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The Central Provident Fund (Amendment) Bill 2011 Second Reading Speech by Mr Tan Chuan-Jin, Minister of State for National Development and Manpower, 21 November 2011, 3:30PM, Parliament

  1. Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”
  2. Sir, this Bill will amend the CPF Act to provide for the implementation of the Special Needs Savings Scheme (or SNSS), to provide for voluntary contributions to be made for members by other parties, and for the reversals of certain transfers between CPF accounts, as well as to streamline the administration of CPF matters.

  3. In the Committee of Supply debate in 2010, Minister Balakrishnan, then the Minister for Community Development, Youth and Sports, announced the SNSS as an initiative to help parents look after the financial needs of their disabled children who are unable to support themselves upon their parents’ demise.
  4. The idea for the SNSS and the SNTC originated from the Parents Workgroup on Enhancing the Financial Security of Persons with Special Needs, led by Ms Denise Phua in 2006. The Parents Workgroup recommendations were endorsed and folded into the current Enabling Masterplan 2007 to 2011, which is a five-year roadmap for the disability sector. Besides Ms Phua, other members of this House have also spoken of the need for the government to help parents make provisions to take care of their special needs children after their demise. I would like to place on record our thanks to all who have contributed to this bill.
  5. Parents of children with special needs can today tap on the Special Needs Trust Company (or SNTC) to set up trusts for their children. The SNTC allows parents to formulate a trust arrangement and care plan that will guide the disbursement of funds from the trust to meet the needs of the special needs child after the parents’ demise. Parents can set up an SNTC trust account with a minimum of $5,000 using cash, and thereafter they can top up the trust account any time with cash or nominate the trust they set up under SNTC as a beneficiary of their insurance policies or CPF savings.
  6. The SNSS would complement the SNTC by providing an alternative savings option for parents. It will be particularly useful for parents who do not have substantial savings outside of the CPF, and for whom avoiding administrative costs is an important consideration.
  7. SNSS will allow parents to arrange for a stream of income for their children using their CPF savings without having to set up a trust. There is no minimum balance to sign up. There is no administrative charge, as costs are kept low by riding on the CPF infrastructure and keeping the scheme simple. Furthermore, the savings can continue to enjoy CPF interest rates, even after the parent’s demise.
  8. Let me now explain the legislative changes that will make SNSS possible. Under existing legislation, when a CPF member passes away, his nominees can only receive the deceased member’s CPF moneys as a lump sum cash payment or as transfers to his CPF accounts. Clause 12 of the Bill amends section 25 of the Act to allow parents to nominate their special needs child to receive a stream of income under the SNSS instead of a lump sum payment upon their demise.

  9. The SNSS will be open to parents of persons with disabilities who are attending or have attended a Special Education School, or who require assistance in at least one Activity of Daily Living (or ADL). These are activities such as dressing, feeding, going to the toilet, moving about and so on. When the scheme is in operation, parents may submit their applications to the Centre for Enabled Living (CEL). The amendments to section 25 in clause 12 allow the Minister for Community Development, Youth and Sports to impose eligibility criteria, and also allow unsuccessful SNSS applicants to appeal to the Minister for Community Development, Youth and Sports.

    Role of the CPF Board
  10. Once an SNSS application is approved, the CPF Board will administer the scheme for the benefit of the special needs child, or SNSS nominee. This involves creating nominee CPF accounts upon the parent’s demise and subsequently disbursing the monies from the nominee accounts.
  11. Upon a parent’s demise, nominee Ordinary, Special, Medisave and Retirement Accounts will be created and maintained as part of the deceased parent’s accounts. The nominee accounts will continue to earn the same interest rates as the original CPF accounts. Extra interest of 1% will also be paid on the first $60,000 of the combined amount in the nominee accounts and the SNSS nominee’s own accounts, including up to $20,000 from the nominee’s own Ordinary Account. Clause 11(g) of the Bill inserts a new section 20(1D) to the Act to allow for the creation and transfer of funds into nominee accounts.
  12. Savings that come under SNSS in the parent’s Ordinary, Special and Retirement Accounts, or OA, SA and RA respectively, will be transferred to the corresponding nominee accounts. In the case of Medisave Account (or MA) balances, there are two options. A parent can opt to have them transferred to the nominee MA and thereafter used to top up the SNSS nominee’s own MA each month up to the Medisave Contribution Ceiling, to meet the nominee’s healthcare expenses. Alternatively, he can have them transferred to the nominee SA instead, to bolster savings available for living expenses. Clauses 11 and 12 of the Bill set out how funds will be transferred into the nominee accounts, as well as the two options for the treatment of Medisave Account monies.

  13. After the death of the nominating parent, monthly payouts from the nominee OA, SA and RA will commence upon application by the SNSS nominee. Payouts will be made from the lowest interest-earning accounts first. This means that they will be paid out first from the nominee OA, which earns 2.5%, followed by the nominee SA and then the nominee RA, both of which earn 4%.
  14. Parents can decide the quantum of these monthly payouts when they make their nominations under SNSS. However, should the parent’s savings at demise be insufficient to provide a monthly payout for 12 months, the entire balance would be paid out as a lump sum. Clause 11 of the Bill amends section 20 of the Act to set out disbursement arrangements.
  15. Safeguards will be in place to ensure that the SNSS payouts are made to rightful recipients. Payouts will be made directly to SNSS nominees aged 18 or above and to the legal guardians of nominees aged below 18, unless these nominees lack mental capacity and have donees or deputies appointed under the Mental Capacity Act. In such cases, payouts will be made to the donee or court-appointed deputy.
  16. The scheme will be in operation by early 2012 and MCYS will announce how parents can apply soon.

  17. Let me move on to the next amendment relating to voluntary contributions. Currently, the Act allows a member to voluntarily contribute to his own CPF Account. Family members and employers may also make voluntary contributions for their family and employees. However, companies and associations may also wish to make voluntary contributions to a member who is not their employee (for example, a self-employed person), and individuals may want to make voluntary contributions to non-family members. Therefore, Clause 5 of the Bill will amend section 13B of the Act to explicitly allow voluntary contributions to be made by any person, including any company or association or body of persons, corporate or unincorporated. This will create more avenues for members to receive voluntary contributions to enhance their retirement and healthcare savings.

  18. Sir, the next area of change concerns selected voluntary inter-account transfers that CPF members may choose to make. This includes the transfer of savings from a member’s OA to his SA to earn the higher SA interest rate, and the transfer of savings from a member’s OA and/or SA to his MA to meet his medical expenses.
  19. Such transfers are currently irrevocable since they are commitments made by members to enhance their retirement and healthcare adequacy. In return for this commitment, members may benefit from higher interest rates. However, we also recognize that there could be deserving cases that warrant a reversal of the savings transferred. For example, a member who falls into unforeseen financial hardship or difficulties after the transfer and may need the transferred savings to service his housing instalments.
  20. Clauses 9 and 10 of the Bill will therefore amend sections 18B and 18C of the Act to remove the irrevocability condition, thereby allowing CPFB to make such exceptions in allowing reversals in such extenuating circumstances.

  21. Sir, I will now explain the amendment that will allow for the portability of Home Protection Scheme (or HPS) cover. The HPS is a mortgage insurance which pays off the outstanding housing loan should the insured member become incapacitated or pass away, thereby giving a member and his family assurance that they will not lose their home.
  22. Unlike most private mortgage insurance, HPS coverage is tied to a specific property. Hence, a member’s cover under HPS ceases upon the disposal of that property. If the member subsequently purchases a new property, such as when he upgrades, he would need to get a new HPS cover for that new property.
  23. However, at that point the member might not be in good health at the time of purchase of the new property. In such a case, his new property would be ineligible for cover under HPS, as CPFB must be satisfied that the member is in good health. This unnecessarily disadvantages the member compared if he had purchased a private mortgage insurance. Despite his ill-health, he would still be covered by HPS if he had not purchased a new property.
  24. Clause 20 of the Bill will therefore amend section 31 of the Act to empower the Board to waive the requirement of good health for a member, thereby allowing the Board to insure the member under HPS in respect of his new property where the member was previously insured under HPS for his previous property. In cases where the requirement of good health is waived, we will cap cover at the lower of the remaining sum insured for his previous property, or the extent of his liability for the new property. As is currently the case, cover for members whom CPFB is satisfied are in good health will be capped at 100% of the housing loan. Clause 22 will amend section 39 to enable the Minister to prescribe in Regulations the amount of HPS coverage that a member is eligible for.

  25. Sir, the amendments in this Bill will help parents provide for their special needs children, promote voluntary top-ups, allow for greater flexibility to reverse inter-account transfers where deserving, amongst various other changes, including some which clarify and streamline the administration of the CPF Act. These represent yet another step forward in ensuring that our CPF system remains relevant and effective for our people.
  26. Sir, I beg to move.