RETUNING THE CPF

[Mr Speaker in the Chair]

Mr Goh Chok Tong: Mr Speaker, Sir, from time to time, a nation comes to a crossroads. The people must then decide which road to take, to continue the journey. One road may lead them up to the sunny highlands. The other road may go deeper into the gloomy valley.

Singapore is at such a crossroads.

Down one road, the view is familiar. We see, as part of the landscape, our present policies and practices and our high wage and CPF systems. This is the easiest road to take. Politically too, it is the most convenient.

But maintaining the status quo means carrying a heavy load of costs, and relying on outdated models of economic growth. This will weigh us down. We will descend into the gloomy valley.

To take the second road, which leads to the highlands, we will have to shed some of our load, through wage and CPF reforms and other measures. We will then be able to travel lighter, and move more nimbly.

But shedding our load will involve sacrifice and pain. We may have to adjust our aspirations and lifestyles. Moreover, there is no guarantee of success. How we progress will depend on what our competitors do, and the state of the world economy.

This second road of reform and restructuring is unpaved and difficult to travel. It will be an uncomfortable journey, even painful at times.

But I know that taking the first road will lead us deeper and deeper into gloom.

This is why I want Singaporeans to come along with me on the road of reform and restructuring. On this road, we stand a much better chance of economic recovery and sustained growth.

Why are we in this tough spot? The reason is globalisation. Products and services, capital, investments, companies and people are moving across borders more and more freely.

Globalisation has benefited Singapore immensely. We have attracted many MNCs to Singapore, created many jobs, and sold our products and services to the rest of the world.

But these same forces of globalisation can also work against us. Globalisation is not just about exports. It is about producing goods and services wherever in the world it can be done most cheaply and efficiently. So when lower-cost players emerge, and we are not competitive, investments will flow into these places rather than to Singapore.

The reorganisation of the global economy has been going on for some time. But the process has accelerated in recent years. Jobs are migrating from developed countries to developing countries faster than ever before.

Singapore too has been affected. For example, Maxtor, a disk drive manufacturer, will be reducing its Singapore workforce once its China plant comes on-line in 2005. Maxtor will produce entry-level disk drives in the China plant, while keeping its production of high-capacity drives here. Maxtor's competitors, Seagate and Western Digital, have also reduced their presence in Singapore. Seagate has shifted its manufacture of low-end drives to China. Over the last five years, its Singapore workforce has been reduced from a high of 25,000 workers to 9,000 workers today. Western Digital shifted 2,500 jobs to Malaysia in 1998.

It is not just blue-collar jobs that are moving offshore. White-collar jobs are also migrating to low-cost countries like the Philippines, Thailand and India. Our graduates and yuppies are feeling the heat. Last year, for the first time, more professionals, managers, executives and technicians (PMETs) were laid off, compared to production and related workers. PMETs form 43% of all local workers retrenched. Production and related workers form 34%, while clerical, sales and service workers made up the remaining 23%.

The migration of white-collar jobs will pick up speed in coming years. Analysts expect many jobs in data entry, data reconciliation, call centres and other back-end functions to move to lower-cost countries.

As you can see, our economy is restructuring rapidly, whether we like it or not, whether we are ready for it or not. It is, therefore, important for us to have some levers to pull, to influence the pace and direction of this restructuring. Then we can minimise the negative impact on Singaporeans.

These levers include reforming our tax regime, moderating our land prices and rentals, investing in education and skills training, moving into research and development, constructing the Biopolis to nurture the life sciences and pharmaceutical industries, and developing other growth sectors like medical and educational services.

But these changes will not be enough to stem the outflow of jobs. We will also have to keep our wage costs competitive, and not too far out of line with those in the region. Presently, for every manufacturing worker in Singapore, a company can hire 13 in China and 18 in India. For every accountant in Singapore, a firm can hire two in Malaysia and six in Thailand. The large wage differential will push jobs out of Singapore, and discourage new investments from coming in.

This is why we must go beyond the recommendations of the Economic Review Committee (ERC), and make further changes to the CPF scheme.

The CPF retuning will affect all Singapore workers. It will be painful, which is why I have decided to present the CPF changes myself. At the National Day Rally, I outlined the changes. Today, I will lay out the details.

Social objectives

The CPF is Singapore's most important social safety net. Its first and principal objective is to provide for the retirement needs of Singaporeans. Later, we added other social objectives like saving for home ownership and healthcare.

These objectives remain valid today. In fact, the needs have grown.

For instance, retirement expenses will go up because people are living longer. An article in the New York Times talked about the possibility of living to 600 years old, because of the promises of genetic medicine. It explained that our organs might break down. But scientists were now breeding special animals that could grow replacement human hearts and lungs. Scientists have also found a chemical in red wine - for those who love red wine, please note - which may slow down ageing. And gene therapy will allow us to conquer many previously incurable diseases.

I do not think many people relish the idea of living to 600. Can you imagine having to face your enemy for 600 years? But I think most people would not mind living to 100. In fact, a good number of Singaporeans are already living to near a century. Today, 40,000 Singaporeans are over 80 years old. Of these, 5,000 are over 90!

Prolonging lives will lead to new social problems, and certainly, a need to save more for a longer old age and higher medical expenses.

So from the social perspective, the higher the CPF contribution rate, the better.

Economic concerns

But increasingly, we must also consider the impact of the CPF on our cost competitiveness.

In the 70s, 80s and 90s, cost competitiveness was not an overriding concern. We had good growth year after year. During those 30 years, we grew by 8% annually. Our salaries too rose by an average of 8% every year. We could afford to put a lot into the CPF.

Our business costs then were lower than those in developed countries. And we faced limited competition. Many of today's emerging economies were under communist regimes at that time. Others were highly regulated and protectionist. China and India, for instance, were not open and attractive to foreign investments. Singapore, in fact, was one of the earlier and most ardent advocates of an open, MNC-based economy.

But times have changed. China and India, with a combined population of more than two billion people, have entered the economic race. So too have many other countries, like in Central and Eastern Europe. They are following our MNC-based strategy for economic growth. Their low cost of doing business is extremely attractive to investors.

On the other hand, the cost of doing business in Singapore has reached First World levels, as has our standard of living. Cost competitiveness is a key worry for Singapore today.

Therefore, from the economic perspective, we should keep the CPF contribution rate as low as possible. The lower we go, the less the pressure on companies to move out because of high wage costs. Wages account for as much as 20-30% of total business costs in certain industries.

A new balance is needed

This is why we need to retune our CPF scheme - to strike a better balance between our social objectives and our economic concerns.

We will need to address four aspects of the CPF system: the contribution rates, the salary ceiling, the CPF and Medisave Minimum Sums and the withdrawal at age 55.

CPF contribution rates

First, the CPF contribution rate.

The CPF rate is currently 36%: 20% from the employee and 16% from the employer. The Government had intended to restore the CPF rate to 40% when economic conditions permit.

But looking forward to the future competitive environment, this is no longer advisable. It would price us out of the market. We would lose more jobs. We should give up the 40% target, to save jobs.

The Government did not rush into this decision. We struggled between our commitment to restore the CPF rate to 40% and the economic reality. You see, the trust between the people and the Government is paramount. It is the basis upon which we have carried out many tough but necessary measures to improve the lives of our people. It is therefore not an easy decision for the Government to give up a commitment it has made. It risks breaking the trust between the people and the Government.

But we have no choice. If investors think that we are going to restore the 40% rate in the future, they will factor this into their cost calculations. They may not come. Even those who are here may make plans to move out to cheaper locations.

I hope Singaporeans understand why we are not restoring the 40% contribution rate. Our priority must be to save jobs for our people.

Longer term variable rate of 30-36%

The question is: what CPF contribution rate is appropriate?

Nowadays, the world economy changes rapidly. It is not practical to try to identify a single number as a long-term rate. No one can be sure how the competitive situation will evolve. We must also expect our economy to run into rough weather from time to time. We should thus make our system flexible, so that we can put more into the CPF in good years and cut the rate in bad years. This will give us room to respond quickly to the changing economic environment.

I feel, therefore, that it is better to set an upper limit and a lower limit for the CPF contribution rate for the long-term, instead of a single rate.

We propose that this range of rates be from 30% to 36%. The employee contribution rate will be fixed at 20%. The employer contribution will vary between 10 and 16%.

We will not have any formula to decide what the actual CPF rate should be at any point in time. We will look at the prevailing economic conditions, and assess accordingly. If there is to be a rise or cut in the rate, we will give as much notice as possible, to allow for advance planning. I do not envisage fine-tuning the rate every year. We will only adjust it from time to time, when conditions have changed significantly.

Our analysis shows that even at a 30% contribution rate, the large majority of Singaporeans will still be able to save enough for their retirement needs, healthcare expenses and housing. For instance, a worker earning a 50th percentile income, or $2,000 per month, will be able to purchase a 5-room HDB flat. This is provided we tighten the withdrawal rule at age 55, as I will explain later.

Long-term variable rate of 24-30% for workers aged above 50 to 55

For older workers, we will set a lower range of rates. Last year, the ERC established the principle that the CPF contribution rate for older workers should be lower than that for younger workers. This is to help older workers keep their jobs, and for those who are unemployed, help them find new jobs.

For those aged 50 to 55, we will set the long-term range for the CPF rate at 24% to 30%. The employee contribution will be 18%. The employer contribution will vary between 6% and 12%.

No change in CPF rates for workers above 55

We will not change the CPF rates for workers above age 55. The rates are already low. They are 18.5% for those aged 55 to 60; 11% for those aged 60 to 65; and 8.5% for those above 65 years old.

I shall now ask the Clerk of Parliament to distribute a Table, and further Tables later on, showing the long-term target CPF contribution rates for the various age groups. [Copies of Table distributed to hon. Members.] Table 1: Long-Term Target CPF Contribution Rates Age Total Employee Employer 50 and Below 30 - 36 % 20% 10 - 16 % Above 50 to 55 24 - 30 % 18% 6 - 12 % Above 55 to 60 18.5% 12.5% 6% Above 60 to 65 11% 7.5% 3.5% Above 65 8.5% 5% 3.5% Immediate cut of 3% in employer rate

Having looked at the long-term CPF rates, let us look at our immediate situation. Is our current CPF rate of 36% appropriate? Is it the best rate? Is that optimal? If not, what should it be? The Cabinet spent more than two months grappling with this question. We also brainstormed with the PAP Members of Parliament.

Some Ministers and MPs felt that the current CPF rate of 36% should remain. They were of the view that the external outlook was brightening. Singapore companies were feeling more upbeat.

Moreover, a cut in the CPF would not solve our immediate problem, which was the lack of demand. On the contrary, it would dampen domestic demand further. It might also have a negative effect on property prices.

A second group of Ministers and MPs argued that our economic difficulties had dragged on for far too long. The competitive landscape had changed fundamentally. Our costs were now much higher than our competitors. Singapore needed to respond quickly and decisively.

These Ministers were also worried that if our wage costs were too high, we might see a jobless recovery, like in the US. This is a situation where the economy grows, but few jobs are created.

This second group of Ministers and MPs felt, therefore, that we should cut the CPF rate immediately to 30%. It would save many companies from going under, in particular, SMEs. It would draw in more investments. It would spur job creation.

A third group of Ministers and MPs agreed that demand was the immediate problem. But they argued that cost competitiveness was a problem that we must also start to fix now. They felt that we should bring the CPF rate down to 33%, and even lower later, if necessary.

After a vigorous debate, the Cabinet decided that the best way forward was a moderate cut to the CPF. It should be enough to help companies save costs, but not so drastic as to puncture domestic consumption. The Cabinet concluded that the more immediate problem was a lack of demand for our goods and services. This is the external demand for our goods and services. But cost competitiveness was also a problem, and it would get worse in the coming years.

With effect from 1st October 2003, the CPF rate will be lowered from 36% currently to 33%. Employees will continue to contribute 20%. Employers will contribute 13%, 3 percentage points less than now. Table 2 shows CPF contribution rates for workers aged 50 and below. Table 2: CPF Contribution Rates for Workers Aged 50 and Below Date Total Employee Employer 1 Oct 03 33% 20% 13%

For older workers aged 50 to 55, we will bring the CPF rate down to 27%, ie, 6% lower than for younger workers. But to cushion the impact, we will not do it immediately. Their CPF rate will come down to 33% on 1st October 2003, the same as for younger workers. On 1st January 2005, it will be reduced further to 30%: employee contribution will be cut by one point to 19%, and employer contribution by 2 points to 11%. On 1st January 2006, the contribution rate will be reduced by a further three percentage points: again, one point from employees and two from employers. This will bring the CPF contribution rate to 27%: 18% for employees and 9% for employers. Table 3 before you gives the details. Table 3: CPF Contribution Rates for Workers Aged Above 50 to 55 Date Total Employee Employer 1 Oct 2003 33% 20% 13% 1 Jan 2005 30% 19% 11% 1 Jan 2006 27% 18% 9%

The cut in CPF rate will save employers $1.3 billion a year. It will boost our efforts to draw in investments, and create jobs.

Revised Special and Medisave Accounts Contribution Rates

Next, the contribution rates for the Special and Medisave Accounts.

The ERC had earlier recommended higher Special Account rates for CPF members. The proposal was 5% for CPF members aged 35 and below, 7% for those aged 35 to 45 years, and 9% for those aged 45 to 55 years, ie, three steps, 5%, 7% and 9%. This was to help members set aside more cash savings for their retirement. Higher rates are needed if we allow members to withdraw 50% of the Ordinary and Special Accounts at age 55.

However, if we change the policy on CPF withdrawal at age 55, as I will explain later, we can afford to have the Special Account rates lower than the ERC target rates. The new target Special Account contribution rates will therefore be 5% for members aged 35 and below, 6% for those aged 35 to 45 years, and 7% for those aged 45 to 55 years. This is shown in Table 4. Table 4: Special Account Target Contribution Rates 35 and Below Above 35 to 45 Above 45 to 55 Old 5% 7% 9% New 5% 6% 7%

Next, Medisave. The Medisave Account contribution rates will remain at 6% for CPF members aged 35 and below, 7% for those aged 35 to 45, and 8% for those above 45 years old. We had earlier planned to increase the Medisave Account contributions, up to the ERC target rates of 7, 8 and 9%, but we will now defer this move. The figures are given in Table 5. Table 5: Medisave Account Target Contribution Rates 35 and Below Above 35 to 45 Above 45 Old1 7% 8% 9% New 6% 7% 8% 1Existing contribution rates are 6%, 7%, 8% for respective age groups. The Government had earlier accepted the ERC recommendation to change to target rates of 7%, 8%, 9%.

CPF Salary Ceiling

Let me move on to the CPF salary ceiling. The ERC established the principle that the CPF scheme should focus on workers earning between the 10th and 80th percentile incomes.

The lowest 10% of wage earners cannot rely on the CPF alone for their retirement needs. They will need other social support schemes. On the other hand, the top 20% of wage earners should be able to look after themselves. If they want to save more for their old age, they should do so on their own. We should not make it compulsory through the CPF scheme. Otherwise, it will add rigidities to our wage system, and impose additional cost burden on businesses.

Lower Salary Ceiling to $4,500

Following the ERC review last year, we had already decided to reduce the CPF salary ceiling in two steps. First, from a monthly salary of $6,000 to $5,500 on 1st January 2004. Second, from $5,500 to $5,000 on 1st January 2005.

However, $5,000 is still higher than the 80th percentile monthly salary, which is currently $3,700. We will, therefore, lower the salary ceiling further from $5,000 to $4,500 on 1st January 2006. It is $4,500 and not $3,700, and there is a reason for this. Assuming a reasonable rate of wage increase and inflation, by 2006, $4,500 will be just a little above the 80th percentile income. The phasing in of the CPF salary ceiling is shown in Table 6. Table 6: CPF Salary Ceiling Current $6,000 1 Jan 2004 $5,500 1 Jan 2005 $5,000 1 Jan 2006 $4,500

The salary ceiling for additional wages, consisting typically of bonuses, will be adjusted proportionately.

Pensionable civil servants have lower CPF rates and a higher salary ceiling than non-pensionable workers. Their salary ceiling will also be adjusted.

The original plan to reduce the CPF salary ceiling from $6,000 to $5,000 will save businesses $260 million a year. The additional reduction to $4,500 will save businesses another $137 million. In total, our businesses will save $400 million in wage costs annually, come 1st January 2006.

Reward workers through variable pay

Even in this difficult economic environment, some companies are doing well. The cut in the CPF rates and the lowering of the salary ceiling will give them windfall profits. I urge these companies to use the savings to reward their workers through the variable pay component. This could be in higher performance bonuses or monthly variable components.

CPF and Medisave Minimum Sums

The changes to the CPF rate and salary ceiling will give employers substantial wage savings. But they will mean less CPF savings for workers. This makes it even more important that the savings be used only for housing, healthcare and retirement expenses. To ensure that members have enough for healthcare and retirement, we must adjust the CPF and Medisave Minimum Sums, and tighten up the withdrawal rules at age 55. These are the third and fourth areas of change.

Raise CPF Minimum Sum to $120,000

The CPF Minimum Sum gives CPF members a monthly payment after their retirement at age 62 a certain sum of money. It is the nest egg that will see them through their old age.

The current Minimum Sum is $80,000. Half of this can be in a property pledge. So most CPF members have only $40,000 in cash in the Minimum Sum. This will fund a monthly payment of only $252 from age 62 to 80. It is a small fraction of most workers' last drawn pay, and is not enough for their basic needs.

We will, therefore, increase the Minimum Sum from $80,000 to $120,000 in today's dollars. As before, half of this can be in a property pledge. The other $60,000 in cash will yield a monthly payment of $378. This is still not much, but more adequate than $252 presently.

Table 7 gives the details of the phasing in of the Minimum Sum. Table 7: CPF Minimum Sum (in today's dollars) Current $80,000 1 Jul 2004 $84,000 1 Jul 2005 $88,000 1 Jul 2006 $92,000 1 Jul 2007 $96,000 1 Jul 2008 $100,000 1 Jul 2009 $104,000 1 Jul 2010 $108,000 1 Jul 2011 $112,000 1 Jul 2012 $116,000 1 Jul 2013 $120,000

The CPF Minimum Sum will be raised by $4,000 a year, and adjusted for inflation, starting 1st July 2004. It will reach $120,000 (today's dollars) by 2013.

Today, the life expectancy of Singaporeans is about 80 years. We will, therefore, adjust the monthly payment amounts, to make the Minimum Sum savings last around 18 years for most members, from retirement at age 62 until they are 80 years old.

Maintain purchasing power of Medisave Minimum Sum

Besides the CPF Minimum Sum, there is also a Medisave Minimum Sum. This is currently $25,000. Minister Khaw Boon Wan will do his best to keep healthcare costs reasonable. But we should still expect costs to increase over the years. We will, therefore, adjust the Medisave Minimum Sum every year to take into account inflation of healthcare costs. This will preserve its purchasing power.

Enforce Medisave Minimum Sum

Next, under current rules, a CPF member who has less than $25,000 in his Medisave Account is not required to top it up to $25,000. This is the case even if he has excess balances in his Ordinary and Special Accounts which he can withdraw at age 55.

The purpose of the Medisave Minimum Sum is to make sure that we have enough money set aside to meet healthcare expenses in our older years. As life expectancy increases, Singaporeans will spend more on healthcare. Furthermore, on average, someone aged 80 spends three to five times more on healthcare than someone aged 62. Each additional year of life adds considerably to healthcare expenses.

It is, therefore, unsatisfactory to allow CPF members with excess balances in the Ordinary and Special Accounts to withdraw the money at age 55 without topping up the Medisave Minimum Sum. We will progressively require them to do so, as shown in Table 8. Table 8: Medisave Minimum Sum to be Topped Up Before CPF Withdrawal at Age 55 (in today's dollars) Current $0 1 Jan 2004 $2,500 1 Jan 2005 $5,000 1 Jan 2006 $7,500 1 Jan 2007 $10,000 1 Jan 2008 $12,500 1 Jan 2009 $15,000 1 Jan 2010 $17,500 1 Jan 2011 $20,000 1 Jan 2012 $22,500 1 Jan 2013 $25,000

From 1st January 2004, we will require CPF members to top up their Medisave Minimum Sum to $2,500, before they make any CPF withdrawal at age 55. Over the next ten years, we will increase the top-up requirement by $2,500 every year, adjusted for inflation. In other words, on 1st January 2005, Singaporeans must top up their Medisave Minimum Sum to $5,000; on 1st January 2006, it will be $7,500; and so on. By 1st January 2013, CPF members will have to top up their Medisave Minimum Sum to $25,000 (today's dollars), before making their CPF withdrawal.

Withdrawal rule at age 55

The final area of change is the CPF withdrawal rule when a member turns 55. This is to ensure that Singaporeans will have enough for their retirement, healthcare and housing expenses, despite the lower CPF rate.

Meeting Minimum Sums before cash withdrawal

Presently, at age 55, CPF members can withdraw 50% of their combined Ordinary and Special Accounts balances. They can do so even if this leaves them with less than $40,000 in the CPF, which is supposed to be the cash portion of the current CPF Minimum Sum.

The 50% withdrawal rule will leave many members with insufficient CPF balances to see them through their old age. Now that we have to lower the CPF contribution rate, the problem will be even more acute.

We will amend this rule. We will still allow members to withdraw their CPF at age 55, but only after they meet the CPF and Medisave Minimum Sums requirements.

However, CPF members will continue to be able to withdraw the first $5,000 in their CPF accounts, as is the case now, even if they have not met the Minimum Sums requirements.

No change for next 5 years

I know that the changes to the CPF withdrawal rule will upset many plans. Older Singaporeans are looking forward to a tidy sum of money at 55, to do what they have yearned for a long time. Some will use it to pay off outstanding mortgages, or their debts. Others will use it to go on a long holiday, or to invest in business ventures.

Therefore, we will not make any changes to the withdrawal rule for the next five years. We will not upset the plans of those who are over 50 today.

Phase out 50% withdrawal by 2013

We will start to phase out the 50% withdrawal rule only from 1st January 2009, and then do so over a further period of five years. This is shown in Table 9. From 1st January 2009, members turning 55 can only withdraw 40% of their Ordinary and Special Accounts, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Minimum Sum requirements. This percentage of withdrawal will go down by 10 percentage points each year. In other words, 30% in 2010, 20% in 2011 and so on. Table 9: Withdrawal of OA and SA Balances at Age 55 Until 31 Dec 08 50% (unchanged) 2009 40% 2010 30% 2011 20% 2012 10% From 1 Jan 2013 0%

Come 1st January 2013, CPF members who reach 55 can withdraw the balances in their Ordinary and Special Accounts only after setting aside the CPF Minimum Sum and the Medisave Minimum Sum. This means that the first group of Singaporeans to be fully subject to the new rule will be those who turn 45 on 1st January 2004.

Help measures

I understand the worries of Singaporeans. From feedback, I know that they have been anxiously re-looking their finances since I announced the changes at the National Day Rally. Most Singaporeans will be able to cope. But many may have to do some belt tightening.

The Government will help ease their adjustment pain. We have put together an assistance package. It will include measures to help homeowners cope with their loan repayment, which may be affected by the cut in CPF. The package will also contain further measures to help the low income and unemployed, and tide businesses over this period of slow economic growth. DPM Lee will announce the details later in the debate.

There has been speculation whether the Government will postpone the implementation of the one-percent increase in GST scheduled for 1st January 2004.

No, we will not. We will be proceeding as planned. We have delayed it by one year already. We should not delay the increase any further. The GST increase is part of our economic restructuring. It is to make up for the loss of revenue from our lowering of income taxes. The Economic Restructuring Shares will enable Singaporeans to offset the GST increase for several years.

Conclusion - Teamwork

Let me conclude.

The changes I have announced are the most drastic we have ever made to the CPF system. They are necessary because we are seeing the most drastic changes yet in our external environment. China and India especially, pose formidable competition, with their abundant, skilled and low-cost manpower. We have to lower our costs to remain attractive to investors, even as we embark on a wider exercise to lift our economy to a higher plane.

I know that Singaporeans are worried about the future. They wonder whether we can ever return to sunny days, given the strong competition.

But remember, we transformed ourselves from Third World to First in just 38 years, against all odds. We have developed many strengths and advantages along the way - the common use of English, the rule of law, harmonious labour relations, excellent infrastructure, and a good reputation. These strengths will continue to stand us in good stead as we face stronger competition.

Most importantly, we have a strong team, working together for the success of Singapore.

For example, our workforce is first class. We have established companies that are well-run, financially sound and expanding. At the same time, we have entrepreneurs who are starting a variety of businesses and venturing beyond Singapore. Our grassroots and community leaders help keep our nation united. And our media plays a constructive role in helping our people understand our surroundings and challenges better.

We owe our past success to teamwork - the people, the employers and the Government working hand in hand. As a team, we have won many matches for Singapore. If we continue to pull together as a team, we will also triumph over the upcoming challenge.

But we must also alter our strategy and improve our capabilities, because the competition has become stronger. If we do not, we will surely not reach the highlands.

In this regard, the changes to the CPF scheme are an important component of our wider re-strategising for the economy. They will go a long way to improve our cost competitiveness. We must implement the changes, and at the same time, help those who are affected to adjust.

With the changes and your co-operation, I am confident that we will not revert to being a Third World country again. On the contrary, we will strengthen our position in the First World. [Applause.]