Speech at 2nd Reading of The Central Provident Fund (Amendment) Bill 2008

Mr Gan Kim Yong, Acting Minister for Manpower

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

Encouraging Voluntary Savings

2.   Sir, as our population ages, we need to refine the CPF system to help Singaporeans prepare for a more secure retirement. Even as we help individual CPF members to better grow their retirement nest eggs through higher CPF interest rate and to provide lifelong income through CPF LIFE, we also recognise the important role of the family unit as a primary social support structure. For this reason, we have been progressively liberalising the rules for CPF Minimum Sum top-ups by family members. Last year, we increased the top-up limit to the prevailing Minimum Sum and expanded the list of recipients, including allowing top-ups to be made to spouses and siblings below the age of 55 using CPF or cash.

3.   Earlier this year, the Government announced that the rules for CPF Minimum Sum top-ups would be further relaxed. Firstly, the annual cap of $26,393 which is imposed on all mandatory and voluntary contributions, will no longer apply on Minimum Sum cash top-ups for recipients below age 55¹. Minimum Sum cash top-ups would be allowed up to the prevailing Minimum Sum, like Minimum Sum CPF top-ups. Clause 4 of the Bill amends section 13B to effect this change. The clause also removes the need for CPF Board to refund top-ups in excess of the annual cap.

4.   Secondly, CPF members will be allowed to receive cash top-ups to his Special or Retirement account from all parties, including extended family members and employers. This will encourage family support and provide another route for employers to make voluntary contributions to employees CPF. Clause 6 of the Bill amends section 18 to remove the restrictions on the recipient-member's age and the relationship with the giver for cash top-ups.

5.   Sir, we would also like to re-align the treatment of top-ups when the recipient dies, or in the case of a non-citizen recipient, when he withdraws his CPF upon leaving Singapore permanently, so that cash top-ups would be treated as if they were gifts to the recipient. Currently, top-ups via cash or CPF would be returned to the giver. However, cash top-ups made after the new rules take effect, would no longer be returned to the giver. In the case of the recipient's death, the cash top-ups will be distributed by way of CPF nomination or intestacy laws. To effect these changes, Clause 7 repeals and re-enacts sections 19 and 19A. Clause 3 and Clause 5(a) of the Bill make consequential amendments to sections 13 and 15(2) respectively arising from this re-enactment.

6.   The new Minimum Sum topping-up rules will take effect on 1 November 2008. This will allow time for givers to take advantage of the new tax exemption of up to $7,000 of top-up announced earlier at Budget when they make cash top-ups to other CPF members before the end of the year. This exemption will be in addition to the $7,000 exemption for making cash top-ups to their own CPF accounts.

Prescribed Age for Minimum Sum Schemes

7.   Sir, the Bill also seeks to clarify and refine existing policies.

8.   Clause 2 amends section 2(1) to introduce a new definition of "prescribed age".  The new definition replaces the phrase "age of 60 years or such other age as the Minister may prescribe".  These amendments will enable the Minister to specify in the Regulations different ages for the purposes specified in Sections 15(7), 15(7A) and 77(1)(o)(iii), and in respect of different classes of members. In addition, the age for the withdrawal of the Minimum Sum is currently specified using the CPF (Prescribed Age to Withdraw Minimum Sum) Notification². Following the amendment, this will be done by way of Regulations and the Notification will be cancelled.   

Clarifying the Protection of CPFIS Investments

9.   Sir, let me now move on to the amendment relating to the protection of investments under the CPF Investment Scheme (CPFIS).

10.   The CPFIS was introduced in 1986 to give CPF members more choices in investing and enhancing their savings. The intention of Section 24(2) of the CPF Act has been to give members the assurance that their CPFIS investments would be protected from creditors so long as they remain within the CPFIS and are not withdrawn.   

11.   Section 24(2) was amended on 1 January 2004 to clarify that insurance policies and investment-linked insurance policies bought under the CPFIS would also be protected under the Act.

12.   However, in making the amendment, a sub-clause which appeared in the earlier legislation was omitted unintentionally. This sub-clause qualified that only investments "which the member is obliged to repay into the Fund" are protected. 

13.   Sir, the policy with regard to the protection of CPFIS investments -- namely to protect only investments within the CPFIS -- has not changed. Thus, Section 24(2) should be restored.

14.   Clause 9 of the Bill therefore adds the sub-clause "which the member is obliged to repay into the Fund" to sections 24(2) as well as 24(3). This amendment, together with supporting amendments to the CPFIS Regulations, will make it clear that the investments, proceeds or benefits thereof are protected from creditors, and from the Official Assignee on the member's bankruptcy, as long as the investments remain within the CPFIS, and the proceeds or benefits remain in the CPF Investment Account, Ordinary Account or Special Account, even for members who have reached 55.

Refinements to CPF Education Scheme

15.   Sir, the last set of changes in the Bill deals with the use of CPF savings for tertiary education.

16.   The CPF Education Scheme was introduced in 1989 as a concession to allow members to use their Ordinary Account savings to pay for their children's or their own education. However, we need to balance the use of CPF savings for education with the need to ensure the retirement adequacy of members. For this reason, the scheme currently restricts the use of CPF savings to full time courses where the degrees and diplomas are conferred by an "approved tertiary institution". These approved tertiary institutions consist of publicly-funded local universities and polytechnics which offer courses that are heavily subsidised by the Government. This restriction ensures that CPF savings are used prudently and for courses where quality is assured.

17.   Sir, as part of the Government's effort to widen the opportunities for Singaporeans³ to upgrade themselves, there are now Government subsidised degree and diploma courses offered by local institutions where the qualification is conferred by a reputable foreign institution. These include degree courses under the Polytechnic-Foreign Specialised Institution (Poly-FSI) framework and ITE's Technical Engineering Diploma (TED) courses.

18.   We have decided to allow CPF savings to be used for such courses as they are similar to those offered by the approved local tertiary institutions except that the qualifications are conferred by foreign institutions.

19.   Clause 8(a) of the Bill amends section 22 to allow CPF monies to be used for courses conducted at an "approved educational institution" in Singapore. The approved educational institution need not be a tertiary institution, and the course of study conducted may lead to a degree or diploma conferred by another educational institution (including a foreign educational institution).

20.   The other sub-clauses in Clause 8 amend the Act to facilitate administration of the scheme. Clause 8(b) allows for the recovery of sums not returned to the member by the student or guarantor to benefit from the Government Proceedings Act (section 65).

21.   Clause 8(c) inserts new sections 22(5A) and (5B) to enable the CPF Board to recover monies paid to an educational institution in error, and where the educational institution had caused or contributed to the error, to be reimbursed for reasonable expenses incurred in rectifying the error, and to be indemnified against any liability incurred. It also allows CPF Board to refuse permission for withdrawal unless the approved educational institution complies with reasonable informational, administrative or operational requirements⁴.

Conclusion

22.   Sir, I beg to move.

² The current Notification prescribes the age of 62 years for the purposes of section 15(7) and (7A). This is not quite correct since the various minimum sum regulations use different ages for different cohorts of members. The Board was relying on these minimum sum regulations and not the Notification for its purposes. However, technically, prescribing the different ages for different cohorts may have been ultra vires since section 15(7) and (7A) didn't point to the regulations, but to the notification. Hence the reason for cancelling the Notification is to align the law with the current practice. 

³ PM had said at the National Day Rally speech of 2005 when broaching  the idea of Poly-FSI collaboration that "We want many routes up, many ways to succeed".

⁴  Examples of these requirements include accurate claims for CPF funds for payment of tuition fees, and ensuring timely and accurate transmission of student and course information to CPFB.