees could also monetise the value of their HDB flat by downgrading either to a rental or to a smaller flat. However, there are currently several impediments for them to do so.

Firstly, current HDB rules only allow low-income families with a household income of $800 or less per month to rent HDB flats. This rule for rental HDB flats would have to be relaxed to accommodate a wider population of elderly lessees to rent a flat, instead of purchasing a smaller flat. Renting is pure consumption and for the elderly, this should not be a cause of concern for policy makers.

The ERC report notes that presently, every two out of three elderly households live in 3-room or smaller flats and have no smaller accommodation to downgrade to. This would limit the number of elderly HDB flat lessees who can sell their existing flat and downgrade to a smaller flat. Such residents could perhaps downgrade to studio apartments. To facilitate this avenue for elderly flat lessees to monetise their properties, HDB could consider building more studio apartments.

Furthermore, the ERC report notes that only 3.6% of elderly living in HDB flats have downgraded to smaller flats and hence, downgrading by the elderly to unlock the value of their assets could require a significant behavourial change. Indeed, most elderly do value stability more than many other things. Familiarity with the ground, community ties painstakingly built up over the years are especially hard to break.

My own experience with collective sales of older properties bears this out, with some elderly residents saying that they would rather die in their matrimonial home or from where they have lived most of their life, than to become a multi-millionaire.

I also know of a colleague whose widowed mother is living all alone in a 5-room HDB flat and refuses to move out to a smaller flat despite repeated advice from her children. One way to mitigate this problem and make downgrading more attractive to elderly residents would perhaps be to build more studio apartments in areas where there are high concentrations of the elderly, so that they would at least be able to move to another flat in the same neighbourhood which they are familiar with.

Home ownership

The second point I wish to raise is the impact of the ERC Sub-Committee's recommendation on home ownership. There has been a chorus of concerns about the over-investment problem and fears that retirement adequacy will be compromised by it.

One measure to curb this is the 150% valuation limit on the use of CPF funds for purchase of private properties and HDB flats with bank-originated loans. Over a period of five years, this will gradually reduce to 120%.

The Committee has revealed that even at 120%, most home buyers should still be able to use their CPF funds without having to resort to cash top-up for some 19 years. Enough has already been said by the media and market watchers to lead me to conclude that this will have minimal impact on the property market in the short-term and that it will help to prevent over-investment in properties. Notwithstanding this, the Senior Minister of State for Trade and Industry has noted that this cap could be further reduced in the future. I would urge the Government to carefully assess the ramifications of any further future cuts before implementation in order not to unduly destabilise the market.

Next, I would like to briefly comment on the Minister's announcement that from next year, HDB flat purchasers who are not eligible for HDB subsidised interest rate loans would have to obtain their financing from banks. Again, this seems to be a case of encouraging greater personal choice and accountability by pulling back some of the safety nets put in place earlier. However well meaning as these changes are intended to be, they would bring considerable anxiety to purchasers of HDB flats who are not eligible for subsidised loans. This is because they will fear that the commercial banks, who are bottom line driven, will not hesitate to foreclose on the flat, if they are delinquent in their debt servicing. For many, the HDB flat could be the only roof over their heads.

As my colleagues have alluded to, HDB currently has a number of assistance schemes, such as deferred payment and temporary reduction of debt service to help HDB flat lessees affected by the economic downturn. On the other hand, commercial banks are under no compulsion to provide such assistance, nor are they expected to.

Whilst I agree with the broad principle that HDB should focus only on basic housing needs and there should be more personal responsibility of one's investment decision, it is important that this be properly communicated to the broad population and their anxieties allayed.

The banks, for instance, could be asked to give assurance that for HDB purchasers, they would provide adequate moratorium periods and/or some deferred payment schemes for a period of time if the borrower were affected by an economic downturn and the property is their only home.

Additionally, the HDB could further assure the public that the home ownership policy is not compromised by offering to step in, as the lessor, to work with the banks to assist affected homeowners in such cases.

They could also set up a special relief fund to assist such homeowners. This could be for a transitionary period of, say, 3 years until HDB flat buyers are more astute with financial planning and discipline and able to do their sums and adapt to the change.

Enhancing labour market flexibility

The ERC's proposal to cut employer's and employee's CPF contribution rate to 16% each for the age group of 50-55 years has, as many of my colleagues before me noted, brought on the loudest chorus of anguished protests among workers. It is understandable, given that many feel, rightly or wrongly, that it is an indictment of their economic worth. Many are also skeptical about how effective the CPF cuts could be in helping to preserve jobs, as well as open new ones for this age group.

The worry, to paraphrase the Minister of State, Dr Ng Eng Hen, is not that the elderly have lost all their value, but that their value is deemed diminished by such a move.

This is despite repeated assurances from Ministers and the unions that the cut is not to be seen as a wage reduction, or that their value is diminished, but rather as a means to inject some labour market flexibility and is only one amongst many measures aimed at improving the employability of older workers.

Sir, I support the bid to improve the overall employability of older workers in the face of persistent structural unemployment. In fact, after Minister Lim Boon Heng's eloquent explanation of the rationale for the CPF cut for this age group, I think it will be very difficult for me to argue otherwise. However, the concerns and arguments of this group are not without merit and should be addressed.

To mitigate these concerns, suggestions have already been made to give older workers special treatment in the next wealth-sharing exercise, as well as paying deserving older workers special bonuses or introducing a monthly variable component in their wage package. Sir, I fervently support these proposals.

In addition, I am also heartened to note that the civil service has taken the lead by introducing a Transitional CPF Top-up Component for this age group when the new rates are effective.

I also join in the call for employers to move towards a more flexible wage system. And again, following the call of Minister Lim Boon Heng, I would like to urge the Government and the statutory boards to take the lead in this instance and introduce the base-up wage system wherever possible. My fellow MP and the Deputy Secretary-General of the NTUC, Mr Matthias Yao, hit the nail on the head when he said in Parliament yesterday, "The real issue is not the CPF, and the long-term solution is not in the CPF." Indeed, the mindsets of both employers and employees must change to mitigate the problem of structural unemployment.

Conclusion

Sir, I therefore applaud the ERC's well-thought out and carefully crafted set of recommendations which attempt to remodel the CPF system and shed the excesses and clutter it had accumulated over the years. The practical phased-in approach of the implementation which allows people and institutions time to appreciate, adapt and accept the change is welcomed.

Beneath the specifics of the report and the Government's response, lie a gradual but deliberate shrinking of the social safety net. One ultimate intent appears to be that of creating a more entrepreneurial and self-dependent culture, necessary for survival in the new world order. This is indeed a worthwhile goal, but will no doubt engender anxiety and disorientation among many ordinary citizens already reeling from the shock of one of Singapore's worst recessions and painful adjustments in jobs and cost of living.

In this regard, I would like to again urge the Government to be even-handed in the implementation of the proposed changes, as well as refine and modify some of the proposals to address the concerns raised. Public servants at the front desk of the various Government agencies, policy makers, my fellow MPs and I myself would need to exercise patience and balanced judgement to hear the ground and take time to carefully communicate these changes and their rationale. In particular, I agree with my colleagues before me that there is a need to mount a public education campaign of all these changes and their implications.

Sir, with these, I support the Government's response to the ERC's recommendations.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 3.35 pm.

Sitting accordingly suspended at 3.13 pm until 3.35 pm. Sitting resumed at 3.35 pm