Hansard, Tuesday, 8 July 2014

1 Mr Gan Thiam Poh asked the Minister for Manpower (a) what is the current percentage of CPF members who use their properties to support half of the CPF Minimum Sum; and (b) how many CPF members do not withdraw their CPF monies after setting aside the CPF Minimum Sum.

2 Mr Seng Han Thong asked the Minister for Manpower whether more flexibility can be exercised for CPF members with less than the Minimum Sum Cash Component to use their CPF for housing needs.

3 Ms Irene Ng Phek Hoong asked the Minister for Manpower whether it can be made automatic for lower-income CPF members with less than the Minimum Sum Cash Component at the age of 55 to continue using their CPF to service their existing housing loans without interruption after they turn 55.

4 Mr Ang Wei Neng asked the Minister for Manpower (a) whether the Ministry can remind CPF members at age 54 years old about the impending transfer of members' monies from their Ordinary Account to the Retirement Account when they turn 55 years old; and (b) whether there are plans to increase the CPF drawdown age when the re-employment age is extended beyond 65 years old.

5 Ms Tin Pei Ling asked the Minister for Manpower based on current data, how many Singaporeans are expected to have insufficient money in their CPF accounts when they reach retirement and to what extent will this be affected if the CPF Minimum Sum does not increase over the next decade.

6 Ms Tin Pei Ling asked the Minister for Manpower if his Ministry will evaluate the feasibility of guaranteeing a higher rate of return on CPF monies and of allowing more flexible use of CPF funds to finance housing and education.

Page: 10

7 Mr Christopher de Souza asked the Minister for Manpower given that CPF is an important retirement saving tool for Singaporeans, what is the Government doing to help Singaporeans improve their retirement adequacy through the CPF.

8 Mrs Lina Chiam asked the Minister for Manpower how many Singaporeans who turn 55 this year are (i) active CPF members and (ii) inactive CPF members.

9 Mr Png Eng Huat asked the Minister for Manpower as of 2014, what is the average amount used for public housing as a percentage of the CPF Ordinary Accounts of CPF members at age 55 years and above.

10 Mr Png Eng Huat asked the Minister for Manpower since the inception of CPF Life what is the number and percentage of CPF members at age 55 years who opt for the CPF Life Standard Plan and are able to set aside (i) their cohort's Minimum Sum Cash Component (MSCC) in full; and (ii) their cohort's Minimum Sum in full.

Mdm Speaker, as there are a number of questions relating to the Central Provident Fund (CPF), it would be more complete if I take Question Nos 1 to 10 together, and with your permission, if Deputy Prime Minister could continue with the rest of the Parliamentary Questions relating to CPF. So, we will take it as an entirety before we open up for questions.

Minister, your suggestion is that you will take Question Nos 1 to 10 and then Deputy Prime Minister takes Question Nos 11 to 14, and then, followed by supplementary questions?

That is right.

Okay, I agree.

Mdm Speaker, much has been discussed about the CPF in recent months and I thank Members for the opportunity to clarify. Every country is concerned about how to help its people manage when they retire. Some argue that, as individuals, we should be left to sort our own lives out but, in reality, it often does not work out that way. Almost all developed countries have some form of pension or retirement system because most people generally do not save regularly nor do they effectively plan for their own retirement.

Most systems operate as such: you pay regularly, sort of like a tax, and you receive a stream of income when you retire that will cease when you pass away. Payouts are often regular, such as every month, to ensure that there is a regular flow of income to help sustain

Page: 11

living needs. There is a good reason why it is not provided as a lump sum.

For us in Singapore, assurance in old age revolves around a few key considerations: healthcare, housing and retirement needs. The CPF is our key pillar in the social security system. It is a mandatory savings account that helps us put aside money today to cover our needs in old age. As the CPF is a defined contribution system, the full amount in your CPF account would go to your family if you pass on prematurely. Both individuals and their employers contribute their share to the scheme. It is important to remember that as part of the CPF system, employers contribute to that scheme as well. And it is also a vehicle through which we help cater to healthcare and housing needs.

When CPF was first introduced almost 60 years ago, members could withdraw their money at age 55 in a lump sum. That was because at that time, someone could expect to live only another six to seven years after that. That was the life expectancy then. It made sense and it was logical to be able to withdraw your CPF in a lump sum at age 55. But the world has changed. The situation is very different today where one could expect to live a further 30 years or more. Allowing a full withdrawal from CPF at age 55 today will put us at real risk of outliving our savings in old age. To blindly keep to the earlier model of full withdrawal at age 55, which made sense then, would be wrong and irresponsible.

This is why we introduced the Minimum Sum scheme. The policy is not a new one and has been in place for about 30 years. The idea is this: how to stream out our CPF savings every month to meet living expenses instead of having them all withdrawn in a lump sum. Neither do we require Singaporeans to set aside all our CPF savings to be streamed out in this way. Only a basic amount necessary for retirement expenses is required and you can withdraw your CPF savings above that in a lump sum. This basic or minimum amount is known as the Minimum Sum.

Let me clarify several issues relating to this whole concept of the Minimum Sum.

As we know, some are unhappy when the Minimum Sum increases for every cohort that turns 55. Some see it as a "shifting goalpost" that locks up more and more of their CPF savings. Others do not understand how much savings they must set aside at 55.

Let me explain the Minimum Sum in some detail to dispel misconceptions and myths that have surfaced in the recent public discussion.

First, the Minimum Sum quantum is cohort specific. Once it is set for a particular cohort, it does not change. For example, someone who turns 55 between July 2014 and June 2015 will need to set aside $155,000 as a minimum, above which he can withdraw. This is slightly

Page: 12

higher than what a person who turned 55 last year needed to set aside, which was $148,000 and which would remain unchanged for that person who turned 55 last year. To further illustrate, for someone who turned 55 five years ago, the Minimum Sum was $117,000 and that has remained unchanged for him.

Second, the increases to the Minimum Sum for each successive cohort over the last decade are part of a major, planned, gradual adjustment starting in 2004, to catch up with what a lower middle-income household would need in retirement. This was announced a number of years back; it is part of a plan.

How did we arrive at $155,000 for this year's cohort? That is the amount you need to get a monthly payout of about $1,200 in 10 years' time when you reach age 65, when you begin the drawdown of your CPF savings. We estimate that is how much a lower middle-income household would spend on daily living when they enter retirement 10 years from now. One thousand two hundred dollars per month in 10 years' time is not an excessive amount – it is equivalent to only about what $1,000 would be able to fetch today.

Some might argue that both they and their spouses work, and so if both are required to set aside the full Minimum Sum individually, then they will have the combined payout of $2,400 which is more than what they need. Well, the answer is that if they have a property – and many do have a property – then they can pledge that property to set aside only half the full Minimum Sum in cash, so that each one only needs to set aside $77,500 for retirement – half of $155,000. The combined payout of their Minimum Sums will then be a total of $1,200 per month – or just adequate for basic living expenses. And what happens if they do not have a property to pledge? In the scenario where they do not have a property, they will need to pay for rent, and so a combined payout of $2,400 may not be too generous, after all.

Third, if you do not meet your Minimum Sum at 55, you do not need to top up the shortfall in cash nor do you need to sell your property to make up the shortfall. Let me repeat this, you do not need to top up the shortfall in cash, nor do you need to sell your property to make up the shortfall. What it means is that with a smaller amount, your monthly payout would be correspondingly less. That is all.

Fourth, only half of the Minimum Sum needs to be set aside in cash. The savings above that amount can be used to finance housing purchases, or be withdrawn through a property pledge. This means a member turning 55 this year, for example, only needs to set aside $77,500 in cash and the rest can be withdrawn through a property pledge. Seventy seven five hundred thousand dollars will translate to a CPF LIFE payout of about $600 or so per month in retirement, which is not excessive. It is important for us to remember that. As you begin to draw down or reduce the cash component, what it means is that your monthly

Page: 13

payout will be correspondingly less.

On that last point, to answer Mr Gan Thiam Poh's question, 50% of active CPF members met the Minimum Sum in 2013, including 15% who used their properties to support up to half of the CPF Minimum Sum. Members who had used their properties to support their Minimum Sum included (a) members who had less savings in their CPF and had their housing withdrawals pledged to meet the Minimum Sum, as well as (b) members who had met the Minimum Sum but pledged their property to withdraw their CPF savings above half the Minimum Sum. In general, we look at the percentage of active CPF members who meet their Minimum Sum in cash plus property because home ownership, and monetisation if that is required, contribute towards how adequately we are prepared for retirement.

While some members are unhappy that their CPF savings are being locked up under the Minimum Sum rules, other members have voluntarily left their CPF savings in their accounts even though they have CPF funds in excess of the Minimum Sum and can withdraw these amounts. One reason why they do so is to continue to earn the risk-free returns on their CPF savings. Mr Gan Thiam Poh would be glad to know that as at December 2013, about 20% of the entire cohort who turned 55 in 2013 had balances above the Minimum Sum that were not withdrawn.

I am aware that some members may find the CPF system difficult to understand because policy changes over the years mean that different rules may apply for different cohorts. This practice of grandfathering old rules for older members is precisely to minimise adjustments to those members who already passed age 55. This was necessary so as not to disrupt the plans of older members mid-way through their retirement.

I would like to add this – it would not be responsible of this Government to leave unchanged the CPF rules for those who are younger when the situation around us has changed and quite dramatically so. Singaporeans are living longer – that is a reality. The things that retired households spend on have also risen in quality. If you look at our consumption pattern over the years, it has improved in quality. That is also a testimony to the standard of living that has risen significantly for many Singaporeans. And that is a fact. The more we postpone the needed changes, the more disruptive the changes will be when they are forced upon us in future. Many governments do not embark on these changes and reforms because they may be unpopular, but it is not the right thing to do. We believe it is our responsibility to make these changes when we can, so that when the changes are upon us in full, we are well prepared.

What I can assure everyone is that whenever there is a policy change, the CPF Board makes an effort to try to reach out to every affected member. At the same time, we encourage members who are unsure of the rules to also step forward to request for

Page: 14

assistance to navigate these rules. One request I would make following many dialogues with members of the public is, to read the materials that are put forward. I realised through many dialogues and conversations, many people get agitated and very emotional, and argue on points which are actually already clarified in the materials that are put out. But many have not read them.

CPF is an important part of our lives. It behooves us to at least read those materials, to understand what it is and what it is not. Many are concerned about whether they will meet their Minimum Sum.

Ms Tin Pei Ling and Mr Png Eng Huat asked about the balances that CPF members have for retirement. As I had mentioned earlier, about 50% of active members who turned 55 in 2013 achieved their Minimum Sum in cash plus property. For those who do not meet their Minimum Sum, the majority have a property that they have used their CPF savings to pay for. The reason why some of them do not meet the Minimum Sum is because we cap the amount that can be used for property at half the Minimum Sum. This means that while they may not have, in terms of cash, more than half the Minimum Sum, their property may be worth far more than half. And clearly in most cases, property would be worth more than half. But we cap it, which is why even though they may have a property worth $500,000 or $1 million, and if they have less than half the Minimum Sum in cash, they are actually considered as not meeting the Minimum Sum in technical terms.

In addition to that, it is important to understand that even though some may not meet the Minimum Sum, they also would have spouses with higher CPF balances who can provide for them.

Over the years, more members in each cohort reaching the age of 55 have been able to meet their cohort Minimum Sum. This is despite the Minimum Sum having increased over the years for each cohort. For younger workers, we are even more optimistic about their ability to attain the Minimum Sum. In a 2012 study, two local academics, Assoc Profs Chia Ngee Choon and Albert Tsui, estimated that about 70% to 80% of new entrants to the workforce would be able to meet the Minimum Sum for their cohort fully in cash. There are several reasons why this is so: wages have been growing and labour force participation rates have been increasing.

Significantly, it is also because we have been making enhancements to the CPF system to help members grow their savings to meet the Minimum Sum. Mr Christopher de Souza asked what those are.

Page: 15

First, since 2008, the CPF pays an additional 1% interest on the first $60,000 of the combined balances. As a result, about two-thirds of members earn 5% interest; I repeat, 5% interest on all their balances in their Special, Medisave and Retirement Accounts. Over half of all members earn 3.5% on all their Ordinary Account savings. This – for those of you who are familiar with what you may be getting in your respective deposits – is far superior to what is earned on our bank deposits today and very comparable and far higher than many comparable financial instruments.

Second, Singaporeans earning lower incomes also enjoy boosts to their CPF savings through Workfare.

Third, we have also been raising CPF contribution rates for older workers to help them save more and have been working with our tripartite partners to improve employment opportunities for older workers.

The key group that we should really be concerned about and who may have insufficient CPF balances, are our seniors; many of whom are currently in retirement. Many have low CPF balances because they grew up working in an era where lower wages in the past was a norm; before we began to be more developed and wages became rising. And also because we have more liberal withdrawal rules for CPF earlier which were calibrated then for shorter life spans. In a sense, it depleted their CPF savings.

However, we also know that the majority of current seniors do own their own homes and have fully paid up their housing loans. Mr Png Eng Huat asked about the average proportion of the Ordinary Account Savings used for public housing by older members. Among members who turned 55 years old over the past five years and had used CPF monies to purchase HDB flats, an average of 55% of their OA savings had been withdrawn to finance their flats at the age of 55.

These housing assets by and large have appreciated and in many cases, quite significant and, if needed, can be tapped on to supplement their retirement incomes. Various schemes have been introduced and we will strengthen these. For example, we have the Lease Buyback Scheme and we also have the Silver Housing Bonus. Those who take advantage of these schemes typically get enough in proceeds from the sale to top up their CPF accounts up to the Minimum Sum, with cash to spare. Our current seniors also receive additional support from the Government through measures such as the Pioneer Generation Package (PGP).

The CPF is founded on the principle of self-reliance and work. Those who do not work and do not contribute regularly to the CPF, are naturally less likely to attain the Minimum

Page: 16

Sum. To give you a sense of the numbers, which Mrs Lina Chiam has asked for, we know that 23% of Singaporeans who turned 55 in 2013 were inactive CPF members, while the remaining 77% were active members or self-employed. For the group of inactive members, many of whom have not worked regularly, family support will have to come in and other social safety nets are in place to provide assistance – for example, through the various ComCare schemes. We have been strengthening the social safety nets over this in recent years.

Ms Tin Pei Ling asked whether a more flexible use of CPF savings for housing can be allowed. Mr Seng Han Thong specifically asked whether more flexibility could be exercised for members with less than half the Minimum Sum. Ms Irene Ng asked whether it can be made automatic for these members to continue using their CPF for their housing loans without interruption.

I understand that there are concerns about CPF members' ability to continue servicing their housing loans with CPF savings after age 55. Let me first state that in the 10 cohorts aged 55 and above, only one in 10 are still using their CPF for monthly instalments, and only one in 20 may have to meet their monthly instalments with some cash.

For CPF members who do face difficulties with their housing loan repayments, we have exercised flexibility where a case merits it and allowed them to use part of their Retirement Account savings for housing, even if they do not have half the Minimum Sum.

I have shared with Members of the House that we receive an average of about 500 appeals annually from members 55 years and older who request to use more Retirement Account savings for housing. We have approved about two-thirds of these appeals. The number of such appeals – 500 a year – is not large, considering that there are more than 60,000 CPF members turning 55 every year. For cases that are not approved, we also work closely with HDB to explore alternative financing or housing options for the CPF members. And there are various steps that can be executed to assist them.

I would like to assure Mr Seng that we are ready to exercise flexibility in the use of CPF for housing after 55 years old because we recognise that helping a member maintain a roof over his head is an important part of our overall retirement adequacy goals. To address Ms Irene Ng's point, I do not think we want to make it automatic for members. Some of these members would be able to service their housing loans using cash, instead of drawing upon their Retirement Account savings and hence compromising the monthly payout in retirement. We also do not want – and I think is important to note this – we do not want to encourage rash and imprudent housing purchases by members who think that they can automatically draw down fully on their Retirement Account funds to service their loans. You could end up with over consumption on housing as a result of that. Any member can get

Page: 17

overstretched.

Mr Ang Wei Neng raised a separate point on whether we can remind CPF members at age 54 about the impending transfer of members' monies from their Ordinary Account to their Retirement Account when they turn 55. Currently, CPF Board informs members two months before they turn 55 years old. Since January this year, HDB has been sending letters to households with outstanding HDB loans and with at least one HDB lessee age 50 to 54, to remind them to plan ahead for their housing payment before 55 years old. Nonetheless, I think more can be done in this area and Mr Ang's suggestion is a good one. We will look into how CPF members can be reminded to make sufficient arrangements for their housing payment in advance.

Mr Ang also asked whether the CPF Drawdown Age will be increased when the re-employment age is increased. This is an issue that we are studying carefully. The drawdown age today is 63 and will be raised to 65 years old by 2018. Whether it needs to be raised further, will depend on life expectancy and the need to maintain retirement payouts at a reasonable level. We have not reached any conclusions yet.

One way that we protect Singaporeans from the risk of outliving their payouts due to increasing life expectancies is through our CPF LIFE annuity scheme. Mr Png Eng Huat asked about members who opt for the CPF LIFE Standard Plan. Among the members who joined CPF LIFE upon turning 55 years old in 2013, about 70% are on the Standard Plan.

To sum up, the CPF remains a key pillar to help Singaporeans cater for their needs in old age. There are areas that certainly can be improved, and I welcome different views and perspectives on this. While it is not possible to meet every single member's specific needs, I can assure Members that we will look into all feedback and make changes where warranted.

As Prime Minister Lee Hsien Loong mentioned during the recent debate on the President's Address, our focus over the next few years will be on two key challenges: first, helping members cope with the rising cost of living during their retirement years which could erode the value of their CPF LIFE payouts; secondly, helping low-wage workers who may have accumulated lower CPF balances over their working lives. We will also put in more resources to help Singaporeans better understand the CPF system.

Mdm Speaker: Questions will be taken later, Mr Ang. Deputy Prime Minister will take the Parliamentary Questions on the Order Paper first.

Page: 18

11 Er Dr Lee Bee Wah asked the Deputy Prime Minister and Minister for Finance (a) how CPF monies are invested; (b) what are the returns from the CPF Board's investments; (c) how does the CPF Board determine the interest to be paid to CPF account holders and whether it will review the current interest rate to pay a higher rate; and (d) whether CPF account holders can be given a risk-free option to invest their funds directly in Temasek Holdings to earn better returns.

12 Mr Gan Thiam Poh asked the Deputy Prime Minister and Minister for Finance (a) where and how has the Government invested the proceeds from the Special Singapore Government Securities, which the CPF Board invests in with the CPF monies; (b) whether it is possible to invest these proceeds such that they yield high returns with no risk even though high-risk investments typically yield high returns and vice versa; (c) what steps are put in place to ensure that these investments are sound, prudent and viable; and (d) whether independent internal and external audits are conducted regularly to ensure and safeguard the CPF investments and funds.

13 Mr Lim Biow Chuan asked the Deputy Prime Minister and Minister for Finance (a) what are the rates of interest paid by the CPF Board on CPF funds for the past 10 years; and (b) whether the CPF Board will consider paying a higher interest rate or pegging the interest rate paid on CPF funds to the rate paid on 10-year Singapore Government bonds.

14 Mr Gerald Giam Yean Song asked the Deputy Prime Minister and Minister for Finance (a) how many years, if any, in the last 20 years is GIC unable to pay the interest on the Special Singapore Government Securities (SSGS) owed to the CPF Board from its normal investment returns; (b) what are the returns from GIC's investment portfolio after accounting for the interest payable on the SSGS in each of the past 20 years; and (c) what extraordinary measures, if any, are taken in the last 20 years when normal GIC returns are insufficient to pay the SSGS interest rate.

Mdm Speaker, may I take Question Nos 11 to 14 together?

Yes, please.

Thank you, Mdm Speaker. Minister Tan Chuan-Jin has explained the basic features of the Central Provident Fund (CPF) system, the reasons for the Minimum Sum scheme and the areas which can be improved. Dr Lee Bee Wah, Mr Gan Thiam Poh, Mr Lim Biow Chuan, Ms Tin Pei Ling and Mr Gerald Giam have asked further questions on whether higher returns can be paid without changing the risk-free nature of CPF accounts and how CPF funds

Page: 19

are invested and safeguarded. They have also asked about the GIC's investment returns.

Before I get into the details on these questions, it will be useful to provide some perspective on the challenges faced by retirement savings schemes around the world. There is a looming pensions crisis in most of the advanced countries and the challenges remain largely unresolved.

The first challenge is financial sustainability. In many advanced countries, the "pay-as-you-go" social security system has become unsustainable. As more of their citizens are retiring, the pensions they have been promised are becoming unaffordable to those who have to pay for the system, in other words, the younger citizens who are working and contributing through social security taxes.

Some of these countries have responded with politically difficult but necessary reforms, such as postponing the retirement age or cutting retirement benefits for younger workers. Most recently, the Australian government has proposed major reforms to its Age Pension scheme, which is the primary source of income for the majority of Australian pensioners today. These reforms include raising the age at which pensions can be withdrawn from 65 to 70 years old.

But in many cases, the severity of the problem has not been acknowledged and reforms have been postponed. In the US, for example, most public pension funds still over-estimate their future investment returns and understate their liabilities. With more realistic assumptions, it is estimated that about 85% of US public pensions will go bankrupt within the next 30 years. So, this is the first challenge – financial sustainability.

The second challenge is to give individuals a fair return on their retirement savings but avoid exposing them to more risk than they can bear.

As both governments and employers face increasing difficulty in funding "pay-as-you-go" pension schemes, more risk is being shifted to the individual in many countries. The shift is to pension plans where the worker's savings go into his own account and he eventually draws on his own account in retirement. The 401(K) schemes in the US are an example. These schemes which are called "defined contribution schemes", are like the CPF, in that the eventual payouts are funded by the contributions by the worker and employer into his account, not payouts funded by future workers. But in many such schemes, unlike the CPF, the worker has to choose his own investment plan and bears the risk on his investments.

In theory, individuals can expect to earn higher returns over the long term by taking more risk on investments, such as investing more in equities or equity-heavy funds. In

Page: 20

practice, there are three problems. First, the evidence from the advanced economies shows that most individuals underperform the market, even when they invest in funds rather than do their own stock-picking. Some individuals do well, but most face daunting and unfamiliar investment choices, and are swayed by sentiment. They tend to buy into the funds after gains have been made, and sell after losses. As a result, in the US, for example, individual investors in equity funds earned only one-third of what the market index earned over the last 30 years; one-third of what the S&P Index earned over the last 30 years. Fees charged by private pension funds eat into the returns earned by individuals. In Europe, this is another reason why returns on private pension funds have been low in the last decade.

A second risk is that you may retire when the financial markets are down. A recent article in The Economist magazine described the typical retirement scheme as a lottery, because the individuals' pot of money at the time they retire will depend on the state of the markets at the time. For example, an individual who retired just before the Global Financial Crisis will have much more income in retirement compared to an individual who retired during the crisis. One year can make a big difference.

A third risk is that you retire when interest rates are low. The current prolonged low-interest rate environment is in fact a major challenge in many countries, because the pot of money that you have upon retiring now gives you a smaller stream of annuity income for the rest of your years. This is the consequence of low interest rates, either the annuity becomes more expensive to buy or for the same pot of money, you get a smaller stream of income for the rest of your years.

Many retirement schemes require or encourage members to convert their capital into an annuity or monthly payout. However, interest rates matter greatly when buying an annuity, and unlike CPF LIFE, these schemes do not provide a floor on interest rates. So, when market interest rates go down, the member has to buy an annuity that is either more expensive or he gets a smaller stream of income in retirement for the same pot of money that he has.

Even if individuals are relieved of the requirement to buy an annuity that pays out for life, which some governments have been tempted to do, it does not solve the problem. Low market interest rates mean that retirees will receive less income even if they invest on their own in suitable retirement portfolios.

I have provided this background, Mdm Speaker, to explain why our CPF system has worked well and provides a strong foundation for the future. It has protected members from risk. The scheme is aimed at meeting basic retirement needs. As many members have had relatively small balances, it has been right to shield them from risk. The CPF has also avoided imposing risk on taxpayers, unlike many countries where ordinary citizens face a much larger

Page: 21

tax burden in future, on account of under-funded social security schemes.

The CPF is not a perfect retirement savings scheme, but it is amongst the better regarded internationally. As the Prime Minister has stated, we want to improve the CPF to provide greater security in retirement, especially for those with lower wages and to help retirees cope with inflation. We also want to give those who are "asset-rich and cash-poor" more convenient options to get cash from their homes.

But as we seek to improve the CPF or to add any flexibility, we must retain its basic strengths and avoid the huge problems seen elsewhere.

First, our CPF system is sustainable. There are no unfunded or sudden liabilities that will burden our children's generation.

Second, the CPF offers some flexibility for members to withdraw savings, indeed more so than many other social security systems. In particular, by tapping on their Ordinary Account (OA) savings, the vast majority of Singaporeans have been able to own their homes and service their mortgages with little or no out-of-pocket cash, which Minister Tan has just emphasised.

Third, while the CPF scheme does not provide the highest returns, it gives fair returns and certainly one of the safest in the world. Whilst the CPF does not provide the highest returns, it provides one of the safest in the world. These are fair returns. Few systems offer the guaranteed floors on interest rates – 3.5% of the OA and currently 5% on the SMRA (Special, Medisave and Retirement Accounts) for those with smaller balances, who comprise the majority of members. And for those with larger balances, it is 1% less. The interest rates are guaranteed by one of the few remaining triple-A rated governments in the world.

The CPF also offers the option to members who wish to place more money in their Special Account (SA) account, so that they can earn a higher interest rate than on their OA Account and it allows them the option of taking higher risks through the CPF Investment Scheme (CPFIS) in the hope of higher returns. So, that is the third strength – fair returns and safe returns.

Fourth, on top of the guaranteed interest rates, the Government subsidises CPF members through the Budget in a targeted and sustainable manner. We provide significant help to lower-income members to build up retirement assets, by giving them housing grants in their OA and CPF contributions through the Workfare Income Supplement (WIS). Members of the Pioneer Generation also now get top-ups for life in their Medisave accounts.

Page: 22

Taken as a whole, our CPF system prepares Singaporeans well for the future. Based on current policies, a new entrant into the workforce today can expect to draw a retirement income of about two thirds of his last-drawn pay if he is a median income earner. This is around the OECD average. He gets a much higher ratio of his previous pay if he is a lower-income earner, chiefly because of Government subsidies. As Minister Tan has said, our key concern is to help the current generation of older Singaporeans who have lower balances, often very low balances, due to their much lower wages in the past and the more liberal withdrawal rules then.

Let me now address the specific questions on how CPF interest rates are determined. The current CPF interest rate structure was implemented in 2008. It was an enhancement, especially for members with smaller balances. We debated the changes in Parliament in 2007, as part of the broader package of reforms to strengthen retirement security.

The fundamental principle is to peg CPF interest rates to returns on investments of comparable risk and duration in the market. We also structured the interest rates to provide greater benefit to members with small and medium-sized balances, by paying Extra Interest (EI) on the first $60,000 of balances.

Let me start with the OA rate. In determining the interest rates, we have to recognise the fundamental difference in the purpose of the OA compared to the longer term SA, MA and RA, or SMRA. OA savings can be withdrawn at any time for home purchases, servicing mortgage loans, or education. It is a liquid account. The interest rate on OA has therefore been pegged to the 12-month fixed deposit and month-end savings rates of the major local banks. However, unlike market interest rates, it pays a guaranteed floor rate of 2.5%, or 3.5% for OA balances of up to $20,000. More than half of all members enjoy the full 3.5% on their OA.

Members also have options to earn more than these OA interest rates. They can transfer OA savings to the SA so that these become long-term savings, earning higher returns. That is an option that members have. It is a useful option for those who have paid up their housing loans. Those who want to take on market risks in the hope of earning better returns can also invest part of their OA balances through the CPFIS.

Furthermore, the CPF interest rates are not the only help that members get to build up their savings. As I had just mentioned, the Government also provides subsidies through the Budget to CPF members, targeted especially at lower- and middle-income members. These subsidies, in effect, amount to a significant boost to what a typical lower-income member earns on his balances.

Page: 23

If we look at his OA, in particular, on top of the 3.5% interest rate on his OA, he gets Workfare payments and housing grants. When he sells his home to upgrade or downgrade later, the housing grant is returned to his OA as part of his savings for retirement. Based on current policies, these grants, amortised over his working life, will, in effect, grow his savings by at least 2.5% per year over a 30-40 years of working life. So, in effect, his savings "earn" 6% per annum through the combination of CPF interest rates and Government subsidies.

This does not include the OA savings used to purchase the housing asset, which benefits separately from appreciation in housing value. As Minister Tan explained, his home is an important retirement asset and, based on its value, he can withdraw monies from his CPF balances at age 55.

The OECD highlighted this critical role of homeownership in its recent analysis of pension systems in the advanced countries. Homeownership "can make a big difference for many pensioners, both reducing the need for cash and providing a way to generate income later in life."

Mr Lim Biow Chuan asked if CPF interest rates could be pegged to those on 10-year Singapore Government Securities (10Y SGS). The OA interest rate, pegged to market deposits that can be withdrawn at any time, is fair. However, for several years now, the OA has earned the floor rate of 2.5% to 3.5%, well above the market rates. It also means that the OA has in fact been earning more than what 10Y SGS earns. The average yield on 10Y SGS over the past 10 years has been 2.4% and it is currently about 2.3%. So, the floor rate of the OA at 2.5% to 3.5%, depending on the size of your balances, has in fact been higher than even the 10Y SGS.

The SMRA, on the other hand, is pegged at 1% above the 10Y SGS, which I will now explain. The Special Account and Retirement Account are as we all know held for retirement. It is long-term savings. As Medisave (MA) balances are also mainly used as Singaporeans get older, we have treated them like the SA for purpose of determining interest rates.

The returns on the SMRA have been enhanced over the years. When we set the new basis for SMRA rates in 2007, our aim was to peg it to the rates for similar long-term, risk-free investment. This was what the Economic Review Committee (ERC) had recommended in 2002.

The best peg would have been a 30-year Government bond, because 30 years is the typical duration for which SMRA monies are held. However, as we had not started issuing 30-year SGS in 2007, SMRA rates were pegged to the yield on 10Y SGS plus 1%, to approximate the 30-year rate. 10Y SGS plus 1% was an approximation of what a 30-year

Page: 24

Government bond would have paid.

As I told the House then, when we debated the changes to the CPF, the 1% spread on top of the 10-year Government bonds was, in fact, a little generous, as it was higher than what had been observed for 30-year bonds in international markets. However, it was fair and reasonable, giving allowance for future economic and market uncertainties, such as if inflation picks up sharply over the long term.

Going by the formula for SMRA rates, we would be paying about 3.4% today on SMRA. This is higher than the actual yield of 3% on the 30Y SGS, which we now have but is not widely traded. So, 3.4% is what the formula would dictate for SMRA. However, we have maintained a floor of 4% on SMRA, or 5% on balances of up to $60,000. We have renewed this floor each year since 2008. Two-thirds of CPF members in fact earn the full 5% on SMRA.

This is a fair system of returns for the SMRA. The CPF in essence pegs SMRA returns to long-term SGS, but it has also been paying a floor of 4% to 5% that is well above market rates in the current environment. As I explained earlier, we have shielded members from the risk of low market interest rates.

I will next explain how CPF monies are invested, as asked by Er Dr Lee Bee Wah and Mr Gan Thiam Poh. The CPF Board invests CPF members' monies in Special Singapore Government Securities (SSGS). These are issued specially by the Government to CPF Board. They are not traded instruments. The payout from the SSGS is pegged to the interest rates that the CPF Board is committed to pay its members.

The Government guarantees these SSGS bonds, so that CPF Board faces no risk of being unable to meet its obligations to its members. This is a solid guarantee, from a triple-A credit-rated Government. The triple-A credit rating reflects Singapore's very strong financial position, with the Government's assets comfortably exceeding its liabilities. Both Standard and Poor's and Moody's recently reaffirmed our triple-A credit rating, noting that our strong net asset position provides ample cushion against shocks.

What does the Government do with the proceeds from SSGS issuance? It pools them with the rest of the Government's funds, such as the proceeds from the tradable Singapore Government Securities (SGS), any Government surpluses as well as the proceeds from land sales which under our constitutional rules have to be accounted for as past reserves. So, the Government pools the SSGS proceeds with the rest of the Government's funds.

The comingled funds are first deposited with MAS as Government deposits. MAS converts these funds into foreign assets through the foreign exchange market. A major

Page: 25

portion of these assets are, however, of a longer-term nature and are, hence, transferred over to be managed by GIC.

The SSGS proceeds are not passed to Temasek for management. Temasek manages its own assets and does not manage any CPF monies.

What these investment arrangements mean is that CPF members bear no investment risk at all in their CPF balances. Their monies are safe and the returns they have been promised are guaranteed. Neither does the CPF Board bear any risk, regardless of whether the GIC's investments earn or lose money in any particular year. The risk is wholly borne by the Government, on its own balance sheet.

The Government pools the proceeds from SSGS with its other assets and invests long-term funds through the GIC. The GIC does not, in fact, manage SSGS monies on their own, separate from the Government's other assets. This is an important distinction, which I will come to later. GIC is the fund manager for the Government, not owner of the assets and liabilities. It seeks to achieve the Government's mandate of achieving good long-term returns, without regard to the sources of the funds that the Government places with it – for example, whether they are proceeds from SGS, SSGS or Government surpluses.

Over the long term, our investments in GIC have earned a creditable return. For example, over the last 20 years, GIC earned 6.5% per annum in US dollar terms, which translates to 5.0% per annum when expressed in Singapore dollar terms.

But that is not the whole story. The average long-term return masks wide fluctuations in returns from year to year. You can have good average, long-term returns but what it disguises is variations which can be very significant from year to year. To answer Mr Gerald Giam's question, over the last 20 years, there were eight years where GIC's investment returns were below what the Government pays on SSGS.

A good example was the Global Financial Crisis. As I stated in Parliament at the time, GIC's portfolio value in US dollar terms declined by about 25% during the 14 months from October 2007. October 2007 was a peak and from then to December 2008, GIC's portfolio value declined by 25%. GIC's performance was similar to that of other funds with a similar mix of asset classes, but it illustrated the market volatilities faced by every long-term investor.

Even over the five years following the crisis, ending 31 March 2013, GIC earned an annualised return of just 2.6% in US dollar terms, which translates into a mere 0.5% in Singapore dollar terms. GIC's Annual Report explains the reasons for this weak recovery from the crisis, especially in illiquid asset classes that it was holding, like real estate. Its five-year

Page: 26

annualised returns are expected to improve significantly going forward.

Hence, while the Government expects to earn returns through the GIC over the long term that exceed what it pays on SSGS and has done so in the past, there is no assurance of GIC's returns exceeding SSGS interest rates over shorter periods, much less every year. This is also because of the guaranteed floor on CPF interest rates, which do not follow declines in market interest rates.

How then is the Government able to meet its SSGS obligations in the years when the markets are weak and GIC's returns fall below what the Government has to pay SSGS? The reason is that the Government has a substantial buffer of net assets – net assets meaning assets in excess of liabilities – which ensures that it can meet its obligations. In years when investment returns are poor, the net assets have helped to absorb any losses and ensure that the Government can meet its obligations on the SSGS as well as its market-traded SGS. Correspondingly, when investment returns are strong, the net assets grow.

To address Mr Gerald Giam's further question, therefore, no extraordinary measures have been necessary to enable the Government to meet its SSGS obligations in the years when GIC's returns fall short.

It is this role of the Government, with its significant net assets, that ultimately allows the CPF Board and CPF members to be shielded from risk. The Government, through GIC, expects to earn good returns over the long term, but the volatility can be substantial from year to year. The Government has been absorbing that volatility and protecting CPF members.

This is also the reason why no market player, other than the Government, is able to take on the CPF obligations. The guarantor is not merely playing the role of a long-term investor. It also must have significant capital that provides a buffer when the markets are down.

Our CPF system is, hence, sustainable, so long as the Government continues to run prudent budgets and invest the reserves wisely. Then the Government's balance sheet will remain strong and investment returns over the long term can continue to meet our debt costs.

However, the GIC's good long-term returns also reflect the fact that it is managing the Government's assets as a pool, which includes the Government's unencumbered assets – in other words, assets that are not matched by liabilities. This is a critical feature of our system. The GIC is managing Government assets as a pool, and the pool comprises not just assets

Page: 27

that are backing the SGS and SSGS but also the Government's unencumbered assets – past Government surpluses, proceeds from land sales, which under our constitutional rules have to be accounted for in, past reserves, these are unencumbered assets – and the GIC manages the whole pool of assets as one pool. This allows the GIC to invest for the long term, including investing in riskier assets such as equities, real estate and private equity.

It would be quite different if the GIC, instead of managing the Government's pooled assets, were to manage a separate, standalone fund to provide backing for CPF liabilities. A standalone fund would have to be managed much more conservatively, to avoid the risk of failing to meet CPF obligations. It would not be aimed at accepting risks that enable good long-term returns, but at avoiding any short-term shortfalls. Consequently, the returns it would earn over time will be lower than what the GIC can achieve in its current role.

Finally, I should emphasise that the investment returns in excess of the SSGS rates that the GIC expects to make as a long-term investor are not simply hoarded away in the reserves. Fifty percent of the returns from our reserves flow back to our annual Budget through the Net Investment Returns Contribution (NIRC). This currently adds about $8 billion to our Budget annually. The NIRC has provided the Government valuable resources that have allowed us to embark on new priorities for Singapore, including enhancing our social safety nets.

Mr Gan Thiam Poh asked about independent audits and other measures to safeguard CPF investments and funds. As I have explained, CPF monies are invested in SSGS that are guaranteed by the Singapore Government. The Singapore Government's guarantee is a key safeguard.

CPF Board, besides its own internal auditors, is externally audited by professional audit firms approved by the Auditor-General.

As for the Government's investments, I can assure Members that GIC is audited on a regular basis. GIC's financial statements are independently audited by the Auditor-General every year. Its audited financial statements are submitted to the President and the Council of Presidential advisors annually. The President also has full information about the size of the reserves and the performance of GIC's investments. GIC's investment performance over five, 10 and 20 years is also made public through its Annual Reports.

To conclude briefly, let me just reiterate that our CPF system is sound and provides a solid foundation for Singapore's future. It is not a static system. Over the years, we have adjusted the system, such as to reduce the scope for housing withdrawals and focus

Page: 28

increasingly on retirement and medical needs in old age.

As the Prime Minister has said, we intend to make important future improvements to the CPF to strengthen retirement security. Minister Tan has assured Members that we are open to different views and suggestions.

Whatever we do to improve the system, we must provide fair returns to the ordinary member who is unable to take on much risk and ensure that the CPF remains sustainable over the long term. The Government should continue to subsidise CPF members, especially those with lower income, but these subsidies should be provided through the Budget, so as to ensure the CPF is sustainable.

Thank you, Mdm Speaker. I understand the need for the Minimum Sum. However, I would like to ask if Minister would consider giving Singaporeans more choices pertaining to CPF withdrawal. For example, would the Minister consider allowing Singaporeans at age 55 years to withdraw $10,000, $5,000 or zero amount? For those who choose not to withdraw any CPF money at age 55 as they know that they would not meet the Minimum Sum, would the Government reward them by way of Medisave top-up, to encourage prudence?

For those Singaporeans who can easily meet the Minimum Sum, they are already allowed to retain more money in the CPF as mentioned by the Minister. That being the case, would the Minister consider allowing them to choose a different CPF LIFE policy that provides them with a higher monthly payout of, say, $1,500 per month?

In short, Singaporeans like to make choices. Would the Minister consider providing Singaporeans with more CPF options?

Mdm Speaker, I would like to thank the Member for his suggestions. The issue of flexibility is really a question of choice – meeting present-day wants and addressing future needs. It is a trade-off. The more flexibility we allow, the more we deplete the CPF account. What it means is that the monthly stream-out for the individuals would be reduced. As it is, as Deputy Prime Minister Tharman has mentioned, the CPF system does afford certain level of flexibility. Many Singaporeans do draw on their CPF for housing needs. In fact, many of us draw on the CPF for our housing needs. If we did not have that flexibility to use that, we would otherwise have to rely on cash. It also allows us to address some of our medical needs and, in some limited form, our own investment schemes through the CPF Investment Scheme and some limited use for our children's education as well.

Page: 29

The more flexibility we allow in terms of allowing individuals to withdraw more money at the age of 55, or at the drawdown age, it would mean that it would reduce correspondingly the amount that the individual would receive on a monthly basis when the stream-outs happen. But we take on board the various perspectives shared by the Member. This is not unique. Many Members have shared this request for more flexibility. We will take a look at this. Our view is that it is important to remember that the present Minimum Sum, as is computed, is meant to provide what we believe is a basic level of requirement for a couple at a slightly lower than middle-income level. I think when you reduce that further, your monthly payout would correspondingly be less.

I thank the Minister for Manpower for his assurance that flexibility will be exercised for low-income workers caught by the CPF policy to lock up their funds in their Retirement Account at the age of 55.

I want to echo Mr Ang's appeal for greater flexibility as we continue to see residents coming to see us at the Meet-the-People Sessions (MPS) with such problems and at their wits' end because their Housing and Development Board (HDB) arrears are accumulating on account of this policy.

I know the Minister cited that the CPF receives only 500 appeals a year from those affected, but can I ask the Minister to also look into the fact that entire households of these residents are also affected at the same time? If we multiply those affected, it would be more than 500 people.

Would the Minister agree that, sometimes, it takes quite a lot of "to-ing" and "fro-ing" among the relevant agencies before an appeal is approved? In the meantime, it can mean that the HDB arrears are accumulating with late payment charges. This might leave the residents in a state of uncertainty and turmoil. Can I ask the Minister, if it cannot be made automatic for their appeals to be approved, can he, at least, make it less of a hassle and ensure that meritorious appeals can be approved more speedily so that such problems do not occur and cause them greater hardship?

My third question is that while I appreciate the Minister's point that families should not over-extend their retirement savings with large HDB loans, can I ask the Minister whether he would agree that it may not be fruitful to preach this to the current generation of older workers with existing HDB loans to service as their ship has sailed?

Can I urge the Minister to carefully review the data of the HDB loan obligations of this lower-income group, of those aged 50 and above, and balance that with their retirement adequacy so that the CPF policy can be tweaked and fine-tuned further to take into account

Page: 30

their concerns?

Mdm Speaker, I would like to thank the Member for the points raised. Many of us do face similar personal examples of families who come forward with various challenges. There are many reasons for some of these individuals and their families in facing difficulties. Perhaps, it would be useful for us to consider.

One of the points I would acknowledge is that we would endeavour – certainly between CPF and HDB – to make sure that the process is as streamlined as possible so that the help can be expeditiously provided. It is important for us to understand the ways that we can help individuals.

One, the numbers who are caught and having difficulties paying their mortgage loans as a result of turning 55 are small. On average, we have about 500 a year. Following the appeals, we approve about two-thirds of them. We do consider their cases in quite a detailed fashion. But there are other steps that we can put in place to assist members. For example, upstream, housing counsellors in HDB branches play a very important role in providing financial counselling and proactively helping owners with mortgage arrears to tailor solutions to their circumstances. They do look at the personal circumstances of each individual family and to structure programmes to help manage their transition.

For flat owners who are in temporary financial difficulties, HDB does work out measures, such as reducing or deferring their mortgage instalments for a period of time or working out instalment plans to repay their arrears. Many of us who are Members of Parliament in this House, we have made similar appeals to HDB as well, and we have found that that has worked out quite well.

HDB may also, in some circumstances, advise flat owners of other options. For example, if they do have a slightly bigger flat, there is the possibility of renting out spare bedrooms for additional income to supplement them in moments of need. Or, ultimately, they can refer them to the Community Development Council for employment, financial or social assistance. In those situations where the individuals find themselves in dire financial circumstances, that is where the social safety nets kick in.

For flat owners who can no longer afford to keep their flats, for one reason or another, HDB will help them explore longer term solutions. For example, in some instances, they can include their children as joint owners to help service their loan. They can also consider selling their flat, downgrading and moving to a smaller one. We have various schemes to allow individuals to monetise through the Silver Housing Bonus and Lease Buyback scheme, and,

Page: 31

if necessary, HDB can offer them a loan to help them to do so as well.

There is a range of measures that we want to put in place. Ultimately, if all these things do not quite work out and families are in difficulties, that is where the social safety nets come in.

Supplementary questions, Madam. The first question is for the Deputy Prime Minister. CPF is a very complicated scheme and CPF is also a story that can be retold again and again. In fact, different persons read it from a different perspective. May I ask the Deputy Prime Minister for his assessment of the effectiveness of CPF's communications to its members and in what ways it can be further enhanced because not all Singaporeans have the luxury of listening to your very clear explanations here?

My second question is to the Minister for Manpower. Of the 500 appeals annually to use the Minimum Sum for housing needs, what are the guiding principles of approval for the two-thirds and why was the one-third rejected?

Mdm Speaker, I had assumed that my response was also sufficiently clear, apart from the Deputy Prime Minister's response [Laughter]. But it is okay.

I do agree with Mr Seng that we can always do better with communications. We have come to realise that CPF has been an institution for a very long time. As with many things, there are many policies that the Government has, and one of the things that many of us realise in our dialogues is that even we ourselves, as Members of this House, do not always pay attention to these policies until perhaps when it impacts us. For many Singaporeans, it is upon turning 55 that we begin to think about what are the policies that confront us and about the decisions we have to make.

CPF Board continuously seeks to identify simpler and clearer ways of communicating CPF schemes to members through different channels. We have online magazines, thematic educational talks, including monthly talks to members turning 55. They are fairly well-attended but they obviously do not cater to everyone. Not everyone comes forward for that. We send out email blasts to members as well.

CPF Board works with partners, such as the Institute of Financial Literacy and the Financial Planning Association of Singapore, to ensure that the right information and explanation is being given on the CPF schemes through training courses and sharing of resources. This means that apart from the members themselves, it is also important to enhance the understanding amongst professionals who can in turn then advise members.

Page: 32

Beyond this, more needs to be done to help members have a better appreciation of our CPF policies and improve knowledge on scheme details. CPF Board is, therefore, looking at improving the presentation of schemes' information on the CPF website and adding visual aids, such as infographics and videos. A dedicated website and Facebook page are also being developed to share CPF-related information and relevant tools to help members understand and make informed decisions about the use of their CPF monies at different life stages. We will also push out more information to the public through the mainstream media channels.

Online is one platform, but we also fully recognise that there are many Singaporeans who are not necessarily online or who are not comfortable with that medium. Traditional modes of pushing out information remain important. I would very much like to call on Members of the House to help us clarify any misconceptions of the CPF that your constituents might have and refer those who need more information assistance to the CPF Board. This is important.

We all recognise that the CPF is a very significant and important pillar. And it is important to have debates and discussions based on facts, based on what it is and what it is not, and not on speculation for whatever reason that individuals choose to distort this and create fear and anxiety.

As the Deputy Prime Minister and I have shared, while the CPF system is not perfect – it is not going to cater to every single person's individual specific needs – as a system, it has provided us well. Going forward, one of the things that we are particular about is that this system must be sustainable not because we want to shift the risk to the people or not having the Government bear the risk. By not being prudent and not keeping it sustainable, we are going to shift that risk and that burden to our children's generation. And this is what many countries are facing.

As to Mr Seng's second question, even though the numbers may be small, we do want to take a look at each individual specific case. It is very difficult to generalise because every individual has very unique circumstances – why they are in a particular situation. As I mentioned, about two-thirds of the appeals are approved. We will look at them earnestly and, if we are not able to provide a solution via the CPF route, we will endeavour to work with HDB to make sure that other options are provided.

In all circumstances, I will mention again, the social safety nets remain. The CPF will not solve all problems. There will be individuals who have financial challenges that are beyond CPF and HDB solutions. That is where the other arms of Government will step in to provide the assistance and support. And that is something we will endeavour to do. So, it is important for Members of this House, when you encounter these problems, do surface them to us and

Page: 33

we will do what we can to solve these problems.

Thank you, Mdm Speaker. I have three supplementary questions. Earlier, the Minister mentioned that when CPF started 60 years ago, we were allowed to withdraw a lump sum upon turning 55 years old and it was because life expectancy then was five to seven years beyond 55. I would like to ask whether the Minister can consider giving options, that means, working backwards. Now it is 82 years' expectancy, so five to seven years from 82, can they be given the option to withdraw their money in a lump sum, because many Singaporeans would like to see lump sums and manage their own money?

My second question is: can the Ministry do more to educate, to talk more on property pledge, including how easy or how difficult it is to pledge their property and, after pledging, does that flat still belong to them because a lot of Singaporeans would like to own their own flat. So, if you ask them to pledge their flat, they have a fear.

The third question is: what would be the Minimum Sum for the year 2015, because I see on the CPF website, the Minimum Sum for 2015 is labelled as "To be announced". A lot of residents are having fears as to what the amount is in 2015. And, after 2015, will there be any more increase, because the table on the website does not show anything after 2015? Does it mean no more increase or is it "akan datang"?

Mdm Speaker, with regard to the Member's suggestion on the lump sum withdrawal, even the present system allows a lump sum withdrawal. Basically, monies above the Minimum Sum can be withdrawn. As I had mentioned earlier, with the property pledge, for those who are turning 55 this year, for example, you can withdraw half your Minimum Sum if you pledge your property. That remains available.

Independent of whatever quantum you have in the Minimum Sum, members upon turning 55 can also withdraw $5,000. Obviously, one of the suggestions is that whatever the life expectancy age may be, say, 82, 85, we should work backwards five to seven years like the example cited earlier. Back then when the retirement age was 55, you withdraw your lump sum at 55, life expectancy was about six to seven years. People live to about 60 to 62 years old.

Assuming we work backwards from whatever the life expectancy would be at that prevailing age and, therefore, allowing members to take out lump sum, again, as I mentioned earlier, the more we allow flexibility at this stage would really deplete the amount that can be withdrawn. What we have provided in terms of the possibility of withdrawing lump sum via the property pledge and the $5,000 is something that is supported and that is provided

Page: 34

for. We do not know how long each individual is going to live, but as a whole, individuals will live longer. The more you take out, the more you reduce that monthly payout that you will have available, and are you able to stretch that for a long period?

Secondly, I do agree with the Member that we do need to perhaps publicise more and to educate the public more on how exactly the property pledge will be made. The reason for the property pledge is that we recognise that when you come to retirement adequacy, it is not just solely dependent on the monies in your CPF account. Your Minimum Sum is one component. That is a calculation upon what we think a monthly payout reasonably would afford a couple. At the same time, the property remains an asset. As I had mentioned earlier, because of the stringent way in which we define it, half of that value, even though you may have a property worth several millions of dollars, only half of the Minimum Sum amount, which in today's terms is $77,500 will be computed as part of the Minimum Sum.

A recognition of the property pledge is an important part of that equation. It is part of your retirement adequacy. What I would assure is that when you pledge your property, that property belongs to you. If you do need to liquidate the property in order to provide for your retirement needs, that remains possible. It is an option. You are not compelled to do so. For those with HDB flats, the options we provide – and we will be strengthening these – there will be the Silver Housing Bonus as well as the Lease Buyback Scheme.

And lastly, with regard to the Minimum Sum for 2015 and beyond and whether the announcement of the amount will be "akan datang": it is a plan. As we mentioned in 2003, each year, we will have to look at what the prevailing inflation rate is. Once that is clearer, we will announce it. There is one more increment left to announce, basically for next year. We have no present plans to increase from that at the moment.

Madam, I would like to ask the Minister for Manpower how the Government assesses the adequacy of the Minimum Sum. I know the Minister said that it produces a stream of income of about $1,200 a month but is this sufficient for those it is targeted at? How is it working on the ground? A concern is that for those where the Minimum Sum is adequate, they do not accumulate enough to have the Minimum Sum at 55 years old. While for those who can meet the Minimum Sum, it is not adequate. So, how do you assess and consider as you move ahead and plan for future increases of the Minimum Sum?

Mdm Speaker, one of the concerns raised – which I think is a fair concern – is whether the Minimum Sum accumulated is sufficient, especially when we look at the data. For example, about 50% of active members turning 55 today and in 2030 meeting that Minimum Sum. Allow me to explain the context of this statistic and in that sense also to

Page: 35

explain what Minimum Sum means and what it does not mean.

We adopt a fairly stringent definition of Minimum Sum attainment. We kept that portion of the Minimum Sum that can be met through the property pledge at 50% of the Minimum Sum or $77,500 for members turning 55 today. In reality, the value of the property owned by CPF members would usually far exceed $77,500 and the Minimum Sum attainment rate would be higher if the full value of members' properties is taken into account.

In addition, many Singaporeans should continue to work beyond 55. Fifty five was the retirement age when CPF first started. The retirement age today is 62. The Re-employment Age has gone up from 62 to 65 years. We are in the midst of discussing how to move up to the next milestone of 67. Singaporeans continue to work beyond 55.

With employment rate of residents aged 55 and 64 steadily increasing – in large part also due to the tight labour market and also in terms of the employers becoming more receptive to taking on older workers who do want to work – these members will continue to receive CPF contributions as they work which will further boost their retirement adequacy by the time they start receiving CPF payouts at 65. This means that even as we look at the Minimum Sum at age 55, they continue to accumulate monies in the CPF accounts after that. Some CPF members who do not meet the Minimum Sum also do have spouses who have either CPF balances or own property and can provide for them.

Taken together, the so-called 50% figure that we have today is a conservative number. It does not take into account the full value of the property which the member owns and can rely on for retirement or for future CPF contributions from employment. Certainly, it does not mean that 50% of the cohort will be inadequately prepared for their retirement. But what we have also noted is that the Minimum Sum attainment figure has been improving in the past few years and we expect this trend to continue.

In essence, what we are saying is – the Minimum Sum is something we have assessed that for the slightly below middle income family, the monthly payout basis would meet their basic needs. Now, does it mean that individuals survive solely on the Minimum Sum itself? No. For many of us, we do have other forms of savings. Many Singaporeans own their housing, which is why housing remains a very important part of retirement adequacy. In many other countries where public housing is not provided for in the way we have provided, it takes up a very large part of their retirement, in terms of the retirement funds going into funding their housing needs.

In Singapore's context, with the various housing grants, with the various subsidies and to provide public housing for the vast majority of Singaporeans, that is one way of

Page: 36

contributing to providing their adequacy and on top of that, that is something that individuals can draw on, should the need arise. Many Singaporeans, even though they may not meet the Minimum Sum, for example, today, many of them actually own their own properties, and they also have other alternative sources as well. For those who do have challenges, meaning that they do not meet the Minimum Sum, they do not own their properties for whatever reason – perhaps because of the low wages earned or their personal circumstances and they do have challenges – that is where the other arms of the Government step into to provide for them.

The Minimum Sum is one construct. I think it is a useful construct to at least ensure that individuals do have a monthly stream out. Those who do not meet the Minimum Sum do not need to top it up. What it means is that their monthly payout will be lesser. But if they are able to manage on that payout, supplemented by other schemes that are available, then that is not a problem. But if they do have challenges, that is where the State would come in through the social safety net to augment and to provide for their other needs.

Madam, I have two clarifications. First, will the Government consider allowing CPF members to withdraw from CPF Retirement Account to redeem housing loan with a small loan balance, say, about $20,000 at age 55, so that the member can save on paying interest?

I have a second clarification for the Deputy Prime Minister. He said that if the CPF monies were managed and invested as an independent pool, it would not be able to enjoy the same investment returns as GIC. I would like to know why it is so. I understand we currently have about $300 billion CPF balance. Is the pool not big enough to be able to secure the same returns and maybe better returns?

If I can handle Mr Low's second question first. It is a very important question and, in fact, many of my grassroots leaders and others have asked that question: why not just get GIC to manage the CPF money directly?

If the GIC had to manage the CPF money and ensure that we are able to meet our full obligations in CPF every year – that the capital is guaranteed, the interest rates are guaranteed and when market interest rates go down, we do not bring the CPF interest rate down but we keep it at the floor, a high floor, 3.5% on the Ordinary Account and 5% on SMRA for most accounts. If those were the obligations that were required, first, there is no private sector fund manager who will take on that task because it is very difficult to meet.

The GIC, because it has a large diversified portfolio, aims to invest for the long term and do better than the SSGS obligations imply. However, that is only possible because the GIC is

Page: 37

not just managing SSGS obligations. It is not just managing CPF liabilities. If it is only managing CPF liabilities or SSGS obligations, where you must meet that obligation every year, it will need a very conservative portfolio. This means a portfolio that does not invest much in equities, certainly not in real estate and alternative assets. It will aim to just minimise the chance of failing to meet annual obligations, not maximise long-term returns. That is what would happen.

It would not be able to aim to invest over the long term and ride out the market cycles: take big losses when the markets go down, knowing that as a long-term investor, you are the one who ultimately stands to gain. It will instead have to be conservative, avoid losses and make sure that it can meet the obligations every year. That is what would happen and it does not matter whether it is GIC or anyone else. If you are managing this unique set of obligations – guaranteed capital with high minimum interest rates – you will need a very conservative portfolio. To begin with, it will be hard to achieve, and it will be a conservative portfolio.

That is the reason why our real strength is that the Government has net assets, including unencumbered assets – proceeds from land sales over many years, proceeds from Government surpluses, especially in the earlier years, and the investment returns on those funds. Those give us unencumbered assets. By pooling the SSGS proceeds together with those unencumbered assets, we are able to invest for the long term and aim for higher returns over the long term that will beat the SSGS.

But if we are only managing SSGS by itself, this would not be possible. So, basically our net assets and the strong Government balance sheet are the real strengths of the system. The Government balance sheet is taking the risk, and we can absorb that risk, protect CPF members from any risks, and retain our triple-A credit rating.

Mdm Speaker, in response to the first question raised, we have, on a case-by-case basis, allowed CPF members to use savings in their Retirement Account (RA) that originated from the Ordinary Account (OA) to meet their housing needs, should there be that need. However, this option means that their retirement savings will be depleted and should be used sparingly.

In assessing whether to allow CPF members concessionary use of more RA savings for housing, we do consider whether the member will continue, even after that assistance, to have difficulties in meeting his outstanding loan even after allowing the concession. In some of the instances when we meet residents who have those challenges, even if we make those concessions, they will continue to have problems servicing the loan thereafter.

Page: 38

This is because we want to avoid a situation where a member has no CPF savings and no roof over his head in retirement. But I would also add that I think in those circumstances where there is a need, we have made those exceptions and we have assisted members accordingly.

We understand that members may wish to use their RA savings that have been committed, for housing purposes. As we had mentioned, we will look at each case, exercise flexibility on a case-by-case basis but, certainly, we do approve in certain instances for members to draw on their RA savings in order to pay their housing loan requirements.

Mr de Souza, last question.

Thank you, Mdm Speaker, I appreciate that I have two minutes. My supplementary question is: in light of some retirement surveys about potential financial adequacy or rather inadequacy in retirement in Singapore – for example, the Aviva and Manulife surveys – is it the Minister's view that CPF is all the more an important avenue for retirement savings in Singapore? And if so, how does the Minister intend to continue using the CPF tool to enhance the retirement savings of Singaporeans?

Mdm Speaker, what the Member has shared is indeed at the crux of the issue that many countries face. We all know that we do need to provide for our retirement and many of us are concerned about it, but are we taking active steps to provide for that?

The experience has been shown in many countries and surveys have shown quite clearly that there is inadequate preparation, which is why some form of a pension system or retirement system is required. It is why every country, probably most countries do have some systems or other. But as shared by the Deputy Prime Minister earlier, many of these systems are facing a lot of challenges because they are promising things which cannot be sustained.

For us, as we have mentioned, the CPF system is not a perfect system but it is a sustainable system. It is a sustainable system because it can provide for our retirement needs and it can provide for other needs as well, which are important for retirement, housing particularly, and also in terms of healthcare.

What we do intend is to continue to strengthen it. There have been many suggestions that have been provided by the public over the years and these have contributed to strengthening the CPF system. As you will realise on a yearly basis, each time I come to Parliament, we do and will make tweaks to the Bills accordingly because we look at

Page: 39

improving the system in terms of the operational part of it.

From a structural standpoint, as the Prime Minister has highlighted, this is something that we have been working on for some time. Earlier this year, we have announced the Pioneer Generation Package. We have announced and talked about MediShield Life. But retirement adequacy is a big part of providing that sense of assurance for Singaporeans. We have been working on that for some time. The details are being ironed out. We would be able to make some announcements on some of the steps going forward in the next month or so.

Order. End of Question Time. Minister for Law.

[Pursuant to Standing Order No. 22(3), Written Answers to Question Nos 23, 25, 27, 30-32, 35, 38, 42, 44 and 46 on the Order Paper are reproduced in the Appendix. Question Nos 22, 24, 26, 28-29, 33-34, 36-37, 39-41, 43, 45 and 47 have been postponed to the next available sitting of Parliament.]

Page: 40

[(proc text) "relating to the constitution, jurisdiction and powers of the Family Justice Courts and the administration of justice therein, and to make consequential and related amendments to other written laws",

presented by the Senior Minister of State for Law (Ms Indranee Rajah); read the First time; to be read a Second time on the next available Sitting of Parliament, and to be printed. (proc text)]

Page: 41

[(proc text) Debate resumed. (proc text)]

[(proc text) The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah]. (proc text)]

[(proc text) Bill considered in Committee; reported without amendment; read a Third time and passed. (proc text)]

Page: 42

[(proc text) Order for Second Reading read. (proc text)]

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

Mdm Speaker, this Bill seeks to amend the Mutual Assistance in Criminal Matters Act (MACMA). The MACMA facilitates the provision and obtaining of international mutual legal assistance in criminal matters, and is an essential tool in Singapore's arsenal to combat transnational crime.

The MACMA was enacted 14 years ago against the backdrop of decreasing trade restrictions and rapid globalisation. There was and remains a need for effective international cooperation to guard against transnational crimes and criminal organisations that try to exploit the loopholes caused by national boundaries and differences between the enforcement jurisdictions of different countries. For instance, an individual hacking into a Singapore-based server from another part of the world may think that Singapore authorities will be unable to ascertain his identity because the Internet Service Provider possessing his user information is located outside of Singapore. The MACMA addresses these issues by creating a framework for cross-jurisdictional cooperation and legal assistance between States.

The MACMA sets out various forms of assistance that Singapore may request from a foreign country and vice versa. These forms of assistance range from arrangements for an individual to travel to a foreign country to give evidence – which is voluntary in nature – to assistance in search and seizure, which involves using a State's domestic enforcement powers.

The MACMA signals Singapore's commitment to combat crime on a global scale. This commitment is more relevant than ever today. With growing cross-border crime, the need for enhanced international criminal cooperation has also increased. Left unchecked, transnational crime will undermine the Rule of Law and global governance.

Mdm Speaker, the Ministry periodically reviews the MACMA to study how Singapore can be more facilitative as a mutual legal assistance partner and at the same time, to ensure that Singapore continues to be armed with effective tools to combat transnational crime. In 2006, the MACMA was amended to dispense with the requirement for a mutual legal

Page: 43

assistance treaty before Singapore can render assistance to a foreign country's request when made appropriately. The legislative amendments tabled today represent further strides to enhance Singapore's mutual legal assistance framework.

The Bill introduces four changes.

First, it calibrates the conditions which must be fulfilled before mutual legal assistance can be rendered by removing the Dual Criminality requirement for selected types of assistance.

Second, it expands the types of offences in respect of which mutual legal assistance can be given or received under the MACMA by creating a standalone list of serious offences within the MACMA.

Third, it expands the scope of enforcement of foreign confiscation orders; and

Fourth, it aligns the MACMA with amendments made to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Bill 2014.

I will now take the House through the main features of the Bill.

The first pertains to removing the Dual Criminality requirement for selected types of assistance. We have calibrated the conditions which must be fulfilled before mutual legal assistance is rendered. The current MACMA provisions impose a Dual Criminality requirement for all forms of mutual legal assistance. The proposed amendments remove the Dual Criminality requirement for those forms of mutual legal assistance which do not involve coercive forms of assistance. These are the types of assistance that neither attract penal consequences for non-compliance nor adversely affect the property rights of individuals. The Dual Criminality requirement will be retained for coercive forms of assistance.

Dual Criminality refers to a situation where the foreign offence involves conduct which, if it had occurred in Singapore, would have constituted a serious offence. If it concerns conduct that is not listed as a serious offence in Singapore, there will be no Dual Criminality requirement for such conduct.

The general rationale for the Dual Criminality requirement is that a State should not use its powers to promote aims that are at odds with that State's standards of acceptable behaviour and its view of what constitutes criminal conduct. It also protects individuals against the excessive exercise of power by one State in another sovereign State and this is one of the legal safeguards built into the MACMA. Under the existing MACMA, all foreign

Page: 44

mutual legal assistance requests that do not satisfy the Dual Criminality requirement must automatically be rejected.

The international practice of the Dual Criminality requirement varies across States. Some States adopt an approach similar to Singapore's current regime while a few have dispensed with the requirement entirely. However, most leading jurisdictions, such as the United Kingdom, the United States and Canada, have moved towards a more calibrated application of the Dual Criminality requirement. In these States, the Dual Criminality requirement still applies but it is confined only to requests involving coercive forms of assistance, for example, search and seizure requests, or requests to confiscate assets. The requirement is removed for forms of assistance which do not involve the use of their enforcement powers.

The Ministry has studied the international trends and practices and we think that there is merit to this calibrated approach. For instance, if a person voluntarily consents to give evidence or provide assistance in a foreign court concerning a foreign offence even though it would not have constituted a serious offence in Singapore, that request can be considered and should not be automatically refused simply because it does not fulfil the Dual Criminality requirement. Singapore may not have any connection or interest in the case and there may be little reason for us to stand in the way of assisting in such requests. The Ministry has assessed that these forms of assistance no longer require Dual Criminality as a legal safeguard.

The Ministry will therefore not impose the Dual Criminality requirement for types of assistance that neither attract penal consequences for non-compliance nor adversely affect the property rights of individuals. This means that Singapore will be able to render assistance for foreign requests involving any foreign offence to:

arrange the attendance of persons in the foreign state; or

facilitate the custody of persons in transit through Singapore; or

locate or identify persons; or

assist in effecting the service of process.

The Dual Criminality requirement will continue to be maintained for the coercive forms of assistance under the MACMA. These are assistance in obtaining evidence, enforcement of foreign confiscation orders, and assistance in search and seizure.

Page: 45

In addition, the Bill seeks to amend and clarify the application of the Dual Criminality requirement for coercive forms of assistance with respect to foreign tax evasion offences.

In respect of foreign requests for a court order to produce information or items, Dual Criminality will not apply if the act or omission underlying a tax evasion offence falls within the act or omission prescribed under the MACMA.

When Singapore designated tax evasion offences as money laundering predicate offences last year, the aim was to allow mutual legal assistance to be rendered in cases of wilful or fraudulent tax evasion. However, owing to the different types and names of taxes imposed in Singapore and overseas, there is some legal uncertainty about whether the dual criminality requirement would prevent Singapore from rendering assistance where there is clearly wilful or fraudulent tax evasion but the foreign tax evaded, for example, capital gains tax, is not a tax that is imposed in Singapore.

This amendment seeks to remove this uncertainty by expressly lifting the Dual Criminality requirement and making clear that Singapore can render assistance for foreign requests involving tax evasion offences, regardless of the type of tax evaded. This will help strengthen Singapore's ability to assist in bona fide cases of wilful or fraudulent tax evasion.

Dual Criminality will also no longer be required for the enforcement of foreign confiscation orders and for assistance in search and seizure orders in respect of foreign requests from jurisdictions that have Avoidance of Double Taxation Agreements (DTAs), Exchange of Information (EOI) arrangements or international tax compliance agreements with Singapore.

These changes demonstrate Singapore's commitment towards combating cross-border financial crimes and address any misperception that Singapore is a shelter for tax-illicit monies.

Second, the types of offences for which mutual legal assistance can be rendered under the MACMA will be expanded. A standalone list of offences will be introduced into the MACMA, and this list of offences will determine whether mutual legal assistance requests may be made by Singapore, or made to Singapore by a foreign country for a coercive form of assistance where the Dual Criminality requirement is applied. This will be done by amending the definitions of "drug trafficking offence" and "serious offence".

Under MACMA, as it currently stands, mutual legal assistance requests may be made or provided if the request concerns an offence that falls under two categories of offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act

Page: 46

. These are drug trafficking offences or serious offences as defined in the CDSA, which are generally money laundering offences. These CDSA Schedules also determine whether the Dual Criminality requirement is satisfied since the equivalent Singapore offence must be one that is listed under those two Schedules.

The present link between MACMA and the offences in the CDSA has existed since the MACMA was enacted in 2000. The CDSA lists serious offences, but generally excludes offences that are unlikely to be linked to money laundering. An example of a serious offence not covered by the CDSA would, for example, be the offence of causing death by a rash or negligent act.

The Bill will thus de-link from the CDSA the type of offences for which mutual legal assistance requests can be made or provided. It will create a standalone list of such offences within MACMA itself. This will allow offences which are not linked to money laundering, such as selected Road Traffic Act offences, to be added to the mutual legal assistance framework. All offences listed under the First and Second Schedules of the CDSA have been imported into the MACMA while some additional offences have been added to the MACMA Schedule of "serious offences".

Further, in order to ensure that all serious offences are covered by the MACMA, the Bill will introduce a "catch-all" provision whereby mutual legal assistance will be available for all Singapore offences carrying a maximum sentence of at least four years' imprisonment. This threshold is pegged to a similar level as that prescribed in the United Nations Convention Against Transnational Organised Crime, to which Singapore is party.

Both of these amendments will allow Singapore to provide and obtain international mutual legal assistance for a wider scope of serious offences.

The next set of amendments relate to instrumentalities for serious offences.

An instrumentality of an offence refers to the instrument or tool used in connection with the commission of an offence, for example, a car which is used to smuggle cigarettes into our borders.

Currently, Singapore can assist in the enforcement and satisfaction of a foreign confiscation order by confiscating instrumentalities relating to drug offences only. The Bill introduces an amendment to expand the scope of assistance to all serious offences and align the MACMA with the domestic confiscation order regime.

Page: 47

Fourth, the Bill introduces amendments that were moved earlier by MHA for the CDSA that are equally applicable in the context of mutual legal assistance, such as extending the application of legal privilege to in-house counsel, amending the definition of a "financial institution", and removing the requirement for a certificate by a foreign authority to prove a foreign offence.

These amendments will enable Singapore to remain a responsible and effective member of the wider international cooperation network in the war against transnational crimes. Mdm Speaker, I beg to move.

Mdm Speaker, I support the Bill. Transnational crimes pose a unique problem. Since more than one country is involved in the planning, execution or impact of the crimes and house those who mastermind or execute them, individual countries often do not have the jurisdictional reach to effectively investigate and arrest criminals. Partnerships between countries are necessary. In this regard, a key tenet of Singapore's legal infrastructure in our fight against transnational crime is the Mutual Assistance in Criminal Matters Act (MACMA).

I support this Bill as it represents a step forward in international crime enforcement by significantly widening the scope for cooperation between Singapore and other countries.

One clear instance of this is the Bill's removal of the general requirement of dual criminality. Back in 2006, the MACMA provisions had been amended to remove the need for a Mutual Legal Assistance (MLA) treaty between Singapore and the foreign country as a pre-condition for legal assistance, so long there is an undertaking of reciprocity. Now, this Bill goes one step further. While section 20(1)(f) of the current MACMA imposes the requirement of dual criminality on every request by a foreign country for assistance in a criminal matter for coercive measures, clause 4 of this Bill deletes section 20(1)(f), and introduces the new section 20(3), which imposes the requirement for dual criminality only if the request relates to assistance in obtaining evidence, enforcement of confiscation orders, and assistance in search and seizures. Furthermore, the new sections 20(4) and (5) relax the requirement for dual criminality in the case of a request relating to foreign tax evasion, so that we can now give assistance in cases where the tax being evaded is not of a type imposed in Singapore.

Page: 48

However, de facto reciprocity must continue to be a key tenet of this law. I would, therefore, like to ask the Senior Minister of State whether it is or will remain the Government's policy to exercise its discretion to offer assistance only to those countries which are likewise cooperative or receptive to our requests?

A second instance of this Bill's facilitation of international crime enforcement is evident in its removal of the requirement of a certificate when proving a foreign drug offence. This Bill removes the certificate requirement, allows for other forms of evidence to be adduced to prove the foreign drug offence. And of course, this is sensible.

Ultimately, this Bill heavily complements the amendments proposed in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) (Amendment) Bill, now act and goes towards further enhancing Singapore's global anti-money laundering and anti-terrorism financing initiatives.

I would, therefore, like to ask what steps the Ministry is taking to increase the network of countries we can cooperate with, so that those who commit crimes in our country will not be able to seek refuge elsewhere and, likewise, those who seek refuge here can be brought to justice.

Madam, I stand in support of this Bill. With the mutual legal assistance framework being strengthened, can I enquire a few clarifications? Do we have a list of legal representatives who can participate in this Act? Will they need strategic training, as well as an in-depth understanding of cross border, as well as global legal systems?

Secondly, once a request is received or put forth, how long does it take for approval and processing before the mutual assistance can be rendered in general?

Thirdly, do we have some regional understanding on this matter, for example, between ASEAN countries or do we have to rely on bilateral arrangements we have with each individual country.

Fourthly, Madam, in general, how does Singapore make a decision pertaining to a request? Do we consider if we have had similar assistance from that particular country before, that is, reciprocity, or have we ever encountered, or are likely to encounter, a case whereby a particular Country X has been unhelpful previously on a case and now we have to handle a case from that same country. Are we likely to decline a request if it is not in our

Page: 49

interest to provide that assistance?

And finally, despite the expansion of coverage of the type of crimes and offences, what if there is a request for mutual assistance for one that is not on that new standalone expanded list? I would assume a case-by-case assessment would be done here and would apply but will there be other considerations as well? I support the Bill, Madam.

Mdm Speaker, I would like to thank the Members, Mr Hri Kumar and Assoc Prof Fatimah Lateef for their support of the Bill. They have raised a few questions which I will address in turn.

On the query raised by Assoc Prof Fatimah Lateef regarding the list of legal representatives who can participate in the Mutual Legal Assistance framework, such a list does not feature in this context. And perhaps I should explain how a mutual legal assistance request in Singapore is processed.

Mutual legal assistance is the process by which States seek and provide formal assistance in criminal matters at the government-to-government level for the purposes of investigation and judicial proceedings. In this regard, the mutual legal assistance requests are usually sent, received and processed by a central authority within the government.

In Singapore, the Attorney-General's Chambers is the central authority handling mutual legal assistance requests. If the Attorney-General's Chambers assesses that the request meets the legal requirements under MACMA, it will send a notice of the request to the Minister for Law. The Minister will assess each request before instructing the Attorney-General on the action to be taken.

If we are able to assist in a foreign request, our relevant agencies will be involved in providing the assistance sought. Examples of assistance include obtaining evidence for use in foreign court proceedings, arranging for the attendance of a person in the foreign state, or giving effect to a foreign court order to confiscate assets in Singapore.

Assoc Prof Fatimah Lateef also asked about the training and time required to process requests for mutual legal assistance. I would like to assure the Member that our agencies are adequately trained to handle the mutual legal assistance requests in a timely fashion.

Regarding the time taken to process and approve a foreign request made to Singapore, we act on each request as expeditiously as possible and prioritise urgent requests with time

Page: 50

sensitivities. However, the actual time taken depends on several factors, such as the complexity of the request and the nature of the request. The time taken for the requesting State to respond to our clarifications is also an important factor and this can sometimes cause significant delays.

As for how Singapore decides whether to accede to a request for mutual legal assistance, our approach has always been to be as facilitative as possible within the framework of our laws. In this regard, MACMA sets out the legal conditions that need to be met before assistance can be provided. Each request received will be assessed based on its circumstances and merits.

I do not propose to detail all these conditions, but will cite some to illustrate the point. For example, we would decline to assist if a request is contrary to our public interest or if it could prejudice a criminal matter in Singapore. We may also decline a request if the assistance sought may prejudice the safety of any person or if it would impose an excessive burden on Singapore's resources. The Minister for Law can also decide not to assist in a request that would be against the interests of the sovereignty, security and public order of Singapore to do so.

Both Members raised questions relating to our regional and international networks on mutual legal assistance.

At the outset, I would reiterate the point made by Mr Hri Kumar, that under MACMA, there is no need for a treaty or arrangement to be in place before mutual legal assistance can be rendered. So long as an undertaking of reciprocity is provided by the foreign requesting state, mutual legal assistance can be provided even in the absence of a treaty.

Mr Hri Kumar had asked whether it remains our policy to offer assistance only to countries that reciprocate. We will continue to require from requesting States an undertaking of reciprocity in that it will comply with a future request from us for similar assistance. As to Assoc Prof Fatimah Lateef's question on handling a request from a country which had previously been unhelpful to our request, we have not come across such a situation thus far.

In terms of regional networks, at the ASEAN level, there is a Regional Treaty on Mutual Legal Assistance in Criminal Matters which all ASEAN Member States are party to. Singapore was the first to ratify this agreement in 2005. Where a request is received pursuant to this ASEAN agreement and the legal requirements are met, we would provide the assistance sought.

Page: 51

Outside of the MACMA framework for formal assistance, assistance can also be sought by foreign states at a more informal level, such as between financial intelligence units in the early stages of an investigation.

Singapore has taken steps to boost our international network in cooperation in legal and law enforcement issues to combat transnational crime. We are party to various treaties and conventions related to crime and countering terrorism, such as the UN Convention Against Transnational Organised Crime and the UN Convention for the Suppression of the Financing of Terrorism. Singapore is also an active member of various international bodies, such as the INTERPOL.

These conventions and international bodies provide platforms for cooperation between states. Over the years, our agencies have built up a broad network with many countries to share expertise, render technical assistance, exchange information and collaborate in operational exercises.

Finally, our enhanced mutual legal assistance regime under the Bill will complement and add to our continuing efforts to contribute to the global fight against international crime.

I believe Assoc Prof Fatimah Lateef had an additional question about assistance for offences not on the list. The answer is that we would have to look at MACMA to see which are the offences that MACMA allows us to provide mutual legal assistance for. So long as it falls within the ambit of MACMA, we will provide the assistance. If it falls outside the ambit of MACMA, we will not be able to do so.

[(proc text) Question put, and agreed to. (proc text)]

[(proc text) Bill accordingly read a Second time and committed to a Committee of the whole House. (proc text)]

[(proc text) The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah]. (proc text)]

[(proc text) Bill considered in Committee; reported without amendment; read a Third time and passed. (proc text)]

Page: 52

Mdm Speaker, I beg to move, "That this House endorses Paper Cmd 4 of 2014 on 'MediShield Life Review Committee Report' as the basis for designing MediShield Life, to provide every Singaporean with better lifelong protection against large medical bills through better collective support, in a scheme that is financially sustainable, affordable to all, and strengthens our social safety net."

At last year's National Day Rally, the Prime Minister announced the shift from MediShield to MediShield Life – to provide Better Protection. For All. For Life.

As MediShield Life is a significant move, we wanted to seek as many Singaporeans' views as possible on this new scheme. We appointed the MediShield Life Review Committee in November 2013 to review and study the proposed parameters, and consult widely with the public and key stakeholders. Over the last eight months, the Committee has worked very hard to engage Singaporeans, and made significant and valuable recommendations for the new MediShield Life scheme.

Last month, the Committee submitted its report to MOH. We have accepted all its recommendations on the design of MediShield Life. The Committee has also made many good recommendations and useful proposals in related areas. We will study these in greater detail.

Committee Chairman Mr Bobby Chin and some of his committee members are with us today in the Chamber. I would like to place on record my deep appreciation for their contributions [Applause]. I would also like to thank the many Singaporeans who gave their views and suggestions.

Madam, the introduction of MediShield Life is a major shift in our healthcare financing framework. Before going through the details of the Committee's recommendations, it is important to put in context the shift to MediShield Life as part of the broader changes in how we help Singaporeans pay for our healthcare.

Many Singaporeans enjoy good health, but we worry about healthcare costs, for ourselves and for our parents. Spending on health and aged care will continue to grow with our rapidly ageing population. Families are also getting smaller. What used to be shared

Page: 53

among several siblings is now shared among few and sometimes none.

Our healthcare financing framework, consisting of heavy Government subsidies together with the 3Ms – Medisave, MediShield and Medifund – has served us well so far. However, it is not perfect and will need to constantly evolve to meet future needs arising from changing demographics. Social safety nets will also need to be strengthened, to give greater peace of mind.

We announced three significant shifts in healthcare financing last year – increasing Government's share in healthcare spending, enhancing flexibility in Medisave and strengthening collective responsibility through MediShield Life. In doing so, we remain mindful to reinforce the ethos of individual effort and responsibility for the family – values that keep our society together and our economy strong.

First, Government will do more. The Government has already increased healthcare spending significantly and will continue to do so. We have enhanced subsidies for outpatient and long-term care, and expanded coverage of the Community Health Assist Scheme (CHAS) for primary care. We have expanded Medifund assistance for more long-term care services, and for primary care. Over the last 10 years, we have increased the amount of Medifund assistance three-fold – from $34 million in 2003 to $102 million in 2012. These changes have made financial assistance more readily available for Singaporeans and also strengthened the assurance that all Singaporeans, regardless of income, would receive the care that they need.

The Government's spending on healthcare will double to about $8 billion this year from just three years ago. The Government has also committed another $8 billion for the Pioneer Generation Package, to provide enhanced support for their healthcare needs, for life.

Second, we are allowing more flexible Medisave use to further reduce Singaporeans' cash outlay for healthcare expenses. We have expanded Medisave use to more types of chronic diseases, and recommended screenings and vaccinations. By next year, we will be extending Medisave use to scans needed for treatment and diagnosis, and allowing the elderly more flexible use of their Medisave for outpatient medical treatment.

With more uses for Medisave and longer life expectancies, we must also ensure that Singaporeans have enough Medisave for their old age needs. Therefore, for the elderly and lower income, the Government regularly tops up their Medisave balances through GST Vouchers and Workfare. Employers too, play their part, and will contribute an additional 1%-point to their employees' Medisave accounts starting from next year.

Page: 54

Finally, MediShield will be enhanced and renamed as MediShield Life, to provide better, lifelong healthcare insurance protection for all Singaporeans. MediShield Life complements the other policy shifts by targeting larger bills. By sharing the risk among everyone, individual patients pay less of their bills. I will elaborate more on MediShield Life later.

Together, enhanced subsidies, greater use of Medisave and the shift to MediShield Life will provide greater support for Singaporeans to keep healthcare affordable.

Our national healthcare spending has risen and Government spending on healthcare has risen even faster. What matters, however, is not how much we spend, but how we spend it, and the outcomes we get. The key is getting the best outcome at the lowest cost possible. At 4% of GDP, we currently spend less than most other developed countries, but with good outcomes. Life expectancies are high and rising, and our infant mortality rates are among the lowest in the world. However, we are still young compared with many developed countries and we will spend more as our population ages. Medical and technological advancements coupled with expectations for the latest treatment will also increase costs. We must continue to manage overall healthcare costs to ensure that they do not translate to sharp increases in insurance premiums.

So, what are the hallmarks of a good system? One that achieves high quality outcomes, while being cost-effective, accessible to all, and sustainable for current and future generations.

First, on cost-effectiveness. Co-payment imposes discipline on both providers and patients to focus on the most clinically-appropriate and cost-effective option. National insurance schemes with minimal co-payment at the point of treatment may sound alluring, but may not give the best outcomes. With minimal or no co-payment, patients are likely to consume more, or providers supply more – and more does not mean better. The costs are ultimately borne by the rest of us, in the form of higher premiums or taxes. In Germany, for example, co-payments are low but premiums are high, and employers and employees contribute up to 15.5% of their income towards the insurance fund. As Germany's population ages, not unlike Singapore today, their financing model is coming under increasing pressure. This is why co-payments remain a cornerstone of our healthcare financing framework to guard against over-consumption and over-provision.

To build a cost-effective system and manage healthcare costs, we need to work further with the community, healthcare providers and insurers to do three things. The first thrust is to continue efforts we announced earlier during the Committee of Supply, to help every Singaporean live a healthy lifestyle. We will work with the community partners to make

Page: 55

healthy living as effortless as possible.

The second thrust is to ensure that healthcare dollars are spent wisely. The Government will continue to support healthcare providers to improve productivity and encourage cost-effective treatments. Providers should not prescribe more costly tests and treatments simply because patients are covered by insurance, if these provide limited value.

Finally, the third thrust is to work with insurers and coordinate with the CPF Board, as the MediShield Life operator, to take a closer and harder look at charging practices, as the MediShield Life Review Committee has suggested. Today, hospital bill sizes are published on MOH's website to encourage awareness and allow for comparisons. The Government will do more and work with insurers to develop a framework for sharing of information on unusually large bill sizes and study the reasons for exceptionally high claims if they observe a certain pattern of claims or behaviours by healthcare providers.

The second hallmark of a good system is one that ensures that healthcare is accessible to all. To achieve this, we must calibrate what the patient needs to pay carefully. The very sick and the needy naturally need more help. This is why we vary subsidies depending on income, as well as the Annual Value of one's residence, as a proxy for one's means and wealth. This enables us to target subsidies at those who really need it. For those who still cannot afford their share of their bills, including those living in properties with higher Annual Value but are facing genuine financial difficulties for valid reasons, there will be additional help, such as from Medifund.

Finally, our healthcare system must be sustainable. Otherwise, our children's generation will be paying for the bulk of our healthcare costs when we are old. With a growing number of elderly, our children will face an immense burden if we do not manage overall costs. We must learn from the experience of other countries. Many are coming under increasing strain as their shrinking workforce struggles to pay for the healthcare costs of an ageing population. An example is Hong Kong, where healthcare is made affordable through subsidies financed by taxes.

The constant challenge is how to balance the finite government budget among the competing needs of healthcare, social services, education and so on. Insurance systems may find that premiums collected are increasingly unable to support the coverage. Some have opted to cut back on the scope of coverage and benefits. This is why we need to ensure that the Government, providers and patients, all have a responsibility in paying for and managing healthcare costs, so that their interests are aligned. This helps to keep healthcare not only affordable but sustainable, too.

Page: 56

The key principles of cost-effectiveness, accessibility and sustainability are sound and have served us well. However, we can do more to give Singaporeans greater assurance and peace of mind about healthcare costs, especially large and unexpected bills that may cause financial hardship to patients and their families.

During Our Singapore Conversation, Singaporeans expressed support for greater collective responsibility, to come together as a community and as a nation, to provide help to those who meet with unexpected shocks. It is for these reasons that we decided to embark on MediShield Life – a national insurance scheme – as a decisive step towards this objective.

The MediShield Life Review Committee took on the mammoth task of formulating recommendations on MediShield Life. They worked hard to listen to Singaporeans and weighed the pros and cons of the many ideas and suggestions received to come up with a comprehensive package of well thought-through recommendations. In doing so, they had to strike a balance between keeping premiums affordable for all Singaporeans while focusing on the most valued and impactful benefits.

The benefit enhancements suggested by the Committee are significant and focused on large bills, which Singaporeans have expressed the most concerns with. Raising the claim limits will allow MediShield Life to cover more of such large bills, while lowering the co-insurance, which is the portion paid by patients, will reduce the out-of-pocket burden of our patients.

Take, for example, Mr Tan, who was warded for a heart attack in Class B2 Ward. He incurred a bill of $8,000 after Government subsidy. By the way, this is a fairly large bill, as only an estimated four in 100 subsidised Class B2 and C bills are of this amount or higher. Under the current MediShield, this bill will exceed the claim limits, and after adding the deductible and co-insurance, Mr Tan would have to pay close to $4,700. MediShield Life's higher claim limits will fully cover the bill amount. Together with the lower co-insurance rate, Mr Tan's out-of-pocket payment will be nearly halved – he now only has to pay $2,400 of the $8,000 bill, which can be covered by Medisave.

The Committee's recommendation for the lifetime claim limit to be completely lifted is also in line with MediShield Life's intent to provide lifelong coverage and will ensure that those who accumulate large bills over time, such as dialysis patients, will continue to be covered for life.

While the Committee recommended significant increases in the claim limits, it felt that deductibles ought to be maintained at the current levels, despite calls to remove or lower them. Deductibles help to keep premiums affordable, by sieving out smaller bills. It ensures

Page: 57

that MediShield Life remains focused on providing assurance against the fear of large bills, instead of paying for smaller amounts that can be covered by Medisave.

The Committee also highlighted that premium affordability after retirement needs to be addressed. Many Singaporeans had suggested spreading out premium payments while they were working so as to better afford premiums during retirement. We agree with the Committee's recommendation that premiums should be more evenly distributed throughout one's lifetime. By paying premiums ahead during our working years, we build up a pool of rebates to cushion future premium increases during retirement.

We recognise that the shift to universal coverage to bring those with pre-existing conditions into MediShield Life will need significant support. The Government will bear the bulk of the cost of including all Singaporeans, including those with pre-existing conditions. With the Government covering much of the cost, Singaporeans will need to pay only a small increase from their current premiums due to universal coverage to include everyone. This strikes a good balance between demonstrating shared responsibility and inclusivity while keeping premiums manageable.

Overall, MediShield Life premiums will need to increase due to the enhanced benefits for the scheme, better spread of premium payments over a lifetime for those of working age, as well as a small component due to the collective effort for those with pre-existing conditions. The premiums can be fully paid for with Medisave. We will revise the Medisave withdrawal limits from time to time, to ensure that they always fully cover the MediShield Life premiums. I want to assure Members that those who need help with premiums will always receive support.

For the Pioneer Generation, there will be significant Premium Subsidies of up to 60% as well as Medisave top-ups of up to $800 for them, for life. They will pay less for MediShield Life compared to MediShield today, but with better benefits.

The Government will provide support also, for the lower to middle income households through Premium Subsidies, which will be a permanent feature in MediShield Life. Up to two-thirds of the population will be eligible for Premium Subsidies. For those who need more help to pay their premiums even after these subsidies, Additional Premium Support will be available, similar to Medifund. No Singaporean will lose MediShield Life coverage due to financial needs.

In order to ease the shift from MediShield to MediShield Life, we will also provide transitional subsidies, over and above Permanent Subsidies and assistance, to all Singapore

Page: 58

Citizens who face premium increases, for four years regardless of income.

For most households, the additional 1%-point employer's Medisave contribution from next year will be sufficient to cover the increase in their MediShield Life premiums. In fact, after Government subsidies, total MediShield Life premiums for most households will remain within annual Medisave inflows, with no additional cash outlay needed.

With substantial Government subsidies and support, premiums will be more affordable for most Singaporean households. Let me illustrate.

In the first year of MediShield Life, with Premium Subsidies and first year transitional subsidies, the maximum premium increase will be less than $3 per month for the lower income, and no more than $6 per month for the higher income.

Even after transitional subsidies have been phased out from the fifth year onwards, Singaporeans from lower income households will continue to benefit from permanent Premium Subsidies. Their premium increases compared to MediShield today will be no more than $11 per month. Those from high income households will see a maximum premium increase of $30 per month.

All Pioneers will pay less for MediShield Life premiums than today, as I explained. For Pioneers aged 80 and above in 2014, they will have their premiums fully covered for life, after Premium Subsidies and Medisave top-ups.

Madam, we are able to afford the hefty $4 billion package of Government help for MediShield Life because of our good governance, strong economy and sound public finances.

Universal lifelong coverage under MediShield Life ensures that all Singaporeans will always have assurance against large healthcare bills. It is in line with our move to a more inclusive society with stronger collective responsibility. To achieve this, the MediShield Life Review Committee has recommended that MediShield Life coverage be mandatory for all Singaporean Citizens and Permanent Residents, without exceptions. The Government fully agrees with this. As a national scheme, MediShield Life must cover all Singaporeans. We are providing very significant help to all, through Premium Subsidies and additional support, to ensure that everyone is covered by MediShield Life and that no Singaporeans will be denied coverage due to financial need.

This will enable all Singaporeans to play our part in contributing to our national risk pool and benefit from the lifelong coverage.

Page: 59

Some have expressed concerns about duplication in coverage for those with private insurance plans or employer medical benefits. Unlike MediShield Life, other healthcare coverage may not be guaranteed for life. Employees with healthcare coverage from their employers will lose such coverage when they leave employment or retire. For those with other private insurance, they may lose this coverage if they are unable to pay for the premiums when they grow old and may not be able to re-apply for coverage later if they have already developed some health conditions.

MediShield Life provides an opportunity for stakeholders – employers and unions – to work together to better assure our workers of lifetime medical coverage and not just for the duration of their employment. The 1%-point increase in the employer Medisave contribution rate from 2015 will help. But more can be done to encourage both employers and employees to shift to portable medical benefits built on MediShield Life. The NTUC has made this suggestion in its submission to the Committee. I am encouraged that the public service has taken the lead to increase its employer Medisave contribution to public officers, to help them pay for MediShield Life or Integrated Shield Plans that are built upon MediShield Life. I hope more employers and unions will work together to do this for their workers.

SNEF, NTUC and the Government have formed a tripartite working group to look into this issue and the Government will also consider strengthening incentives to companies who are willing to provide portable medical benefits that ride on MediShield Life for their employees, as recommended by the Review Committee.

As a national health insurance scheme, it is essential that MediShield Life remains sustainable in the long run. The Committee has therefore stressed that we must set aside sufficient reserves and other provisions in the MediShield Life Fund to prepare for future liabilities, including long-term recurring claims and future premium rebates that arise from distributing premiums over our lifetime. I should stress that MediShield Life is a not-for-profit scheme. The reserves remain in the pool, for the protection and benefit of the policyholders.

The Government will continue working with the actuaries and CPF Board to ensure adequate provisions are made for expected future payout commitments as well as unforeseen circumstances.

Let me now move on to another topic that the Committee had studied, on the Integrated Shield Plans (IPs).

Many Singaporeans want to know how their IPs will be affected with the implementation of the MediShield Life. First, let me explain how IPs work together with MediShield. IPs are in fact made up of two components. First, a MediShield tier which

Page: 60

provides coverage sized based on charges for Class B2 and C Wards. Second, a top-up component offered by the private insurer, which provides enhanced coverage for stays in higher ward classes or private hospitals.

IP premiums collected by insurance companies are similarly divided into two components: first, the MediShield component, which is the same as what is paid by those who only have MediShield, and that goes to CPF for the MediShield pool; and the second component, which is the remainder, is kept by the insurance provider as premium for the top-up component. IP premiums are much higher than MediShield premiums because they are based on charges for higher ward classes. When implemented, MediShield Life will simply replace the current MediShield component within the IPs.

Singaporeans who are currently on IPs will not be disadvantaged with the introduction of MediShield Life. Given that MediShield Life will take on a larger share of IP payouts, MOH will work with IP providers to take this into account when they set IP premiums.

The overall increase for IP premiums resulting from the introduction of MediShield Life is expected to be the same, if not lower than the increase in MediShield Life premiums. IP policyholders will also receive the same premium subsidies on the MediShield Life portion of their IPs.

In fact, all IP policyholders will benefit significantly from MediShield Life. They will enjoy MediShield Life coverage for life, including pre-existing conditions, even if these have been excluded from coverage by their IPs. This will provide peace of mind to all Singaporeans that they will continue to be covered at the basic level, even if they have exclusions on their IPs or drop out from their IP plans.

To help provide an accessible and easily understood upgrade option for all Singaporeans, the Government agrees with the MediShield Life Review Committee to work with insurers to develop key features of a standard Integrated Shield Plan that provides coverage based on Class B1 charges. This will provide a good option for those who may want enhanced coverage beyond MediShield Life and we will provide more details after studying this carefully.

Some Singaporeans have asked if they should consider giving up their IPs altogether and just rely on MediShield Life. I am not an insurance agent, so it is difficult for me to give specific advice, but I can share my views. I would suggest that they should consider their preferences very carefully and structure their insurance coverage according to their needs and ability to pay over the long term. Many Singaporeans may buy IPs during their younger working years, when they can comfortably afford the IP premiums which are lower, given

Page: 61

their younger age.

As premiums increase sharply in old age, especially after retirement, some start to find IP premiums unaffordable. While downgrading is an option, it is not an easy decision to make. Many feel unsure about how to do it, or whether to do it. Having a good understanding of IPs and MediShield will enable us to decide on the appropriate insurance coverage for ourselves, so we can make informed choices and spend our healthcare dollars wisely. Whether one should buy an IP is very much a personal decision, and may change depending on the stage of life each of us is in, our desired level of health services, and our individual financial situation.

Madam, let me conclude. Since the Committee announced their recommendations on MediShield Life almost two weeks ago, I am heartened that Singaporeans from all walks of life, young and old, have welcomed MediShield Life, as have employers and unions alike. The idea of MediShield Life goes beyond healthcare and insurance. It is, in fact, a reflection of the kind of society we want to build: a more inclusive society – where we pool our resources together to help the sick among us – and a more caring and progressive society, where those who are needy receive more help.

Indeed, MediShield Life is a bold move to strengthen collective responsibility, where everyone is chipping in to cover those with pre-existing conditions, helping the less well-off through premium subsidies and financial assistance, and risk-pooling through insurance and family support. This shift is a major and timely undertaking for Singapore.

MediShield Life is one major plank of our strategy to improve the social safety net for Singaporeans and build a more caring and inclusive society. At the same time, we will strengthen our efforts to manage healthcare costs, so as to ensure healthcare remains affordable and sustainable in the long term. Every citizen plays an important role in this, by leading a healthy lifestyle and making healthcare decisions wisely.

I urge the House to support the Motion. Together, we can then fulfil our desire to live long and live well, and with peace of mind. Madam, I beg to move. [Applause]

[(proc text) Question proposed. (proc text)]

Order. I propose to take a break now. I suspend the Sitting and will take the Chair again at 4.20 pm.

Sitting accordingly suspended

Page: 62

at 4.00 pm until 4..20 pm.

Sitting resumed at 4.20 pm

[Mdm Speaker in the Chair]

[(proc text) Debate resumed. (proc text)]

Mdm Speaker, we have one of the best healthcare systems in the world and we are one of the healthiest countries in the world, if not the healthiest according to recent surveys. But despite this, Singaporeans are concerned about medical costs, particularly when treatment in the hospital is required.

Singaporeans are not alone in this regard because even in countries where medical and hospital care is by and large free, their citizens are also worried about healthcare costs. I will touch on this seemingly paradoxic observation later.

All of us here, I am sure, hope to be remain healthy and never see a doctor, let alone the inside of a hospital ward. Most of us strive to remain healthy, but illness is unpredictable, and the cost of treating illness is difficult to plan for. So, this is why we have hospitalisation and major illness insurance, such as MediShield, to give us peace of mind.

In August last year, the Government Parliamentary Committee for Health made recommendations regarding how MediShield could be improved to give better peace of mind to Singaporeans for their hospitalisation expenses.

We noted that after Government grants, over 90% of patients seeking subsidised care in Government hospitals had bills that could be comfortably addressed by both Medisave and MediShield, with many not requiring any upfront cash payment at all. There still remains, however, a small but significant number of patients who have difficulties with their hospital bills.

Why is this so? When we look more closely at this group of patients, it appears that, well, they either did not have MediShield or had conditions that were not covered under their existing policies, or their bills were very large due to the complexity of their conditions

Page: 63

and the length of their hospitalisation, such that the coverage they already had under MediShield was insufficient, and there was also not enough in their Medisave accounts to cover the deficit. We also noted that there was a very small but, still, a number of elderly patients who had dropped out of MediShield as the premiums had gone up too much for them in their older years.

The announcement of MediShield Life which promises more comprehensive and much improved coverage for everyone and for as long as he or she shall live, should address most of these concerns, and I warmly support it.

I wish at this junction to record my thanks to the MediShield Life Review Committee for their efforts towards making MediShield Life a reality. It is evident from their comprehensive report that they have taken a lot of care and time listening to ordinary Singaporeans from all walks of life, as well as to healthcare insurance professionals, and have managed to somehow synthesise these myriad suggestions and concerns into a practical package that should serve our future healthcare needs for years to come.

Under MediShield Life, the inclusion of all Singaporeans, regardless of pre-existing medical conditions, is an exceedingly bold rule that promises to build a more equal and inclusive society.

It is right and proper that the Government steps in to bear the majority of the huge costs required to make this happen. And it is also right and proper that the Government provides the assurance to all Singaporeans such that the revised premiums are affordable and promises that special provisions be made to help citizens and their families who may still find difficulties with some of the payments.

The Pioneer Generation Package that was recently announced, provides a massive boost in this respect as our seniors face the highest potential premiums yet possess little in their Medisave accounts. Many have spent their most productive working years before the introduction of either Medisave or MediShield.

Concerns do remain. Will the improved benefits meet the present and future needs of Singaporeans in an evolving healthcare landscape? Will this grand insurance scheme be both sufficient and sustainable, given that both advances in healthcare and demand for healthcare can be unpredictable? Will we be able to keep premiums in check and keep premiums affordable by all over the next decade or so? Will we be providing too much, too quickly and running the risk of over-consumption? And will such a generous scheme encourage greater abdication of personal responsibility for one's health?

Page: 64

I have reason to be optimistic. The 3M financing framework that has been built up over the past few decades, and as mentioned, a world-class healthcare system and a resident population whose health is world leading, provides a firm foundation for MediShield Life to remain relevant and robust for the next decade and beyond.

But it is prudent to be cautious and we should cast a wary eye towards the experiences of other countries that have similar national health insurance programmes, all of which had glittering starts but are increasingly mired with the same healthcare problems they were originally designed to circumvent.

Taking one step back, some have asked: why bother with a national medical insurance at all? Why not have a social public health system where the majority of medical services are provided at minimal cost, or perhaps even free, such as in Hong Kong or in the UK?

There are several problems to this approach, however. First, and I think we all acknowledge it, such systems are very expensive to maintain; and second, such systems can be relatively inefficient in that emergency services are relatively well addressed, but non-emergency medical services and highly specialised care, which comprise a large proportion of hospitalisations in developed nations like ours, tend to be quite severely rationed and can be of uneven quality.

Some of us might have read or heard of starry-eyed accounts about how someone residing in or visiting such a country had some sort of a medical emergency and was whisked in and out of a hospital having to pay just a token amount of $30, $40, or $50.

The flip side – and there is always a flip side – would be the many unhappy accounts by irate patients waiting lengthy periods for elective procedures by anonymous medical teams. Put it another way, if you break your leg, you are probably quite well off in such a system, but if you need your gall bladder taken out, a stone removed or hip replaced, you would probably be less enthusiastic about the options. The Canadian public care system, for example, has budget limits on elective procedures and this affects waiting times for such procedures, whereas the wait for some types of surgical treatments in Australia under the public system can be over a year in some regions.

What this does is that it spawns dual track systems where private medical services become increasingly in demand and can command increasingly exorbitant fees due to a lack of alternatives. This paradoxically leads to over-coverage: citizens in these countries already pay a premium in taxation to help fund these social healthcare systems, yet they feel increasingly compelled to purchase private insurance plans to obtain more choice with respect to medical treatment. You end up paying much more if you feel that having more

Page: 65

choice and more control over your medical destiny is important to you, and many people do, in fact, feel that way.

Following the announcement of MediShield Life with its improved coverage, many were understandably concerned about how the new premiums would turn out. Reassuringly, the Review Committee has recommended fairly moderate premium increases, and I say this because it has to be taken in the context of the slew of upgraded benefits: lifelong coverage, removal of lifetime claim limits and markedly improved co-insurance terms.

The announcement of both fixed and transitional subsidises by MOH has further moderated premiums quite significantly and, together with the increase in employer Medisave contributions, ensured that almost everyone will be able to service premium payments through Medisave alone.

Despite this, it is certain that there will be some individuals and families who might still have difficulties with premiums, and I am heartened by the Minister's reassurance in this regard, that help will be available.

However, keeping MediShield Life sustainable and keeping premiums affordable should not depend on enduring Government subsidies. Rather, the focus should remain on keeping medical costs low and keeping everyone healthy.

Universal and more comprehensive medical coverage, particularly in the fee-for- service system such as that found in many countries around the world, runs a very real risk of fuelling over-consumption and inappropriate use of medical services.

In Taiwan, they launched their National Health Insurance (NHI) programme in 1995. NHI bears many similarities to MediShield Life, such as mandatory enrolment and comprehensive lifelong cover, but it also covers outpatient care, for instance.

NHI began with much fanfare but four years after its inception, it started to sink into deficit, and it has been sinking rapidly ever since. In fact, two years ago, it narrowly avoided bankruptcy and with debts of very close to US$5 billion, it may not be so lucky to escape insolvency the next time round.

One might ask how did this happen? Well, there are many reasons for this, such as a stagnant economy and more familiar themes to us such as a rapidly ageing population with declining birth rates, but inappropriate utilisation of healthcare services figures fairly prominently as well. The Taiwanese record one of the highest per capita clinic visits in the world, but they are not significantly healthier than citizens of other nationalities. Since clinic

Page: 66

visits and, in particular, medication costs are covered under this NHI insurance scheme, many Taiwanese would go to their nearby medical clinic just to obtain medications that one would normally purchase either from a pharmacy or a nearby supermarket. Moreover, they would also tend to see their family physicians for minor ailments, such as small aches or minor coughs and colds, whereas patients in other countries would normally choose to observe and self-medicate. Patients with such typically self-resolving problems often expect to be prescribed antibiotics even when there is no medical requirement for them to do so, or doctors feel pressured by their patients for these antibiotics to be prescribed, since failure to prescribe is viewed by patients as belittling their medical problem and as inadequate care. And if they do not do so, then the doctor gets the reputation of being a poor doctor and the patient moves to another clinic or doctor. Aside from driving up healthcare spending to unmanageable levels, this has also led to a public health crisis because Taiwan now probably has one of the highest antibiotic resistance rates in the world due to the overuse of these powerful antibiotics and new prescription guidelines do not seem to be of much help.

Furthermore, hospitals in Taiwan have become increasingly procedure intensive. Government hospitals in Taiwan have limited federal funding, since an increasing amount of the national healthcare expenditure is being channelled to fund claims under NHI. As such, hospitals and clinics seek to generate more revenue by just increasing the number or volumes that they provide. The renal dialysis and mechanical ventilation rates, that means where doctors put a tube down into your lungs to help you breathe, are among the highest in the world although this does not seem to correlate with the calculated disease burden in that country. The point is this – and as what our Health Minister has also just pointed out – more is not always better and healthcare use should be based on rational decisions and on outcomes.

This leads to my next point – which is another factor that could unexpectedly and significantly increase healthcare costs – the introduction of costly new treatments and procedures. It is important that such novel treatments be rigorously validated before being approved for widespread use and reimbursement. Many countries establish expert panels that help make such decisions about the value of such treatments, such as the UK's National Institute for Health and Care Excellence (NICE) which helps decide which treatments would be allowed under the Britain's National Health Service.

Currently, the Health Sciences Authority (HSA) in Singapore grants approval for the use of drugs and medical devices. But HSA looks mainly at safety and basic efficacy. We do not yet have a central body that evaluates the true efficacy and value of medical interventions, from a best practice and cost-effectiveness perspective. I would ask MOH to consider the establishment of an independent body for this express purpose, to make recommendations concerning the sustainability of various treatments. Such an independent panel would also serve the wider objective of informing Singaporeans and deciding on the treatments that

Page: 67

truly make a difference.

However, when all has been said and done, at the root of everything and the best way of restraining healthcare spending and keeping premiums low is simply for all of us to remain healthy. We have to focus on health promotion and maintenance and stay focused. MediShield provides protection mainly for catastrophic illness that requires hospitalisation and some have asked for MediShield Life to also cover more health protection services such as health screening. Though I do support the general principle, I am not sure that MediShield Life should be the key funding avenue for such services and I feel that the Government should continue to support health promotion actions through other schemes and incentives, which I know it is already pursuing today.

One quick word on private and integrated insurance plans. Although it was not the remit of the Review Committee to look at these plans, I do applaud their initiative in making some recommendations in this regard. This is because over 60% of Singaporeans hold such plans and they provide additional medical insurance cover for those who value greater choice and flexibility in their healthcare options.

There are many countries which actually encourage their citizens to take up insurance cover from private medical services by offering rebates and other incentives. This is because their philosophy is that public hospitals should just focus on emergency work, low-income patients, very complex cases, and education and training. While I do not quite support the provision of such incentives at this time given our current healthcare environment, I think it is still important that premiums for Integrated Plans, or IPs, to remain affordable, so that more Singaporeans can enjoy greater flexibility in making healthcare choices beyond the basic level of care offered by MediShield Life. I fully agree with the Committee's recommendations that such plans should be more greatly simplified and standardised and that the Government or the Ministry should take a more active role in scrutinising and regulating these plans.

Finally, I remain concerned that the continued lack of portability of employer-provided medical benefits leads to relative over-insurance. I am sure that many in this House may have duplicate medical coverage and these are health plans provided by our employers. This coverage that is provided by our employers ceases once we change employment, and this is a source of distress and anxiety for many Singaporeans. However, according to estimates, currently, only about one in 20 employers provide portable health insurance for their employees, despite there being tax incentives to do so.

When MediShield Life is launched, all of us will be covered under MediShield Life but many of us will still choose to take up an Integrated Plan as mentioned before. I hope that employers, insurers and the relevant agencies can move quickly to make corporate health

Page: 68

plans more portable, or companies can move towards strategies where employees are reimbursed for participating in their own medical insurance plans or, perhaps, even through additional Medisave contributions which can be used for the payment of MediShield Life premiums, a scheme which I note the Civil Service has already implemented for some of its employees. The Labour Movement and NTUC should also be applauded in this regard because they have long called for employers to adopt portable medical benefit schemes for their employees. Given the changes introduced by MediShield Life, I would like to join the unions to urge our employers to review and revise their current employees' medical benefits to one that is much more portable and much more flexible. Such moves would reduce the burden of premium payments for many of us due to the duplication of medical insurance policies.

In closing, let me just share a recent experience that I had with some of my residents. An en-bloc redevelopment programme was recently announced in Tanglin Halt, which sits in my constituency of Queenstown. It is something that many of the residents there have been asking for for many years and, although they were happy staying there, the buildings were old and needed frequent maintenance, and further major upgrading was not practical. Walking around Tanglin Halt last week, I stopped to chat with a group of seniors to see if they had any concerns. Thankfully, they said, "Well, not much, Dr Chia, we have been waiting for this for some time and we are glad that it is finally happening." So I asked, "Anything else you would like? Anything I could help you with?" To which they said, in Cantonese, "Yut Fai, Yut Ho", that means "Make it faster". And they all said, "You know, as we are already old and we have been waiting for this for some time, we want to move into our new houses as quickly as possible!"

Moving on, I then took the opportunity to ask them if they had heard of the Pioneer Generation Package and MediShield Life. Well, again, quite reassuringly, all of them had heard about it. And one lady in her 70s, well and truly one of our Pioneer Generation Singaporeans, immediately pepped up, tightened and said, "We want the same for MediShield Life, Dr Chia. Make it as fast as possible. Yut Fai, Yut Ho", and the reason was so that all of them could feel calmer "Onn Sum", which, in Cantonese, is to be calm in their hearts about this.

So, on behalf of these residents of mine and from my perspective as well, I do support this Motion very strongly, and hope that MediShield Life be implemented as soon as possible, so that from cradle to grave, Singaporeans can have the assurance that they will have little to worry about hospitalisation expenses. Health insurance for all and for life is yet another major step towards building a truly inclusive Singapore.

Page: 69

Mdm Speaker, I rise to support the Motion. Madam, I believe the MediShield Life Review Committee has considered and done its best in addressing a wide range of issues that concern Singaporeans and has produced a comprehensive report with many good recommendations for MediShield Life. In my speech, I will share why I support MediShield Life, why I believe the report forms a good basis for the design and implementation of MediShield Life, and also raise a few questions that I hope MOH can address.

In principle, our health is ours and each of us has the responsibility of taking care of ourselves. However, we know in reality that relying on ourselves alone may not be sufficient, as healthcare expenses can be costly and not everyone has high earning power. Moreover, some Singaporeans may be more unfortunate to be hit by serious illnesses or chronic conditions, requiring long-term and expensive treatments. Hence, there is a need for additional support from other sources.

Different countries adopt different ways of tackling this issue. Some completely socialise this cost and fund healthcare through taxes. But this can lead to escalating and potentially unsustainable, public healthcare expenditures. In some developed economies, public healthcare expenditure is one of the most costly fiscal items each year and, hence, a top government headache. Others do it through insurance: collecting premiums from everyone, pooling the funds collected and then allocating the money to purchase health services as required by the population. But such systems work only when everyone contributes, regardless of whether they think they will need to tap on the common pool now. This requires a strong sense of solidarity as a nation and the willingness to help our fellow countrymen.

In Singapore, we are not immune to this challenge, as very eloquently articulated by my colleague Dr Chia Shi-Lu. In response, we have developed the 3M system – firstly, the Medisave, which is our money and we use it to co-pay for our own medical expenses; second, MediShield, which is everyone's money that we pool together to help one another to afford high medical bills when we suffer severe illnesses; and lastly, Medifund, which is Government's money, also taxpayers' money, that acts as the ultimate safety net when all else fails to help vulnerable Singaporeans.

While the 3M framework is robust, we can do more as a society. We have been expounding the need to be caring and inclusive. We all feel a deep sense of compassion when we see someone in pain and we all feel the need to help that someone regain the health and strength to lead a normal life like we do. We talk about it, we argue for it and this is the time for us to do it. A universal public health insurance in the form of MediShield Life is how we can do so, by pooling our risks and money together to help pay for one another's bills. No one gets left out, everyone gets a chance to tap on it, if not today, then tomorrow, although,

Page: 70

ideally, it would be the most ideal situation that we all remain healthy so that we have the capacity to really enjoy life and do what we want to do.

The report made recommendations to tackle the wide-ranging concerns that Singaporeans have – from the adequacy of coverage to the expected premium increase and to how current IP policyholders will not be left worse off with the transition to MediShield Life. The degree of thought and sophistication in these recommendations lead me to believe that the Committee has carefully considered all the trade-offs.

So far as I have read the report, most of the concerns that my residents have raised to me, especially from my elderly residents in terms of affordability of premiums and the adequacy of coverage as well as the co-payment, the deductibles, I think all of these have been very adequately and eloquently addressed in the report and I am heartened by this.

Two points in the report that struck me were the assurance that the premiums will be fully payable by Medisave and that no one shall be left uninsured because of financial difficulty. Such a promise is a demonstration of our Government's fiscal strength. Few other countries can afford to do the same.

However, I do have a few questions that I hope MOH can address.

Firstly, can MOH share how the premiums are derived? How confident is MOH that these amounts will be adequate in supporting our current and future healthcare needs, given the enhanced coverage?

Second, how confident is MOH about the long-term affordability of the increased premiums? Will MOH continue to monitor and, if need be, take steps to mitigate the impact of the increased premiums on Singaporeans after the five-year transitional subsidy period? And at the risk of sounding like I am contradicting myself, really, how long can MOH sustain the subsidies that it has been promising Singaporeans within these five years and possibly beyond the five years?

Third, the majority of Singaporeans have CPF contributions and, hence, are able to cope with the premiums through our own Medisave. But what about those who have no income and, therefore, no CPF contributions? These include housewives and Singaporeans who have suffered long- term unemployment. A number of them may not come from well-to-do families and their family members will be unable to help pay for their share and, for some others, they may not even have reliable family members around to even help them. How will MOH support this group of Singaporeans so that they, too, will be covered?

Page: 71

And fourth, for Singaporeans with unstable income, such as freelancers, how can they cope with the annual premium payments?

MediShield Life is a bold scheme that we must support. It gives hope and assurance to those who suffer serious illnesses and have to incur large bills. However, it would be a great let-down if this hope was shattered because MediShield Life cannot be.

Sustainability of MediShield Life is perhaps the largest trade-off for the enhanced benefits it brings. In reality, sustainable healthcare financing is an issue everywhere – whether it is in Canada, US, Europe, Australia, Taiwan or Japan. These countries face escalating healthcare costs and have insolvent schemes. The systems are essentially surviving on borrowed time. For instance, the National Health Insurance in Taiwan saw its government having to borrow from banks because there was insufficient money in the pool. The one in Japan is facing such a large financing gap that increasing co-payments and other measures will not be sufficient to close it. Medicare in the United States is also fast becoming unsustainable as the enrolment into the programme is growing faster than its economy. Once introduced, such systems become entrenched. Any subsequent reforms will be difficult. And these also highlight the importance of designing, at the very onset, having careful, thoughtful design of a public health insurance system and, therefore, I think this is something that is very important for us – whether for the Government, for us as a nation – and that we need to think about very carefully.

In Singapore, we have been able to provide large subsidies in the billions of dollars only because our country has enjoyed decades of good economic growth. However, what of the future, when our own growth is predicted to slow down, when economic conditions are expected to become more volatile, when we face an ageing population, and with smaller families? In addition, healthcare costs have been projected to increase exponentially. We see it in Canada where healthcare costs are rising far beyond the increase in their real income and this is something that I believe is not just us in Singapore or even Canada but all around the world, all the developed economies are facing the same problem. One of the key cost drivers is the cost of manpower, which, for us in Singapore, is something that continues to be a challenge that we have to grapple with today. Given these forces, I would like to ask: what is MOH's assessment of the sustainability of the proposed design of MediShield Life, and could MOH share how it intends to keep the scheme sustainable?

Sustainability also depends on whether the scheme will enjoy universal support. If health insurance is left to private insurers and they can choose who they want to insure, then those with pre-existing conditions, precisely the people who are most in need of insurance, will be left out in the cold. Similarly, we need to also make this compulsory for every Singaporean to be in MediShield Life because if those who are healthy today decide that they do not need to be insured now, then we will have an impossible situation of having

Page: 72

only the ill in the pool, which is certainly unsustainable.

Some countries also face the issue of chasing for premium payments. In Japan, for example, those who cannot or refuse to pay for the premiums may eventually have their properties seized to pay for the arrears. Arguably, we are different in that we have Medisave accounts that we can deduct from. But how will the MOH attempt to resolve the issue when people cannot pay the premiums, or can no longer pay for the premiums from their Medisave? And before I continue and conclude, please allow me to speak in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] Mdm Speaker, I think the launch of MediShield Life is timely and appropriate. MediShield Life is a universal healthcare insurance scheme. It removes the age limit so that all Singaporeans will be covered. It ensures that all Singaporeans will receive basic protection.

For a long time, we have been hearing Singaporeans voice their concern over the rising medical cost, so much so that some dare not see a doctor even when they are sick. As a fellow Singaporean, I feel a deep sense of compassion for those who are sick but have no money to receive treatment.

Besides Medisave and Government subsidies, MediShield Life is another very important pillar.

As unpredictable as the weather, people's fortune may change overnight. Nobody knows when he will fall seriously sick and incur high medical expenses. To cope with such uncertainties, MediShield Life plays an important role. It is based on the principle that "if one person is sick, everyone helps to pay"; it pools everyone's money together, so that people who need it can cope with large hospital bills. Everyone gets a chance to draw on it.

Now, our population is ageing rapidly, while family size is getting smaller. It is necessary for Singaporeans to help each other and tide over difficult times together. Hence, we must support MediShield Life to prepare for ourselves and others for the future.

Although, in principle, MediShield Life is good, the Government must pay attention to whether people can afford the increased premium due to larger coverage in the long term, as well as how to ensure the scheme's sustainability, to avoid the dilemma faced by other developed countries. The Government should take these into consideration.

I believe, our ultimate goal is to ensure every Singaporean can receive healthcare protection. Nobody should be deprived of treatment because of financial difficulty.

Page: 73

MediShield Life must succeed to meet people's expectations.

(In English): Mdm Speaker, all said, implementation is still key. The potential issues that come with a large scale and costing scheme are aplenty. The abysmal implementation of Medicare in the US provides many lessons of what can go wrong. Our MediShield Life is enormously complex, and complexity increases the possibility of errors. Could MOH share how it intends to ensure that its implementation will proceed smoothly and correctly?

Part of the implementation must be communications. The elements of this policy are highly complex, and we need to make an extra effort to make sure that Singaporeans understand what it means to them, and how they can benefit from it. I note that the Government has tried many new and innovative approaches to communicate the elements of the Pioneer Generation Package to Singaporeans, especially our elderly. I applaud this effort, and I hope that MOH will also make similar, if not greater, efforts for MediShield Life.

Mdm Speaker, while I have raised questions on the long-term affordability of premiums for Singaporeans and sustainability of MediShield Life, which I believe MOH will have to address, I have no doubt that having a universal public health insurance, such as MediShield Life, is imperative in strengthening our national healthcare financing framework.

And very, very lastly, I would just like to add one more thing, and that is, no matter how robust or how watertight our public healthcare financing framework is, nothing beats having good health because having good health will enable us to have the capacity, the energy and whatever we need in order to enjoy life to fulfil our aspirations and do what is meaningful to us in our life. So, I urge everyone, whether it is in this Chamber or outside of this Chamber, to always live a healthy life because health is not something that we can buy using any amount of money. With that, I support the Motion.

Mdm Speaker, anxiety about healthcare affordability weighs heavily on the minds of Singaporeans – not only the elderly, but also their adult children and those who will become old and face the risk of falling seriously ill. It is, therefore, important for us to work together as a nation to find solutions to the challenging problems regarding healthcare affordability, quality and accessibility in Singapore.

I would like to thank the MediShield Life Review Committee for widely consulting Singaporeans on their concerns and taking so many of these into account when crafting their recommendations to the Government. I also commend the Committee for taking the

Page: 74

initiative to address some key issues that went beyond the terms of reference given to them by the Government.

I support the Motion endorsing the Committee's report as the basis for designing MediShield Life. However, I have a number of concerns about some details of the scheme, which I will focus on in my speech today.

At the heart of the report lies the recommendation to provide Singaporeans with better lifetime protection against large medical bills and to strengthen our social safety net. Pulling these recommendations in both directions are the competing priorities of, on one hand, the need to make MediShield Life affordable to all Singaporeans and, on the other hand, the need to ensure that the scheme is financially sustainable. This is the key challenge before this House today.

On the issue of affordability, I am glad that the Government will be providing permanent premium subsidies for low- and middle-income earners. The Committee has suggested that the process for applying for subsidies should be as simple and convenient as possible. I agree and I would like to reiterate my earlier calls for premium subsidies to be provided automatically to households that have already undergone means-testing for other Government assistance schemes. For example, all households with Community Health Assist Scheme (CHAS) Blue and Orange cards should receive MediShield Life premium subsidies without having to apply separately. The same should apply to recipients of Medifund, Public Assistance and ComCare.

Polyclinics, hospitals and private clinics should step up efforts to assist all their patients to apply for CHAS, so that they can receive both outpatient subsidies under CHAS and MediShield Life premium subsidies. The Government should reach out to all lower and middle income Singaporeans before the start of MediShield Life, so that they do not miss out on the premium subsidies that they are entitled to.

I would also like to suggest that the income criteria for premium subsidies be pegged to healthcare inflation so that the value of the subsidies is not eroded with rising healthcare costs and premiums.

On the issue of financial sustainability, the Committee has reiterated the Government's conservative approach of setting aside substantial reserves in the MediShield Life Fund to meet current and future liabilities. It did not suggest any changes to the reserves framework. This is an area that begs further examination. It is not just an academic exercise. The reserves framework impacts the premiums that people are required to pay.

Page: 75

Let me state for the record that I believe that MediShield Life should be financially sustainable in the long term, and that enough reserves must be set aside for temporary spikes in claims and long-term liabilities.

However, there is a big difference between setting aside enough reserves and setting aside too much reserves. Setting aside enough ensures that MediShield Life Fund remains solvent even when claims in a particular year are higher than expected. Setting aside too much could mean collecting excessive premiums to cater to an extremely unlikely, but catastrophic event.

So, how much is "enough" and how much is "too much"?

The Monetary Authority of Singapore (MAS) has in place a Risk Based Capital Framework which regulates all insurance funds, including MediShield. The framework defines, among other things, how much the fund needs to set aside to ensure capital adequacy and solvency. This is measured using the Capital Adequacy Ratio (CAR), which is the ratio of a fund's net assets to its total risk requirements.

The MAS expects insurance funds to meet a CAR of 120%. According to an answer to my Parliamentary Question last October, the CAR of the MediShield Fund was 165% as at the end of 2012, which is 45% higher than MAS requirements. At the end of 2013, the MediShield Fund had net assets of $613.3 million, which is more than 1.8 times the total claims paid out in the past year.

The Health Minister said, in response to the same Parliamentary Question, that the MediShield Fund has set a target CAR of 200%, which is 80% higher than MAS requirements.

Madam, is there really a need to set aside so much in reserves? While this manages the risk for the fund, it could be placing an unnecessary premium burden on policyholders.

If the pace of reserves accumulation can be adjusted to be more in line with MAS requirements, premiums can then be made more affordable. The fund can still maintain a comfortable buffer above MAS requirements, but I do not see the justification for exceeding the requirements by 80% when the regulator's requirements are already quite conservative.

Another result of parking aside too much in the reserves is that the Medical Loss Ratio of the MediShield scheme becomes very low. In 2013, the Medical Loss Ratio of MediShield was 44%, which means that out of every dollar that was collected in premiums last year, only 44 cents was paid out in claims. This is the lowest loss ratio since 2001.

Page: 76

As I pointed out during the last Parliament Sitting, under the Affordable Care Act in the United States, commercial insurance companies are required to issue premium rebates to policyholders if their loss ratio falls below 80%-85%. Can MediShield Life, which is a not-for-profit scheme, do something similar, so as to reduce the premium burden on Singaporeans?

Healthcare expert Dr Jeremy Lim has commented on the lack of actuarial data on MediShield Life being made available to the public. I agree that more detailed data will enable the public and independent experts to validate the conclusions put out by the Government, especially with respect to the premiums that need to be collected to keep the Fund solvent.

It would be helpful if the Government could make known its targets for the medical loss ratio, capital adequacy ratio and reserves for MediShield Life.

Since the Government says it needs to keep a large amount in reserves for "adverse scenarios", it should explain what kind of adverse scenarios it is expecting and how much it expects them to cost.

Finally, as MediShield Life will be front-loading premiums, its annual reports should distinguish how much is being collected for pre-funding and how much is being collected to fund current claims.

Next, I would like to discuss the issue of portable medical insurance. It is good that the Committee has brought this up in its report.

The report noted that less than 5% of employers offer portable medical benefits, and most companies that provide inpatient benefits do so through Group Hospitalisation and Surgery insurance plans (GHS) that are separate from MediShield. It acknowledged that GHS plans are "usually more attractive" than those provided by MediShield, MediShield Life and Integrated Shield Plans, and tend to offer "higher perceived value" to employees at relatively lower costs for employers.

This presents a steep challenge to adoption. We are essentially asking many employers and employees to shift to an inferior plan that may cost more.

Because of this, I think we need to approach the messaging from a different angle to encourage adoption. First, we need to explain to employees that there are clear benefits to portable insurance. When they change jobs, they can retain their cover. Second, the universal mandate for MediShield Life means employees will already be paying premiums, whether or not their employers offer portable plans. So, portable benefits provided by

Page: 77

employers could help lower the premium burden on employees.

Third, having a single comprehensive insurance cover instead of a patchwork of duplicate covers means the employee should be able to claim a larger share of his hospital bill. And fourth, not all employers currently offer inpatient medical benefits to their employees. These employers could be encouraged to take the first steps by helping their employees pay for their MediShield Life premiums, as this will make them more attractive organisations to work for.

To make portable benefits more attractive and comprehensive, employers could not only contribute towards their employees' MediShield Life premiums, but also consider purchasing riders to cover some of the co-payments, so that the out-of-pocket payments by their employees will be reduced.

The Government should take up the Committee's suggestion for an adoption grant to be made available to companies to assist them in making a move to portable medical benefits that ride atop MediShield Life. MOH should also increase its efforts to better educate companies of the continuing tax incentives available and the benefits of providing portable insurance to their employees.

Next, I would like to touch on Integrated Shield Plans. The Committee has suggested that the Government should work with the insurance industry to develop key features for a Standard Plan that will provide coverage at the B1 class level in public hospitals. This Standard Plan appears to serve two main purposes: first, to provide a benchmark for consumers to compare against the plans offered by private insurers; and, second, to set the Medisave Withdrawal Limit for Integrated Shield Plans.

On the first point, I share the frustration of many consumers in choosing the best Shield Plan. The Plans are currently offered by five insurance companies, with each trying to differentiate itself by offering a different set of benefits. Sometimes, comparing them is like comparing apples with oranges.

Worse still, many consumers get their information about the Integrated Shield Plans from insurance agents representing individual insurers. Naturally, we cannot expect these insurance agents to give completely unbiased advice, since it is their job to market their own company's products.

The net result is that consumers end up either choosing a plan that is not the best for them and their families, or they end up confused and unsure of which plan to choose.

Page: 78

I note that MOH has a section on its website that provides a comparison of MediShield and different Integrated Shield Plans. This is a good initiative that should be better publicised, so as to reduce confusion and encourage more consumer self-service. It could also spur more competition and lower prices, as insurance companies will compete more on features and price, and less on their marketing ability.

I would like to seek more clarification on how the Standard B1 plan will be implemented:

First, will the Government tender out the Standard Plan to only one insurance company or will all insurers be expected to offer this plan? If it is tendered to one insurer, how will it ensure sufficient competition such that the premiums and benefits are to the advantage of consumers?

Second, if existing Integrated Shield Plan policyholders decide to switch to the Standard Plan, will they be subject to underwriting, where their pre-existing conditions will get excluded or risk-loaded? If so, it would probably not make sense to switch, especially for older policyholders who are likely to have developed pre-existing conditions.

For many Singaporeans, the main issue they have with Integrated Shield Plans is that the Medisave Withdrawal Limits are too low, forcing them to cough out cash to pay their premiums. This is especially so for older policyholders, who now have to top up anywhere between $100 and $3,500 a year in cash to pay for their B1 plan premiums. This is frustrating for many of them, especially retirees who are short on cash but have sufficient Medisave balances.