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Speech at The Central Provident Fund (Amendment No. 2) Bill 2007

Dr Ng Eng Hen, Minister for Manpower and Second Minister for Defence

1.   Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”

2.   Sir, within the last year, Government instituted two major changes that affect the CPF – the Workfare Income Supplement ( WIS ) Scheme and the recently announced measures to change CPF interest rates and drawdown of CPF sums. These two set of changes have been extensively debated in this house – Workfare, during the last Budget and Committee of Supply, and the latter in September this year. The Bill before this House today seeks to amend the CPF Act accordingly. It facilitates the implementation of the new CPF interest rate framework to help improve member's retirement adequacy. Amendments in the Bill also create a new Part for the administration of the Workfare Income Supplement Scheme to help low wage workers increase their incomes and CPF savings. Lastly, some amendments are introduced to strengthen the administration of the Act and to clarify certain existing policies. I will deal will these administrative aspects first.

Strengthen the Administration of the Act and to Clarify Certain Existing Policies

3.   Clauses 7(a) – (c), 8(a) – (c), and 9(a) aligns the language used in Sections 21(1), 21(1A), 21A(1), 21A(1A), 21B(1) and 21B(3) with that used in Section 77(1)(h), so as to include “acquisitions” or transfers in addition to the existing “purchase” when referring to the buying of property. This follows on from the changes in the CPF Act Amendment earlier this year for the division of matrimonial assets. 

4.   The CPF (Nominations) Rules are currently prescribed by the CPF Board under the general powers accorded under subsection 77(2)(k). In view of the importance of nominations, Clause 12 will make explicit the CPF Board's power to make rules prescribing the manner and circumstances in which nominations may be revoked.

5.   Clause 16 extends the MediShield Scheme to cover the payment of costs incurred by insured members for medical services, in addition to medical treatment. This will allow organ procurement costs to be included as part of organ transplant costs, and be payable from the Medisave Account and claimable under MediShield. This amendment will take effect retrospectively from 1st October 2007, in line with the Ministry of Health's changes on the use of Medisave withdrawals and MediShield claims for organ procurement costs.

CPF Reforms – Improve Returns on CPF Savings

6.   Sir, in my Ministerial Statement on the CPF Reforms in September, I had outlined a number of measures to help members attain a more secure retirement. This included the extra 1% interest paid on the first $60,000 of a member's combined balances, with up to $20,000 from the Ordinary Account (OA), and to defer the Draw Down Age (DDA) of CPF members to help ensure that members' CPF savings last their lifetime. I announced then that a Deferment Bonus will be given on Retirement Account (RA) balances of up to $30,000 for members who are affected by the increase in draw down age. If eligible members voluntarily defer their drawdown, they will receive the Voluntary Deferment Bonus.

7.   Clause 2 of the Bill creates a new definition for the additional interest which CPF Board may pay in addition to the base interest. It also redefines the Retirement Account, so that it can receive contributions such as the Deferment Bonus and the Voluntary Deferment Bonus, as well as extra interest earned from monies in other accounts.

8.   Clause 3 consolidates the existing provisions relating to the payment of interest and allows CPFB to pay the extra interest on the whole or part of the amount standing to the credit of a member in any of his CPF accounts. This will allow for the payment of the extra interest under the new structure. Clause 4 – 6 provides the consequential amendments needed arising from the fundamental changes in Clause 3.

9.   Clause 5(a) specifies how the base interest and extra interest can be credited into a member's account, such as whether to pay interest into the account where the interest-bearing money stands, or to credit the interest arising from one account to other accounts. This will facilitate the crediting of the extra interest from the OA into the Special Account (SA) or RA.

10.   In addition, Clauses 5(b), 7(b), 8(b), 9(b), 10, 13 – 15, 18 and 19 amend different parts of the Act1 to provide for the recovery or refund of an amount of interest other than that which accrued or could have accrued in the event of any adjustments, transfers or withdrawals. Presently, when transfer or withdrawals are made to the CPF accounts for the use of housing, education and other uses, members are required to refund the principal amount withdrawn in addition to any interest that could have been earned if the transaction had not been made. Similarly, CPFB may also have to refund monies into members' account with interest in certain cases, such as when coverage for the Dependants' Protection Insurance Scheme is cancelled because the insured is found to have withheld relevant information from CPF Board, and the premium has to be refunded with interest.

11.   However, under the new interest rate structure, the extra interest that could have been earned would depend on the amount of combined CPF balances at each relevant period, as well as the balances in each CPF account at any one time, which would change due to contributions and withdrawals, including for uses other than housing. As such, it may be quite complex and indeed costly to determine whether the additional 1% interest could have been accrued at each relevant period. We therefore propose to adopt a practical approach and the amendments in these Clauses thus allow the CPFB the discretion to recover up to the additional interest that could have been earned.

Workfare Income Supplement Scheme

12.   Sir, to allow older low wage workers to share in the benefits of economic progress and to reward work, Workfare has been introduced as a permanent feature of our social security system, which will be tied to the CPF system. The administration of WIS will become a statutory function of CPF Board by the creation of a new part in the CPF Act for the WIS scheme. This will empower the CPF Board to administer the scheme effectively.

13.   In order for CPF Board to have regulatory powers over the disbursement of the WIS, the new Part VIA is being introduced into the CPF Act to give the Board the power to credit the WIS CPF component to the eligible members' CPF accounts and pay the WIS cash component to members directly under the CPF Act. To prevent abuse and deter false declarations under the WIS Scheme, this section also empowers the CPF Board to take action through penalties calibrated according to the severity of the offence. Similar to other offences under the CPF Act, WIS offenders will be subject to a fine not exceeding $2,500 for the first conviction, and to a fine not exceeding $10,000 for the second and subsequent convictions.

14.   The new part will also allow CPF Board to conduct recovery and adjustments of WIS already paid out to members. Apart from recovery of WIS benefits paid out under fraudulent circumstances, there may be legitimate situations where benefits will be adjusted. This is because the first payment of WIS is a provisional one and the final payment for that year will be adjusted when the final average income is declared. For example, a member could have been eligible based on his income for the first half of the year but subsequently become ineligible because he receives a high year-end bonus that causes his average monthly income for the year to exceed the WIS wage criterion. Conversely, a member who receives a salary cut during the second half of the year may be eligible for higher WIS benefits than that paid out under the provisional payment. The additional benefits would be calculated and the member's final WIS payment would be adjusted upwards.

15.   Clause 17 will insert a new Part IVA, comprising new sections 57A to 57F into the CPF Act.

16.   Sections 57A and 57B provide for the interpretation of terms found in the new part and establishes the WIS as a scheme administered by CPF Board.

17.   Section 57C will enable CPF Board to distribute cash payments from the Government to CPF members directly besides crediting the monies directly into members' CPF accounts under the WIS scheme. It will also empower CPF Board to recover, from members or third parties, any cash or CPF paid to members in excess of that which they are entitled to receive, or if these members were not entitled to receive the WIS benefit paid, such as in the case of fraud. This section also enables CPF Board to recover on behalf of the Government, any Government debt due from the member out of the WIS, as well as to recover WIS in the event of the member's death, if the Board chooses to do so.

18.   Section 57D provides for an additional process for recovery via the courts in the event that the member was convicted of an offence under the CPF Act in connection with the WIS benefits, such as falsely declaring his eligibility for WIS to CPF Board. In conjunction with 57D, Section 57E helps facilitates the administration of the enforcement process by providing for a certificate issued by CPF Board which may be used as evidence of WIS amounts paid and amounts recoverable.

19.   Section 57F will provide for regulations making powers to carry out the provisions of the new Part IVA.

20.   Clause 11 of the Bill amends Section 24 of the Act, which protects CPF benefits, to facilitate the recovery of WIS under the new Section 57C and any regulations made under the new Section 57F.

21.   Clause 20 amends Section 76, empowering CPF Board to compile statistical information relating to all members, which will help provide data to support the review of the WIS scheme in 3 years time.

22.   The new CPF interest rate structure and WIS changes, will take effect on 1st January 2008, as previously announced.


23.   Sir, I beg to move.


1Namely, Sections 13(7), 21(1), 21A(1), 21B(1), 22(3), 27E(1), 27F(1), 43(2), 72 and 75(1).