CENTRAL PROVIDENT FUND (AMENDMENT) BILL

Order for Second Reading read. 2.45 pm

The Minister of State for Manpower (Dr Ng Eng Hen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill introduces four main changes to the existing CPF Act, namely, to accommodate bank-originated loans for HDB flats; facilitate e-submission for CPF submissions and payments; shorten the interval for CPF withdrawals after age 55 and provide a cap on voluntary CPF contributions. Changes arising from Bank-Originated Loans for HDB Flats

Sir, in July this year, the Government announced that the Housing and Development Board (HDB) would transfer HDB market rate loans to the banks from 1st January 2003. This Bill addresses changes that impact CPF savings arising from this move.

Currently, when HDB grants mortgage loans, it has first priority or charge over sale proceeds from such flats. The CPF Board has second charge if CPF savings have been used to make payment towards the purchase of the flat. This means that when the flat is sold, HDB will first deduct the amount owed to it, before transferring any balance back to the member's CPF account. From 1st January 2003, the lending banks will have first charge when they grant loans to HDB flat buyers.

To secure the refund of monies due to CPF, the CPF Board would have to lodge a charge with the Registrar of Titles for each HDB flat purchased with bank-originated loans. However, this would lead to higher cost and longer processing time for the release of members' CPF savings for the purchase of flats.

To avoid these problems, clause 7 of the Bill inserts a new section 21B to create an automatic charge on an HDB flat in favour of CPF Board when a member withdraws CPF savings to purchase or upgrade the HDB flat. It also confers on the CPF Board the power of sale to recover the CPF savings used for the flat, as is the case for private properties.

With the automatic charge, there exists the possibility that the need to refund CPF savings used by the seller could be overlooked during the transactions of HDB flats, especially when HDB is no longer an active intermediary in flats purchased with bank loans. However, with due diligence by the parties' lawyers to ensure that the title of the flat is passed on to the buyers free from all encumbrances, including the return of the sellers' CPF, there will be no need for CPF Board to exercise the power of sale which, in any event, will be used only as a last resort.

For HDB flats purchased with bank-originated loans, the priority ranking of the CPF charge is as listed in the circulated Table (Cols. 1479-1480), and I will leave it to Members to peruse this. Essentially, the bank has the first claim, and the CPF follows. Table 1 - Priority of claim

Implementation of Electronic Submission and Payment of CPF Contributions by Large Employers

Sir, let me move on to implementation of electronic submission and payment of CPF contributions by large employers. Employers can currently submit CPF contributions and payments manually or electronically and the CPF Board does not impose any processing fee. All public sector employers pay CPF through electronic means. The corresponding figure for larger private sector employers, ie, those with 100 or more employees, is 94%. Despite the obvious savings through electronic submission and CPF Board's promotional efforts, a remnant 6% of larger private employers continue to submit and pay CPF contributions manually.

To encourage all employers to submit and pay CPF contributions electronically, clause 10 of the Bill enables the CPF Board to prescribe regulations to implement the payment, collection and refund of contributions through electronic means and empower the Minister to prescribe such fees and charges that may be levied for manual submissions.

For a start, the CPF Board will impose processing fees on those larger companies which continue to utilise the manual mode after 1st April 2003. This is justifiable as the Board has to incur greater cost to process manual submissions and payments.

The Board will monitor the progress of large employers going into e-modes before imposing the processing fee on smaller employers. Even then, we will give smaller employers sufficient time and assistance to adjust to these changes. The CPF Board will also continue to explore and develop means to make e-submission and payment of CPF more convenient and easier for all employers.

Withdrawal of CPF after age 55

Currently, CPF members aged 55 years or older can withdraw their CPF savings at 3-year intervals after setting aside the required Minimum Sum. CPF members who have not set aside the Minimum Sum can withdraw half of their savings at 3-year intervals, with the other half being used to top-up the Minimum Sum shortfall.

With greater operational efficiency, the Board is able to shorten the interval period for withdrawals. Clause 5 of the Bill, therefore, amends section 15(3) to allow withdrawals at 1-year intervals or such other interval as the Minister may direct.

Voluntary Contributions

Sir, preferential tax treatment is currently given to compulsory CPF contributions from employer and employees, including voluntary contributions from the self-employed.

Although there is a need to encourage Singaporeans to save for retirement, CPF savings beyond a certain limit should not be allowed to become a tax shelter. Voluntary CPF contributions beyond the tax exemption limit currently enjoy a less explicit tax benefit, which is the acronym TEE, ie, Taxable at contribution, Exempt during accumulation and Exempt on withdrawal.

Clause 4, therefore, amends section 13B of the CPF Act to limit CPF contributions made by a Singapore citizen or permanent resident, including voluntary contributions paid by their employers, to the mandatory contribution amount, or the sum of $28,800 in any year, whichever is the higher. The amount of $28,800 is derived from the 40% CPF contribution rate of a $6,000 monthly salary.

This policy change affirms the fundamental objective of CPF, which is to provide for basic retirement needs. Singaporeans and permanent residents who wish to save more for retirement may instead contribute to the Supplementary Retirement Scheme (SRS) which provides tax deferral benefits for voluntary contributions up to 15% of one's income, subject to a salary ceiling of $6,000.

Clause 4 of the Bill also amends section 13B to disallow voluntary CPF contributions by any person who is not a citizen or permanent resident of Singapore. Such foreigners already enjoy higher SRS relief of 35% of income, as compared to 15% for Singapore citizens and permanent residents. With this 35% benefit in deferred tax plus 50% exemption on tax at withdrawal offered by SRS, foreigners already have a tax-advantage vehicle to save for retirement. We understand that some employers currently contribute CPF voluntarily for their foreign employees working in Singapore. From 1st January 2003, these employers are encouraged to adjust the employees' remuneration package accordingly.

Other amendments

This Bill also introduces other amendments to enhance the administration and operation by the CPF Board. These include:

Clause 2 to enable CPF Board to authorise any 2 of its officers to sign documents under seal, instead of restricting it to only the General Manager and Deputy General Managers;

Clause 3 to change the title of the General Manager and the Deputy General Manager in the CPF Act to chief executive officer and the deputy chief executive officers accordingly;

Clause 8 to amend section 24 of the Act to clarify that monies in any fixed deposit account maintained by a member with a bank under the CPF Investment Scheme or CPF Minimum Sum are protected; and

Clause 9 repeals and re-enacts section 66 to clarify that the section also applies to the Board's insurance funds, and removes the need to gazette authorised officers who may be required to give evidence in court so long as an officer is duly authorised by the Board.

Conclusion

In conclusion, Mr Speaker Sir, the amendments proposed in the Bill will enable the return of CPF savings upon sale of HDB flats which were purchased with bank-originated loans; facilitate electronic submission and payment of CPF by all companies; introduce flexibility on the interval of CPF withdrawals after the age of 55; and limit the amount of voluntary CPF contributions. The amendments are in line with the overall objectives of the CPF system.

Sir, I beg to move.

Question proposed.

Mr Yeo Guat Kwang (Aljunied): Mr Speaker, Sir, I rise in support of the Bill.

The key amendment in the Bill is the creation of an automatic charge on the HDB flats in favour of the CPF Board when a CPF member withdraws CPF funds to finance or refinance the purchase of the HDB flat. These changes are part of the broader recommendation on the CPF which the ERC recommended, and they have already been debated in Parliament. I would thus not revisit the arguments again.

However, I would like to raise two key points related to the amendment. First, consumption and investments in housing. A key thrust of the ERC recommendations on CPF is the safeguarding of the CPF funds for retirement. To do so, one of the strategies is to safeguard funds withdrawn for housing purposes by limiting CPF withdrawals. However, this point seems to have been lost amongst Singaporeans. With the lower 10% cash downpayment, we see Singaporeans snapping up private properties. They do not seem deterred by the fact that the banks now have the first charge on the mortgage loans that they give. I hope that beyond these amendments, the CPF Board and the Government can do more to educate Singaporeans on the impact of these changes on their CPF and their retirement savings. This will certainly help them better plan their finances, including consumption and investments in housing.

My second point is on the CPF default rate and electronic submission. The CPF (Amendment) Bill seeks to enable the CPF Board to implement electronic submission and payment of CPF contributions. With e-submission, the CPF default rate by employers can be reduced further.

Mr Speaker, Sir, on 6th September, the Business Times reported that the CPF default rate had declined in the second quarter of this year. In the April-June period, 0.61% of the employers defaulted on payments, compared with 0.8% in January-March. Although the figure is low, what is worrying is that the rate had risen gradually over the last four quarters, and up to the second quarter of this year. I would like to ask the Minister of State what the CPF Board is doing to further reduce the default rate.

The present CPF PAL-internet system enables employers to submit their monthly CPF contribution details to the Board via the Internet 24 hours a day, seven days a week. All employers need to do is to just register with the Board and have a GIRO bank account. I would like to ask the Board what is the employers' response rate so far to the e-submission system and what more can be done to get more employers on board, particularly the small and medium enterprises who generally employ less than 100 workers. I hope the Ministry would consider more measures to provide greater support and incentives to these smaller employers.

I understand that by April next year, all employers with more than 100 employees have to go for the e-submission system. However, I would like to urge that more time should be given to the small businesses to make adjustments. In the interim, I hope the CPF Board could also consider providing the e-submission service at the head office and the branches for employers with less than 100 employees, so that the small businesses, particularly those who have difficulties and find it too costly to set up a system, will still be able to learn how to use the system, and eventually use e-submission, instead of the traditional way of submitting CPF contributions.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 3.25 pm.

Sitting accordingly suspended at 3.02 pm until 3.25 pm. Sitting resumed at 3.25 pm