Debated in Parliament on 10 Sep 2012.
Order for Second Reading read.
Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."
Sir, this Bill will amend the CPF Act to effect changes to the Minimum Sum Topping-Up (MSTU) Scheme, refine the CPF housing refund policy, introduce a minimum age to make CPF nominations, as well as streamline the administration of CPF matters. These changes have been made in response to feedback or in response to the operational experience of the CPF Board. They will keep the CPF system efficient and relevant to the needs of Singaporeans.
Let me begin with the changes to the MSTU Scheme. This is a scheme that was introduced to help Singaporeans contribute to the retirement savings of their loved ones by topping up their CPF Special Account (SA) or Retirement Account (RA). Singaporeans who wish to save more for their own retirement can also make voluntary contributions to these accounts under the MSTU Scheme. Tax relief is given to those who make cash top-ups to their own CPF accounts or that of eligible recipients.
To encourage more support within families, we widened the group of eligible recipients over the years. The MSTU Scheme now covers parents, grandparents, spouse and siblings. With a wider reach, the number of MSTU top-ups has increased from about 8,800 in 2007 to more than 38,000 in 2011. The total top-up amounts have also increased from $69 million to $216 million over the same period.
Many members have found this scheme useful in boosting their retirement savings or those of their loved ones, and we have received many suggestions to extend it so that they can also provide for their parents-in-law and grandparents-in-law.
We have taken on board this request. In April this year, I announced that we would expand the MSTU Scheme to include parents-in-law and grandparents-in-law. We will make a provision in section 2 of the CPF Act so that the Minister may specify through regulations who are eligible to receive top-ups from CPF accounts under the MSTU Scheme. We will then amend the CPF regulations later this year to specify that parents-in-law and grandparents-in-law will be amongst this list of eligible recipients to receive CPF top-ups.
The Income Tax Act will also be amended later this year to extend tax relief to members who make cash top-ups to the SA or RA of their parents-in-law and grandparents-in-law. Members who make cash top-ups to eligible family members will qualify for tax relief of up to $7,000. Members who make cash top-ups to their own SA or RA as well will qualify for an additional tax relief of $7,000.
With these changes, Singaporeans will be able to make cash or CPF top-ups to their own SA and RA, to those of their spouses, siblings, parents, grandparents, and now parents-in-law and grandparents-in-law as well. This change will take effect on 1 January 2013.
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Another enhancement we are making to the MSTU Scheme is to simplify the channels for making top-ups to a member's own SA and RA. Currently, a member may top up his RA under the MSTU scheme. He may also top up his RA by making what is classified as a Voluntary Contribution or VC for short. For top-up to the SA, a member can do so using his Ordinary Account (OA) savings under the OA-to-SA Transfer Scheme, or he could make a top-up using cash through the MSTU Scheme.
Members have found the multiple channels confusing as they essentially achieve the same purpose. What makes things even more complicated is that the various schemes have actually different top-up limits for recipients and varying terms and conditions for the use of these top-ups.
Therefore, to simplify the processes for members making voluntary contributions to their own SA and RA, we will merge the following channels, namely, the VC to the RA, and the OA-to-SA Transfer Scheme, into the MSTU Scheme.
The merger of the schemes, in itself, will not require an amendment to the Act. However, we will amend the Act and the regulations to align the top-up limits and the terms and conditions of the various schemes.
Specifically, changes will be made to section 18A of the Act to provide for the top-up limits for top-ups to the RA to be specified in the regulations instead of in the Act. We will then amend the regulations later this year to align the top-up limits and terms and conditions for all top-ups to the RA. The same will be done for all top-ups to the SA.
With these changes, all top-ups to the SA or the RA, whether it is made to oneself or to one's family members, and whether it is made via cash or CPF, will now be made under the MSTU Scheme. This will simplify the topping-up process for members.
For members above 55, they may receive top-ups to their RA up to the difference between the prevailing Minimum Sum and the amount they have in their RA, excluding amounts such as the interest earned and any Government grants received, and excluding amounts that they have withdrawn. For younger members receiving top-ups into their SA, they will be able to receive top-ups up to the difference between the prevailing Minimum Sum, and the sum of their current SA cash balance and any SA investments that they have under the CPF Investment Scheme.
Sir, with these enhancements, the MSTU Scheme becomes an even broader and more accessible avenue for Singaporeans to boost their retirement savings. We certainly hope more Singaporeans will take advantage of the scheme.
Sir, I will now move on to the next amendment that will give effect to refinements that we are making to the CPF housing refund policy. CPF members may use savings in their CPF Ordinary Account (OA) to purchase a property. When members sell their property, we require them to refund the CPF savings that they have used for their property.
Members who sell their property before age 55 are required to refund into their CPF account the principal amount that they had withdrawn for the property, including the prevailing Ordinary Account interest that would have accrued on this amount, or what we call P+I in short. This refund aims to restore the member to the position as if he had not withdrawn his CPF savings for the property. Members may still use the refunded amounts towards the purchase of any next property.
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The current housing refund requirements change when a member is past age 55. At age 55, a member is required to set aside the Minimum Sum (MS) from his existing CPF balances, and he may withdraw his CPF savings in excess of the Minimum Sum after having also set aside the required amount in his Medisave Account for his healthcare needs. So, when a member sells his property after age 55, only the amount needed to bring the member up to his MS must be refunded, since amounts above the Minimum Sum can be withdrawn anyway. In other words, for a member who sells his property after age 55, he will refund his Minimum Sum shortfall or his P+I, whichever is lower. Remaining proceeds from the sale of his property is received in cash.
While the current refund rules for members over 55 avoid collection of housing refunds in excess of MS, there may be certain scenarios involving more than one owner, where the refunds required of the co-owners may not match the amount of CPF each co-owner used to pay for the property. When this arises, co-owners can decide to distribute the cash proceeds among themselves such that the total of the cash proceeds and CPF refunds for each co-owner matches the amount that each co-owner had contributed towards payment of the property.
However, where the co-owners are no longer on good terms, the distribution of these cash proceeds becomes significantly more contentious and the co-owners may not always be willing to consider the amount that the other party has contributed towards the property. In cases where the property is sold at a loss, there may not be any cash proceeds for distribution at all. So, this is when the current housing refund requirements may create some unhappiness among members. Some of the Members of this House would have received appeals of such nature.
We are, therefore, refining the housing refund policy to address this issue. We will now require members aged 55 and above to refund their P+I. This means that the same refund rule will apply to all members regardless of their age. This refinement will ensure co-owners receive CPF refunds that are commensurate with their usage of CPF savings for that particular property. Sections 21, 21A and 21B of the Act will be amended to give effect to the new housing refund policy.
Where the P+I refund exceeds the Minimum Sum shortfall for members aged 55 and above, they need not worry that the new refund rule makes them retain in their CPF a higher amount than what is necessary. The refunded amount will first be used to set aside their cohort Minimum Sum in their RA and the required Medisave amount in their MA, and then the excess can be withdrawn. This is no different from the existing requirement that applies to all members past age 55 who wish to withdraw their OA and SA savings in excess of the Minimum Sum.
Under the new housing refund rule, for members aged 55 and above, any remaining housing refunds after setting aside the required amounts, in the RA and MA, will be automatically disbursed to the member in cash, unless he chooses to retain it in his CPF accounts. Changes will be made to section 15 of the Act to give effect to this policy. The majority of members can expect to receive the disbursed funds within one or two weeks of the crediting of the housing refunds into their CPF accounts.
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Sir, the new housing refund policy will ensure that the distribution of proceeds from the sale of property reflects the CPF usage among the co-owners, while at the same time not require older members to retain in their CPF more refunds than are necessary. The new housing refund policy will take effect on 1 January 2013.
Let me move on to the next amendment relating to the introduction of a minimum age for making CPF nominations.
CPF members may make nominations to have their CPF savings disbursed to their nominees upon their demise. CPF savings belonging to members who pass away without having made a nomination will be distributed to their next-of-kin in accordance with intestacy laws.
CPF Board has, in the past, allowed CPF members of any age to make nominations. The absence of an age restriction meant that even very young CPF members could make a nomination. This is not common, since young CPF members would not have started work and would generally not have any CPF savings. But there were young CPF members who had CPF savings as a result of top-ups made by their parents, and thereafter made nominations.
CPF members should be of sufficient maturity when they make decisions with regard to their CPF savings. We have, therefore, decided to set a minimum age of 16 years for making CPF nominations. This is in line with the minimum age to work under the Employment Act. Section 25(1) of the Act will be amended to give effect to this change.
The amendment will take effect in the later part of this year. As for members who had previously made nominations when they were still minors, a related amendment will be made to ensure that their nominations remain valid, such that they need not come forward to make a new nomination. Nevertheless, should they wish to do so, they may approach CPF Board to make a new nomination anytime as all of them are already above the age of 16.
Sir, the amendments in this Bill will encourage members to make voluntary top-ups into the CPF for themselves and their loved ones. And we are encouraged to see the numbers growing. We also look at refining our CPF housing refund policy to ensure that CPF housing refunds are consistent with the amounts contributed by each co-owner to the property, and introduce a minimum age for making CPF nominations. Several other changes intended to clarify and streamline the administration of the CPF Act will also be made. Altogether, these represent our effort to ensure that the CPF system continues to be relevant in meeting the needs of Singaporeans. Sir, I beg to move.
Question proposed.
Mr Speaker, Sir, I had already and often iterated the importance of CPF savings to our workers. Similarly, I had also voiced my support for the proposed amendments to the CPF Act that are meant to benefit workers and their families. First, I am happy to note that the Ministry has given considerable thought to the implementation aspects of the proposed amendments. The enhancement and streamlining of the top-up scheme that was mentioned by the Acting Minister just now is timely and necessary.
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Sir, I think it is appropriate that a wider definition has been applied when identifying those who could benefit from the CPF top-ups. By including parents and grandparents-in-laws as beneficiaries of CPF top-ups, CPF members, especially those who are married, are more able to decide how to support both sets of parents and grand-parents. This goes some way in building familial bonds, and helps in the cash-flow of members who may have excess CPF savings, but not so much cash.
As for the proposed amendments to refunds on property transactions, I am also glad that the CPF Board will once again focus on its role as a custodian of members' CPF contributions. I think that the CPF is correct in proposing to return CPF savings used for mortgage and interest payments in accordance with the actual payments by individual members. I do not think that the CPF Board should take on the role of arbiter in case of disputes between joint owners of property. We can leave that role to our very capable legal system.
Sir, still on the subject of the primary role of the CPF Board, I wish to reiterate that CPF savings should be seen primarily as savings for retirement. While there is some merit in tapping on CPF savings for housing, investment and education purposes, we must constantly remind CPF members that for the majority, it is their CPF savings that will support them in their retirement. While there may be temptation to invest CPF savings through various schemes, the results, we all know, are hardly consistent, and certainly nowhere near as consistent as the returns guaranteed by the CPF Board.
Here, I once again urge the CPF Board to look for ways to enhance returns on CPF savings for two reasons: firstly, so that members can enjoy compound interest over the years to build up their CPF savings to fund a reasonable retirement; and secondly, a higher return would also serve to stave off the temptation among many, who today have suffered losses, instead of gains by investing their CPF savings. If the CPF Board could offer even a couple of percentage points higher than it does today, it will match the so-called target returns of many of the instruments under the CPF investment scheme. That would make it an absolute no-brainer, that is, leave your money in the CPF account and watch it grow!
Mr Speaker, Sir, allow me to speak a few words in Malay concerning the CPF.
(In Malay): [Please refer to Pg 689 for Vernacular Speeches.] Mr Speaker, I would like to take this opportunity in this debate on the CPF Act amendments, to remind workers with CPF accounts, that the main role of their CPF savings is to take care of them during their old age as well as the retirement needs of Singapore workers.
I understand there are those who want to use their CPF savings for other purposes, including purchasing a bigger home. We should realise that any utilisation of our CPF savings comes with risks. If we have a job and stable income, it is all right for us to think of a bigger home or a second home. We need to assess and evaluate it better and more carefully. Do not rush into it.
I would encourage our workers to be careful when using their CPF savings. Every opportunity that we wish and hope for will carry a risk.
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My experience at the MPS sessions shows that there are workers who commit themselves to purchasing bigger and more luxurious homes using their CPF funds. Sadly, they then faced all kinds of problems, such as health problems of their own or among their family members. And there are those also who lost their jobs or have some other problems.
If this happens, the problems facing the worker will be very complicated. It will put their homes and also their CPF savings at risk. It will be worse if this happens during an economic downturn. Many will be trapped in a very tight spot, even to the point where they lose their homes and most of their CPF savings.
Therefore, we must remind our workers that they should continue to be careful as well as think long term and thoroughly, before making the move to use their CPF savings. It is an important nest egg, built over the years through hard work, that takes care of us during old age and retirement.
(In English): With that, I would like to support the Bill. I think it is timely that we do these changes as they will benefit our workers in the long run.
Mr Speaker, Sir, I support the Amendment Bill which will help to expand the Minimum Sum Topping-Up (MSTU) Scheme to cover parents-in-law and grandparents-in-law, to fine-tune the top-up process for members and to have the CPF housing refund policy regularised to ensure equitability. These are good measures that will help to enhance the CPF system for Singaporeans and to improve their nest egg for retirement.
With longer life expectancies and a greying population, there is an urgent need to review whether the present CPF scheme is sufficient to meet retirement needs. Only about 45% of active CPF members turning 55 in 2011 met the Minimum Sum requirements. In response, we have developed the CPF Life Annuity scheme and Silver Housing Bonus taking into cognisance that Singaporeans may not have enough CPF savings to cope with their future retirement needs. With a better educated populace and increasing number of PMEs (Professionals, Managers and Executives), there should be a fundamental rethink of how CPF funds can be further boosted for all Singaporeans.
Many ideas have been offered before. Financial experts will point out that building up investments is the positive route to grow savings in such a way that will beat inflation. While we have the CPF Investment Scheme (CPFIS), the majority of investors did not manage to exceed the risk-free rate from their returns. It is time that additional financial instruments be created for our citizens to participate in. For example, more sovereign funds can be further developed by the GIC or Temasek that will allow our citizens to invest from their CPF Special Account. This will allow each and every Singaporean to have a stake in our country's long-term success. Since this amount is drawn down from the Special Account, we can be sure that it will be mainly for meeting retirement needs.
One group of Singaporeans that I would like to specially highlight for future fine-tuning of the CPF system would be the home-makers and caregivers. As they have to take care of their children and/or the elderly, they are unable to work either for the short term or on a longer term basis. Hence, they would not be able to build up their CPF savings. This also has a direct impact on our young people's willingness to settle down to marry and to have children. At present, the maximum amount of top-up which qualifies for tax relief stands at $7,000. For husbands to provide a nest-egg for their wives who are home-makers and who have to stay at home to care for the young and/or aged parents, can I suggest that the maximum amount of top-ups for spouse's accounts which enjoy a tax relief be raised much higher than the current $7,000 limit?
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I recently met a housewife in her 50s during my weekly house visits. I was sharing with her on the Community Health Assist Scheme (CHAS) and she retorted and lamented on her huge hospital bill that very day while seeking outpatient treatment at one of the restructured hospitals. She shared that she incurred a bill of about $300 after the subsidy for her consultation and a huge bag of medication. She told me that the CHAS did not help as the bulk of her charges were on medication. I then asked her whether she had Medisave to use as she was having a chronic illness. She said she has been a homemaker since many years ago, and as such she has no CPF or Medisave for the longest time, except for Government top-ups which help in some ways to pay for her DPS and MediShield premiums. There is, therefore, a need to re-look at how we can better protect this group in our future policies and programmes. Perhaps, in future, the Government should consider an annual top-up to recognise their role in society and especially so when they have given birth to children and are looking after them.
Then, however, there is another female resident who is 49 years of age who had mortgage repayment difficulties for her HDB loan. In our desire to ensure a minimum sum in the Ordinary Account, she was told by HDB that she had reached the CPF withdrawal limits and not allowed to utilise her monies in her Ordinary Account to finance an HDB loan. HDB suggested for her to use cash and to sublet her extra bedroom to generate rental income to fork out that cash.
To conclude, I welcome these changes to be made to the CPF. However, I hope the Government can do more to allay the fears and worries of its citizens on the sufficiency of their CPF funds, come 20, 30 years down the road, taking into account the higher costs and standard of living.
Sir, I support the Amendment Bill and will comment on the MSTU for in-laws and the minimum age for making CPF nominations.
First, the MSTU for the in-laws. With these amendments, members will be allowed to make CPF transfers to parents-in-law and grandparents-in-law and to make cash top-ups. And as we know, for any policy changes, there are always positive and negative views depending on one's perception of the policy and one's personal circumstances and preferences. For one who does not know about the changes, one, of course, has no views.
I support this amendment as it helps more seniors build up their CPF savings for their old age and, at the same time, promote family values. It also provides tax incentives if the top up is in cash. This is what I call positive views. However, we know that there are CPF members who belong to the middle and lower income groups and do not need to pay taxes. So, even if they top up a small sum for their in-laws, there is no incentive for them. Thus, if the CPF Board can provide other incentives to encourage the lower income group to also top up the Minimum Sum for their in-laws in cash, the amendment will be seen as more inclusive. Can the Government also top up a token sum to their in-laws for those who make cash top-up but do not enjoy tax incentive? I would also suggest that CPF Board steps up its marketing activities and be more focused in its communications to the target audience whenever there are policy changes. Thus, for this amendment, we may not need to inform those who are not married yet but to those who are married, the message can be more informative and creative.
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Two, the Minimum Age for making CPF nominations. Sir, the Act is amended to specify that members who have attained 16 years of age can make a CPF nomination. We know that members can change their nomination from time to time and CPF Board does notify them that they have made their nomination. I would suggest that CPF Board take a more proactive approach by updating them of their nominations when they reach 21 years, at the time they get married and when they reach 55. It will serve as a reminder to them that they can review the nomination and make changes, if need be, to avoid future disputes.
Sir, CPF touches the life of every Singaporean in every aspect – be it housing, education, medical, retirement or investment. The agency can be more member-centric to different groups of members by engaging them and informing them and even educating them of the changes affecting them in different aspects so as the CPF Board is seen as a friend in need and also a friend indeed.
Mr Speaker, Sir, let me thank Mr Zainudin Nordin, Mr Patrick Tay and Mr Seng Han Thong for their thoughtful speeches and for their support for the Bill. Some of the issues that have been raised pertain to general CPF policies. These are important points that they have raised.
Mr Patrick Tay shared with us several stories which we are familiar with. There are concerns or issues raised amongst them – returns to the CPF, providing more for those who have not saved enough, or, in some of the cases, for those who have not really been working, and housing withdrawal limits. These are important and we are looking into how we can better address these issues to continually improve the CPF system. But we will take these up separately at other forums as appropriate.
I will now address the specific comments that have been made on various aspects of the Bill. First, the expansion of the MSTU scheme. Now, all three Members who spoke on this topic have voiced their support for the changes to the MSTU scheme. We believe that this is the right way to go. An increasing number of members are tapping on the MSTU scheme to boost their family members' as well as their own retirement savings. I mentioned earlier that the number as well as the amount of top-ups made under MSTU scheme have increased over the years. This is encouraging and we hope that this continues.
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But, more importantly, it also means that Singaporeans do see the CPF as a good way to save for their retirement. As Mr Zainudin has said, the interest rates offered by the CPF are higher than what you can find in the market, and also more stable and lower in risk. Furthermore, we pay an additional 1% extra interest (EI) on the first $60,000 of a member's combined CPF balances, which means that MSTU top-ups can earn up to a total of 5% interest. So while our lower income members who make MSTU top-ups may not be able to benefit from the tax relief offered as Mr Seng Han Thong mentioned, because they do not pay taxes, they can be assured that the top-ups to their loved ones' CPF accounts will go a long way in boosting their retirement savings through interest accumulation over the years.
Aside from benefiting disproportionately from the extra interest I mentioned just now, lower income members also receive larger GST Vouchers and various Government grants. Their CPF savings are also boosted by Workfare. This is the Government's way of helping the lower income build up their retirement nest egg.
Next, let me move on to another point that Mr Seng highlighted on the importance of actively reaching out to members in a targeted way, so that they can benefit from the improvements that we have made to policies such as the MSTU scheme. Let me assure you that the CPF Board is fully engaged in its member education efforts. Taking the MSTU scheme as an example, the Board taps on a range of channels to reach out to members to make sure that they understand how they can tap on this scheme. Through regular talks with members and outreach events in the community, CPF Board promotes awareness of the MSTU scheme. There is extensive information on the CPF Board website as well as brochures which are freely and widely distributed.
Over the years, we have also learned to tailor our communication to members. For instance, the Board's website carries comprehensive information packaged in bite-sized chunks for members going through different life events – for example, when they start work, when they get married, when they buy a house, when they turn 55 years old, and so on. Last year, the Board also launched the "Are You Ready?" campaign to encourage Singaporeans to kick-start the financial and retirement planning. As part of this campaign, the Board provides information through talks, webcasts, and other tools to help Singaporeans at different stages of their lives make better financial decisions.
I encourage all CPF members, young and old – it is never too young to start financial planning – to take full advantage of the information and tools provided by the Board. And the website itself is useful, comprehensive and has received a lot of good feedback from members. So, do use it.
On CPF nominations, Mr Seng Han Thong suggested that the Board should take a more proactive approach in informing members of their nominations when they reach certain important junctures in their lives, for instance, when they get married or when they approach old age. This would serve as a reminder to members, should they wish to review and revise their nominations when their individual or family circumstances change. I think it is a very good suggestion raised by Mr Seng. In fact, currently, when members get married, the nominations that they have made prior to marriage become invalid automatically due to the change in the family circumstances. We could explore whether it is possible to reach out to members at these significant milestones in their lives to get them to come forward more proactively to re-make or update their nominations, as the case may be.
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Today, members are already informed yearly through their annual CPF Statement of Account, which is mailed to their homes, that they have made a nomination. While the Board promotes awareness that members may make or revise their nominations, they do not actively encourage members to do so. If a member does not make a nomination, his CPF savings will be distributed to his loved ones through the intestacy laws upon his demise. It is the personal choice of the member whether he prefers his CPF savings bequeathed to the nominees or distributed to his loved ones under the said laws.
While we work on educating members on the various aspects of CPF, we also listen keenly to members' feedback and make improvements to our policies. Hence, the changes made today. Many of the amendments we are making arose from members' feedback – the refinements to our housing refund policy, expansion of the MSTU scheme to include parents-in-law and grandparents-in-law and the merging of various channels for voluntary contributions to simplify the topping up process for members – just to name a few.
We will continue to listen to members' feedback on ways to improve our CPF policies and, indeed, appeals from Members of Parliament for their residents also play a big part. As we investigate these particular cases, we would also learn and see how best we can improve the process.
Sir, in closing, I would like to reiterate Mr Zainudin's thoughtful points on exercising prudence in the use of CPF savings. For the majority, the CPF will be an important source of savings for their old age. We must be careful not to over-extend when we decide how much CPF savings to use for housing, be drawn into investing them for higher returns if we are unable to bear the higher risks involved, or expect to dip into this nest egg when we find ourselves urgently short of cash. It takes discipline and careful planning to ensure a sufficient nest egg in retirement. On our part, the CPF Board will make sure that the system will do its best to support all our Singaporeans in their retirement needs. With that, Sir, I beg to move.
*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 Tan Chuan-Jin].
Bill considered in Committee; reported without amendment; read a Third time and passed.
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