SINGAPORE ARMED FORCES (AMENDMENT NO. 2) BILL

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SINGAPORE ARMED FORCES (AMENDMENT NO. 2) BILL: Order for Second Reading read.

The Minister of State for Defence (Mr Cedric Foo Chee Keng): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill before this House seeks to put in place amendments to the Singapore Armed Forces Act and consequential amendments to the Pension Fund Act. These amendments would allow for the transfer of the Defined Benefits component of the SAVER-Premium Fund to the Government Pension Fund. Subsequently, these Defined Benefits would be paid out from the Pension Fund when eligible members make a claim.

Background

Sir, I will start by introducing the background behind these changes. The SAVER-Premium Fund was introduced to provide financial security for the SAF servicemen after their military careers. The SAVER-Premium Fund has two components: a Defined Benefits component, and a Defined Contributions component. The Defined Benefits component is the amount set aside primarily to service MINDEF's obligations to pay for the post-retirement medical benefits, also START benefits (which are lump-sum payments to Warrant Officers and Specialists on completion of 10 years of service) and compensations (arising

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from death or injury whilst in service) to all eligible members.

The other component, ie, the Defined Contributions component, is the amount MINDEF pays into the individual accounts of the servicemen in recognition of the adjustments that they would have to make as they transit to and take on a second career on retirement. This Defined Contributions component is not affected by this Bill. It will continue to be managed and invested by MINDEF.

Rationale for transferring the DB component

As such, the investment objectives of the Defined Benefits and Defined Contributions are different. The adequacy of the Defined Benefits component depends on actuarial outcomes, like how many officers and servicemen will require medical benefits post-retirement. On the other hand, beneficiaries of the Defined Contributions component participate fully in the risks and returns of the investments. In other words, they take the ups and downs of such investments.

MINDEF therefore intends to transfer the Defined Benefits component for central management within the Government Pension Fund. The transfer will allow the Defined Benefits component to be co-invested with the Pension Fund, which shares the same investment objective and has a larger risk pool. Furthermore, since both Funds - the State Pension Fund and the Defined Benefits Funds - are defined benefits in nature, the transfer can also result in better economy of scale in their management.

Transfer of the DB component

MINDEF will ensure that the assets transferred would be equal to the liabilities at the point of transfer. Thereafter, MINDEF will make monthly contributions

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to the Pension Fund to fund new members' Defined Benefits, just as other Ministries do for their pensionable staff.

One very small portion of the Defined Benefits would, however, not be transferred. This is the amount set aside for 'compensation' arising from death or injuries of servicemen whilst in service. This is because the Ministry of Finance has decided that such payments should be made from the respective Ministries' operating budgets with effect from FY 04.

To enable the transfer to be made, MINDEF needs amendments to sections 205B(2) and 206(1) of the SAF Act, and the consequential amendments to the Pension Fund Act.

This change has no impact on the individual servicemen, as it does not affect their individual Defined Contribution accounts and the Government's undertaking to provide post-retirement medical benefits and START benefits will be undertaken by the State Pension Fund in full.

Parliament is requested to approve the amendments.

Sir, I beg to move.

Question proposed.

Dr Ong Chit Chung (Jurong): Mr Deputy Speaker, Sir, the welfare and well-being of the SAF regulars are close to our hearts. They are our frontline defenders and guardians of our national sovereignty. We must, as a nation, look after our regulars. Hence, in this context, any move to protect their terms or interests will be most welcomed. I, therefore, support this amendment. However, I wish to ask the Minister of State two questions.

First, is he absolutely sure that such changes are in the long-term interests of

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our service regulars and there will be no unnecessary changes after this?

Second, will MINDEF take extra care and trouble to explain these changes in full and in detail to all our regular servicemen, so that there will be no misunderstanding and they have comfort that we are taking extra care for them and that all changes are indeed in their long-term interests?

Sir, I support the Bill.

Mr Cedric Foo Chee Keng: Mr Deputy Speaker, Sir, I would like to thank Dr Ong for his comments and questions. I share Dr Ong's view that we ought to look after the servicemen and officers of the SAF.

I assure him that there will be no changes to the benefits that will accrue to servicemen or officers as a result of this amendment. The main reason for the change, ie, the transfer of the Defined Benefits component to the State Pension Fund is for efficiency of management, since the Defined Benefits component shares the same investment objective as the State Pension Fund. So, rather than leaving it to be invested by MINDEF, we have transferred this component to the State Pension Fund.

The Defined Contributions component, which are contributions made by MINDEF for individual servicemen's account under the SAVER-Premium Scheme, will continue to be managed and invested by MINDEF. So, there will be no change and no effect whatsoever from the servicemen's point of view in terms of the benefits that they will receive or the performance of the Defined Contributions component.

I take the point from Dr Ong, and it is our intention to explain fully to our officers and servicemen, so that they understand the purpose of this amendment.

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Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Cedric Foo Chee Keng].

Bill considered in Committee; reported without amendment; read a Third time and passed.