CENTRAL PROVIDENT FUND (Liberalisation on use)

Mdm Ho Geok Choo asked the Acting Minister for Manpower will the Government consider liberalising the use of Central Provident Fund (CPF) monies for purposes of (i) supporting overseas education of children who are not able to gain admission into local universities so long as any housing loan owing has been paid up by the CPF account holder; and (ii) subsidising the start-up of a small business (up to a comfortable limit as determined by CPF) as part of the Government's encouragement for self-employment by the unemployed.

Dr Ng Eng Hen: Mr Speaker, Sir, the primary objective of the CPF is to help members save for their retirement, healthcare and housing needs. While often stated in these simple terms and often repeated, we should be reminded again that our CPF system remains a cornerstone on which we build our social and indeed economic well-being. We should resist strenuously attempts to adulterate the original aims and intents of the CPF system. Yes, from time to time, we may have to recalibrate the amount we put aside to meet these basic needs because there is a trade-off from too high a statutory burden for wages. We risk becoming less competitive and thereby restrict employment creation, we create less jobs. In other words, we should make sure that the majority of the population has enough to cover these basic needs and we should neither under or over-provide.

The CPF Education Scheme was introduced in 1989 as a special concession to help lower-income families support themselves or their children through full-time local tertiary education. To allow CPF savings for overseas tertiary education would be a further deviation from the aims of the CPF scheme. It would also introduce opportunities for over-consumption. For example, an overseas engineering course could cost as much as $58,000 a year as compared to $5,650 at the NUS for the academic year 2003/2004.

Further, if we did allow it, this availability of the use of CPF savings would put unwelcome pressure on parents to fund an ever-increasing aspiration of children to pursue a tertiary education. I am not for it. I would rather we hold the line than ask parents to do it. There are other avenues of scholarships and loan schemes available to good students who would benefit from an university education, anywhere.

It is for this same reason of remaining pure to the original and focused aims of the CPF scheme that I am against allowing the early withdrawal of CPF savings for business start-ups. There is no certainty that all start-ups will thrive and indeed data proves the contrary, that the majority of start-ups fizzles out. We run the risk of many members losing their retirement savings for a few to make good.

For those intending to start their own businesses, they could look to the Government or private incentives and financing schemes for assistance. The Micro Loan Programme, for example, administered by SPRING Singapore and offered through participating financial institutions, is a fixed interest rate financing programme designed to help the very small local enterprises gain better access to financing. Other assistance for start-ups include the Franchise 21 Assistance Programme, Local Enterprise Financing Scheme (LEFS) and New Business Creation Incentive.

Mdm Ho Geok Choo: Sir, I would like to check with the Minister whether he could verify and clarify that investment in overseas education of children can be reclassified as a form of investment, just as we have CPF-approved investment schemes. Similarly, whether small businesses could also be classified as such under the Government-approved small business scheme. And if they can be classified, then why is it that a portion, under qualified conditions of CPF, could not be utilised as a form of subsidy for such investments?

Dr Ng Eng Hen: Sir, I agree wholeheartedly that education is an investment. The question is whether we should allow CPF to be used for that investment. And as I have said, we should stay sharply focused on the original intent of the CPF scheme, which is, retirement, housing and healthcare. If we have provided enough and it is a big "if", I would tell Members that currently, only 42% of CPF members meet the $40,000 Minimum Sum. And this $40,000 Minimum Sum is not calculated from the air, but in adequacy terms, if we withdraw annuities, in other words, monthly payments based on the principal sum, it only yields about $238 a month. It is not a large sum. It is enough to keep body and soul together. 42% of CPF members reach this amount.

Sir, in the sense of under-provision, I would say that the urge for the CPF system is to really provide adequacy and not to increase the avenues for consumption.

As to the specifics of the small businesses, I would have to look into the specifics and answer the question from the Member separately.

Mr Steve Chia Kiah Hong (Non-Constituency Member): I would like to seek a clarification with the Minister. He said that the objective of the CPF is for retirement, healthcare and housing. Would the CPF Board consider expanding its objective to include loans from the CPF Board for rainy days to CPF members, especially when they are unemployed?

Dr Ng Eng Hen: Sir, I mentioned that there is a trade-off in terms of the statutory burden. In other words, over-consumption, over-saving or over-investment from the CPF has to be measured against the trade-off of wage rigidities and employment creation. If we impose too high a statutory burden on wages, we are going to be less competitive. So the first premise we have to understand is that, while we want to put aside for our retirement, healthcare and housing needs, there is a trade-off in terms of what we get in terms of employment creation.

The first objective is to arrive at whether we have provided enough for these three essential aspects. And as I have said, the figures tell us that we have not quite provided enough. Having said that we have not quite provided enough, it really makes no sense to further expand the opportunities in which the CPF could be consumed because the first task is to make sure that we have provided enough for the majority. If we do not, there will be serious implications downstream in the long-term. We would have conscribed our economic opportunities, we would have forced ourselves into a tighter fiscal position and we would have engendered and encumbered future generations with our problems, something which we would not want to do.

Mr Steve Chia Kiah Hong: Sir, if the CPF member has enough funds in his CPF account and, in times of need, why can he not borrow from his account which he has to return back when he is gainfully employed? This is not over-consumption. Is it not better that he borrows from his CPF account at a marginal interest than to borrow from some loansharks or maybe from the banks at very high interest rates which he will have to return? It is not an over-consumption issue.

Dr Ng Eng Hen: I agree with Mr Chia in principle that if, and it is a big "if", a particular member has accrued enough Minimum Sum, we could consider that he could dip into that pool. But it is a big "if" for a very small number that exists currently. And in individual cases, we will look at it, but as a general principle, as I have said, only 42% of CPF members meet our Minimum Sum which, I will tell Members, is an under-provision, even as it stands. Because the way it is structured currently, we have not asked members to fulfill a Medisave minimum sum before the amount goes into their Ordinary and Special accounts. So while we say it is provision for medical care, that is not even taken care of. So there are these real limitations that we need to solve before opening up the CPF scheme and allowing members to further diminish that amount.

Mr Inderjit Singh (Ang Mo Kio): I would like to seek a clarification. The Minister talked about CPF for retirement, housing and medical needs. But today, we are also using it for purchasing of shares, unit trusts and bonds. But because of the lack of adequacy that the Minister talked about, is the Minister signalling a shift in the Government's policy on the use of CPF because - it is a very important principle along the lines of discussion that is going on - to me, education is as much less a risky investment compared to shares, bonds and unit trusts.

Dr Ng Eng Hen: The Ministry will take Mr Inderjit Singh's comments about investable amounts into stocks, shares and loans when we review the policy.