DEPENDANTS' PROTECTION SCHEME (Extension of coverage)

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DEPENDANTS' PROTECTION SCHEME:

(Extension of coverage): 12.

Dr Ong Seh Hong asked the Minister for Manpower (a) what is the rationale for the Dependants' Protection Scheme (DPS) to be set at 60 years only, given that the retirement age in Singapore is at 62 years and (b) whether his Ministry will consider extending the DPS coverage to be in line with the official retirement age, be it 62 years or more.

Mr Hawazi Daipi (for the Minister for Manpower): Sir, the Dependants' Protection Scheme, which is an opt-out scheme, was targeted at younger members and their families in the event of the member's death or permanent incapacity. Such families are likely to have less savings to fall back on. Keeping the age limit lower, currently at 60, has also kept premiums affordable and ensured a high participation rate of 1.64 million members. Premiums now range from $36 for members aged 30 and $260 for those aged 55 years, with a sum assured of $46,000.

Dr Ong has asked if the age limit could be extended. This is possible and indeed we did raise the age limit from 55 to 60 years in 1995. But actuarial studies showed that we would have to charge significantly higher annual premiums if we raise the age limit further and this may increase the opt-out rate. So while we want to serve especially the older workers and their families, we may not be actually serving them if we raise the coverage of the insurance scheme. In addition, CPF members, beyond the age of 60, would likely have dependants who are older and economically active, and have less need for protection. It may also result in

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adverse selection as members who are less healthy and therefore in greater need for protection would continue with DPS while those who do not need it will opt out. Over time, this adverse selection would result in higher claims payout and further increase the premiums for older members who are insured. Older members may not be able to afford higher premiums and protection would lapse when they default on payments.

CPF members who would like to have extended insurance coverage can do so by buying insurance schemes using their own cash. CPF members can also use 100% of their CPF Ordinary and Special Account savings to purchase approved investment-linked insurance policies under the CPF Investment Scheme to cover themselves up to the age of 62. For these reasons, CPF Board kept the age limit at 60 when it privatised the DPS.

Dr Ong Seh Hong (Aljunied): Sir, I would like to ask the Senior Parliamentary Secretary: does he not agree that actually those older workers who still have to work are likely to have more dependants and who will need the protection? In his answer to an earlier question, he said that we need a holistic approach when we want to raise the retirement age, and in PM's National Day Rally speech, he also mentioned that there is a need to change the mindset of the workers as well as the employers. I think the Government also has to change the mindset and be more flexible. If there is a need to raise the premium, they can still tier it so that if you want to extend it beyond 60, they can raise the premium and for those who want to opt out, they can opt out. I recently had a case of a family who approached me for help.

Mr Deputy Speaker: So what is your question?

Dr Ong Seh Hong: I think there is a need to raise the coverage. In fact, the

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older and lower income workers need more protection.

Mr Hawazi Daipi: Sir, while I share the concern of Dr Ong with regard to the need for coverage, we must, in meeting the needs of insurance coverage, bear in mind that the system must be affordable to the people we really want to help. I have said earlier that this scheme is an opt-out scheme targeted at younger members and their families in the event of the member's death or permanent incapacity.

We must realise if we extend the coverage to the older age group, the premium will increase, including for the current oldest age group that is 55 to 59. Even, currently, we find that for the older workers, the rate of participation in the DPS is much lower than that for the younger age group. So if we extend the coverage and therefore increase the premium, it is likely that the proportion of older workers covered would be much lower.

Mr Sin Boon Ann (Tampines): Sir, will the Senior Parliamentary Secretary be able to give us an indication of the difference in premium if we were to raise the age limit of the Dependants' Protection Scheme from 60 to 62?

Mr Hawazi Daipi: Sir, I do not have the figure for the difference that members would have to pay should the years of coverage be extended. To give an illustration, for the age group of 34 and below, the proportion of members covered is 41%. In comparison, for age group 55 and above, the percentage of membership covered is only 6%. This illustrates the fact that when premium rises with age, older workers find it expensive and thus opt out.

Dr Ong Seh Hong: Mr Deputy Speaker, Sir, just now the Senior Parliamentary

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Secretary said that when they go to age 55, the premium goes up to $250-plus, but there are still people who will buy it for one simple reason. He mentioned that workers can use their CPF savings to buy investment-linked protection, but those can cover only up to 2.5 times the premium. The lower income workers are unlikely to have high savings in their CPF account because, if I remember correctly, investment-linked insurance policy is only up to 2.5 times. So, to have a protection of, say, $50,000 you will have to spend at least $20,000.

Mr Deputy Speaker: So, Dr Ong, what is your question again?

Dr Ong Seh Hong: Sir, the question is: there is really a need to continue to protect workers who are gainfully employed after the age of 60.

Mr Hawazi Daipi: Sir, actually, members can cover themselves by buying their own personal insurance coverage and there are so many options in the market. What we are trying to say is, because this is a mass insurance scheme for workers, the cost is kept low and we want to maintain the low cost so that as many workers as possible can enjoy the scheme. It is simple logic. But what we want to do - and I would like to stress this - is that this scheme helps as many workers as possible who can afford it and we want to make it affordable. Members can, of course, take their own additional insurance protection.

Dr Loo Choon Yong (Nominated Member): Mr Deputy Speaker, Sir, may I be allowed to join this by asking a question? Can the SPS help us with this logic, or lack of it? If the Dependants' Protection Scheme is good for up to 60 years and people can opt out of it, what is the difficulty of extending for two more years, if we want elderly workers to continue to work? I do not buy the argument of higher premium. If the higher

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premium is indeed so high, then people would opt out of it.

The other issue is that cross-subsidy does not necessarily have to take place. We can price age-adjusted premium. So, I would urge the Ministry to look at this seriously and extend this protection for our workers in their last two years.

Mr Hawazi Daipi: Sir, I have replied to the questions the hon. Member has raised. Let me just repeat one point I made earlier, ie, that for age group 34 and below, the percentage of members of that age group who participate in DPS is 41%. For those 55 and above, it is only 6%. The figures speak for themselves.

Mr Deputy Speaker: I will allow one last question from Miss Penny Low.

Miss Penny Low (Pasir Ris-Punggol): The SPS mentioned that the age was extended in the year 1995 and, obviously, this means that the older age group will also be paying a higher premium. I think this goes with the basis of insurance itself. But I would like to go back to the basis of insurance, which is the SPS' mortality table. When was this mortality table revised? Is it up to date with the current life expectancy? Surely, with a longer life expectancy, the premium towards the end itself has to be readjusted.

Mr Hawazi Daipi: Sir, I do not have those figures but, essentially, the members are asking for protection, ie, wider and better protection. But there is another area that we have to talk about, which is cost, and I have talked about it. While we want to have good coverage for every worker and to participate in the scheme, we should not make it more expensive. Actuarial studies have shown that if we increase the coverage, there will be higher premium, and I have given two figures to indicate that if we increase

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the premium, it is likely that, for the older workers whom we want to cover and help, they would not benefit from this because they may not find it affordable.

Mr Deputy Speaker: We have to move on. Mr Arthur Fong.