Sir, in July this year, the Government announced that the Housing Development Board (HDB) would transfer HDB market rate loans to the banks from 1 Jan 2003.This bill addresses changes that impact CPF savings arising from this move.

To secure the refund of monies due to CPF, the CPF Board would have to lodge a charge with the Registrar of Titles for each HDB flat purchased with bank originated loans. However this would lead to higher cost and longer processing time for the release of members’ CPF savings for the purchase of flats.

To avoid these problems, Clause 7 of the Bill inserts a new section 21B to create an automatic charge on an HDB flat in favour of CPF Board when a member withdraws CPF savings to purchase or upgrade the HDB flat. It also confers on the CPF Board the power of sale to recover the CPF savings used for the flat, as is the case for private properties.

With the automatic charge, there exists the possibility that the need to refund CPF savings used by the seller could be overlooked during the transactions of HDB flats, especially when HDB is no longer an active intermediary in flats purchased with bank loans. However with due diligence by the parties’ lawyers to ensure that the title of the flat is passed on to the buyers free from all encumbrances, including the return of the sellers CPF, there will be no need for CPF Board to exercise the power of sale which in any event will be used only as a last resort.

For HDB flats purchased with bank originated loans, the priority ranking of the CPF charge are as listed in the circulated annex: The bank’s outstanding loan has the first claim, followed by the second claim which is the CPF principal sum withdrawn, up to the valuation limit of the HDB flat, and the CPF principal sum withdrawn for legal and stamp fees. Ranked third is the CPF principal sum which is withdrawn beyond the valuation limit of the HDB flat and CPF accrued interest, as well as the bank’s interest in cases of forced sale. Other claims such as the CPF legal costs and expenses, financier’s costs and expenses, HDB resale levy; etc. are given lower priority of claim.

Employers can currently submit CPF contributions and payments manually or electronically and the CPF Board does not impose any processing fee. All public sector employers pay CPF through electronic means. The corresponding figure for larger private sector employers, i.e. those with 100 or more employees, is 94%. Despite the obvious savings through electronic submission and CPF Board’s promotional efforts, a remnant 6% of larger private employers continue to submit and pay CPF contributions manually.

To encourage all employers to submit and pay CPF contributions electronically, Clause 10 of the Bill enables the CPF Board to prescribe regulations to implement the payment, collection and refund of contributions through electronic means and empower the Minister to prescribe such fees and charges that may be levied for manual submissions.

For a start, the CPF Board will impose processing fees on those larger companies which continue to utilise the manual mode after 1 April 2003. This is justifiable as the Board has to incur greater cost to process manual submissions and payments.

The Board will monitor the progress of large employers going into e-modes before imposing the processing fee on smaller employers. Even then, we will give smaller employers sufficient time and assistance to adjust to these changes. The CPF Board will also continue to explore and develop means to make e-submission and payment of CPF more convenient and easier for all employers.

Currently, CPF members aged 55 years or older can withdraw their CPF savings at 3-year intervals after setting aside the required Minimum Sum. CPF members who have not set aside the Minimum Sum can withdraw half of their savings at 3-year intervals, with the other half being used to top-up the Minimum Sum shortfall.

With greater operational efficiency, the Board is able to shorten the interval period for withdrawals. Clause 5 of the Bill, therefore amends section 15(3) to allow withdrawals at 1-year intervals or such other interval as the Minister may direct.

Sir, preferential tax treatment is currently given to compulsory CPF contributions from employer and employees, including voluntary contributions from the self-employed.

Although there is a need to encourage Singaporeans to save for retirement, CPF savings beyond a certain limit should not be allowed to become a tax shelter. Voluntary CPF contributions beyond the tax exemption limit currently enjoy a less explicit tax benefit, which is TEE, i.e. Taxable at contribution, Exempt during accumulation and Exempt on withdrawal

Clause 4, therefore amends section 13B of the CPF Act to limit CPF contributions made by a Singapore citizen or permanent resident, including voluntary contributions paid by their employers, to their mandatory contribution amount, or the sum of $28,800 in any year, whichever is the higher. The amount $28,800 is derived from 40% CPF contribution rate of a $6,000 monthly salary.

This policy change affirms the fundamental objective of CPF, which is to provide for basic retirement needs. Singaporeans and permanent residents who wish to save more for retirement may instead contribute to the Supplementary Retirement Scheme (SRS) which provides tax deferral benefits for voluntary contribution up to 15% of one’s income, subject to a salary ceiling of $6,000.

Clause 4 of the Bill also amends section 13B to disallow voluntary CPF contributions by any person who is not a citizen or permanent resident of Singapore. Such foreigners already enjoy higher SRS relief of 35% of income, as compared to 15% for Singapore citizens and permanent residents. With this 35% benefit in deferred tax plus 50% exemption on tax at withdrawal offered by SRS, foreigners already have a tax-advantaged vehicle to save for retirement. We understand that some employers currently contribute CPF voluntarily for their foreign employees working in Singapore. From 1 Jan 2003, these employers are encouraged to adjust the employees’ remuneration package accordingly.

This Bill also introduced other amendments to enhance the administration and operation by the CPF Board These include:

In conclusion, Mr Speaker Sir, the amendments proposed in the Bill will enable the return of that CPF savings upon sale of HDB flats which were purchased with bank-originated loans; facilitate electronic submission and payment of CPF by all companies; introduce flexibility on the interval of CPF withdrawals after the age of 55; and limit the amount of voluntary CPF contributions. The amendments are in line with the overall objectives of the CPF system.

Sir, I beg to move.

Table 1