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The Central Provident Fund (Amendment) Bill 2012 Second Reading Speech by Mr Tan Chuan-Jin, Acting Minister for Manpower and Senior Minister of State for National Development, 10 September 2012, 5:20 PM, Parliament

Employment practices
  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 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.

    MINIMUM SUM TOPPING-UP SCHEME
  3. Let me begin with the changes to the Minimum Sum Topping-Up 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.
  4. 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 $69m to $216m over the same period.

    Expand the MSTU Scheme to cover parents-in-law and grandparents-in-law
  5. Many members have found this scheme useful in boosting their retirement savings or those of their loved ones, and we have received suggestions to extend it so that they can also provide for their parents-in-law and grandparents-in-law.
  6. 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.
  7. 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.
  8. 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.

    Merge Other Top-up Schemes under the MSTU Scheme
  9. 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.
  10. 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 differing top-up limits for recipients and varying terms and conditions for the use of the top-ups.
  11. 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.
  12. 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 terms and conditions of the various schemes.
  13. 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.
  14. With these changes, all top-ups to both the SA and 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.
  15. 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 they have under the CPF Investment Scheme.
  16. 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 this scheme.

    REFINEMENTS TO THE CPF HOUSING REFUND POLICY
  17. 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 off their property, we require them to refund the CPF savings that they have used for their property.

    Current housing refund policy
  18. 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 OA interest that would have accrued on this amount, or 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 their next property.
  19. 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 MS 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 MS can be withdrawn anyway. In other words, for a member who sells his property after age 55, he will refund his MS shortfall or his P+I, whichever is lower. Remaining proceeds from the sale of his property is received in cash.
  20. 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 co-owner, where the refunds required of the co-owners may not match the amount of CPF each co-owner used to pay for that 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.
  21. However, where the co-owners are no longer on good terms, the distribution of cash proceeds becomes 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. 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.

    New housing refund policy
  22. 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 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 the property. Sections 21, 21A and 21B of the Act will be amended to give effect to the new housing refund policy.
  23. Where the P+I refund exceeds the MS 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 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 MS.
  24. 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 to two weeks of the crediting of the housing refunds into their CPF accounts.
  25. 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.

    MINIMUM AGE FOR MAKING CPF NOMINATIONS
  26. Let me move on to the next amendment relating to the introduction of a minimum age for making CPF nominations.
  27. 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.
  28. 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.
  29. 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.
  30. 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.

    CONCLUSION
  31. Sir, the amendments in this Bill will encourage members to make voluntary top-ups into the CPF for themselves and their loved ones, refine 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.
  32. Sir, I beg to move.

Factsheet - Simplifying CPF Top-Ups
Factsheet - Revised Housing Refund Policy