Lee Hsien Loong
Singapore
“Yes, of course, every time I sell the land, I put money into the Reserves, but I am not putting the money into the Reserves all today. I am putting it in a stream of payments, 30 years apart.”
“Speaker, Sir, I do not think it was a very difficult question to figure out, that when I spoke to MTI, I spoke to the Minister, because Mr Gan Kim Yong is the Minister for Trade and Industry.”
“" I think that would have been unjust because he has not been charged. If there is a case, the case has not been heard, he has not been found guilty or acquitted or whatever. I cannot prejudge a case based on an incomplete investigation – started recently, or a partial investigation, just entered into the formal phase.”
“Mr Speaker, Sir, first, Mr Leong is quibbling over words. In February, Mr Tan Chuan-Jin told me, "I offer to resign". I said, "Yes, sort out your constituency first". In other words, decision taken. The moment to execute it, I will decide. So, it is quite clear. Legally, he has not resigned.”
“Sorry, Mr Speaker, to respond to Ms Poa on why not no pay leave. It is my judgement to make. The Civil Service works in one way; their basis is if you have been convicted, then you are on zero pay and other consequences will follow.”
“I am very happy to note that Assoc Prof Jamus Lim appreciates the second key and is seeking a third. And I hope that it portends a change in your attitude towards the Elected President and his custodial powers. But I think the Brazil example is a very interesting one.”
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“Mr Speaker, Sir, the Inland Revenue Authority of Singapore (IRAS) does not confiscate the shares. The IRAS appoints the NSS and ERS Trusts as agents to recover the outstanding taxes when the taxpayer applies to exchange his NSS or ERS for cash. The IRAS is able to recover the outstanding tax only when the taxpayer exchanges his NSS/ERS for cash. The IRAS started to recover outstanding taxes from NSS and ERS in April 2003. So far 26,500 taxpayers have been notified of the IRAS' intention to recover their outstanding taxes when they exchange their NSS or ERS for cash. Their outstanding taxes amount to about $76 million in total. Since only 150 of the taxpayers have exchanged their NSS or ERS for cash, IRAS has recovered so far just $71,000. I would like to assure the House that the IRAS only recovers tax arrears from encashed NSS or ERS as a last resort when all previous attempts to get the taxpayer to pay his taxes have failed. These 26,500 taxpayers have defaulted on their taxes for more than 3 years and have failed to respond to IRAS' numerous reminders and other enforcement actions. IRAS informs the taxpayers of its intention beforehand so that none of the taxpayers should be taken by surprise.”
“Although it can be inferred from the MAS Act that MAS presently has similar powers, an explicit provision to that effect would provide greater legal clarity and align MAS' legislation with international best practices. Clauses 4 and 6 amend section 9 and insert a new section 13A to clarify that the Authority and the Managing Director may form committees and delegate powers to them or designated officers. Notwithstanding the delegation of any power, function or duty, they remain responsible for and retain control over how the delegated functions are exercised. Mr Speaker, Sir, these amendments to the MAS Act comprise the more immediate changes to be effected by early 2004. Consequential amendments will also be made to other written laws administered by MAS. MAS is presently reviewing other operational issues for the second phase amendments to the MAS Act, which are targeted to come into force in 2005. All these changes are intended to enable MAS to carry out its functions more effectively and to meet the operational challenges ahead. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Mr Lee Hsien Loong]. Bill considered in Committee; reported without amendment; read a Third time and passed. COMPUTER MISUSE (AMENDMENT) BILL Order for Second Reading read.”
“Clauses 8 and 9 propose changes to sections 23 and 26 to allow MAS greater flexibility in lending to financial entities for the purpose of safeguarding the financial system. International Practices (i) Accounting standards Other central banks and monetary authorities, like the US Federal Reserve Board and the Bank of England, recognise that accounting standards developed for commercial entities have not been formulated for entities with the unique powers and responsibilities of central banks. The example on providing for contingencies beyond what is presently allowed under the accounting standards is a case in point. In line with the practice in other central banks, clause 11 amends section 34 of the Act to allow MAS to comply with accounting standards to the extent that it is appropriate to do so, having regard to its objectives and functions. (ii) Immunity provision In recent years, international supervisory standards have called for legal protection for both supervisory agencies and their staff. MAS and its officers should be protected from legal suits against them arising from their supervisory actions carried out in good faith. Clause 7 re-enacts section 22 of the Act, which will confer immunity from suits or other legal proceedings to MAS and persons acting on behalf or under the direction of MAS. Clauses 12 and 13 repeal the immunity provisions contained in the various Acts administered by MAS, as these provisions are no longer necessary with the enactment of the new section 22. (iii) Committees and delegation of authority To discharge their functions more effectively, major central banks and financial regulators have provisions to allow the Board or the Chief Executive to form committees and to delegate authority to such committees.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The global financial and regulatory landscape has undergone significant changes in recent years. The management of risk has become more complex. Changing economic conditions and greater market volatility have also increased the risks faced by financial systems. To enable MAS to meet the operational challenges in this new environment and to carry out its functions more effectively, we need to update and fine-tune the MAS Act. We will do so in two phases, and this amendment Bill is the first phase. Mr Speaker, Sir, I will now touch on key amendments proposed in the Bill. Stability and Public Confidence To safeguard the stability of the financial system and maintain a high level of public confidence, it is prudent to give MAS more operational flexibility to deal with contingencies. Clause 3 of the Bill seeks to update section 6 of the MAS Act to enable MAS to set aside provisions for contingencies such as market volatilities. Since inception, MAS has been permitted to set aside provisions for contingencies, such as those which banks usually set aside. However, recent changes in accounting standards have restricted the conditions under which provisions can be set aside. Now, provisions are only allowed where there is some certainty to the outflow and a reliable estimate can be made. This is too restrictive for MAS' purposes. The proposed revision in clause 3 seeks to allow MAS to set aside provisions to deal with contingencies beyond what the accounting standards now allow. In addition, clause 3 seeks to give MAS the ability to draw on its retained earnings in the General Reserve Fund when making payments to the Government in any given financial year.”
“Clauses 9, 13 and 16 introduce new sections 8A, 12A and 14A to provide for the establishment of an authorisation framework to enhance the effectiveness of MAS' supervisory oversight over such cross-border reinsurers, and their transactions between registered insurers here in Singapore. Details of this framework, which include setting of the minimum financial and reporting requirements for cross-border reinsurers, will be set out in regulations. Mr Speaker, Sir, health insurance is gaining prominence as a key healthcare financing tool for Singaporeans. Worldwide, in recent years, the financial strength of insurance industry and the lack of effective supervision over the reinsurance sector are coming under intense scrutiny. The amendments proposed in this Bill represent timely improvements to our current regulatory regime. To stay in step with this rapidly-changing market place, MAS will continue to review its regulatory regime so as to develop Singapore as a sound and progressive financial centre. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Mr Lee Hsien Loong]. Bill considered in Committee; reported without amendment; read a Third time and passed. MONETARY AUTHORITY OF SINGAPORE (AMENDMENT) BILL Order for Second Reading read.”
“An insurance policy that contains long-term benefits is one that provides accident and health insurance coverage in excess of five years, without the risk of such coverage being unilaterally cancelled by the insurer. Clause 3 amends section 2 to reclassify policies that contain long-term accident and health benefits, such as those relating to the ElderShield scheme, as part of life insurance business. As funds relating to life insurance business are generally managed with a long-term focus, the reclassification will thus help the insurance industry to better manage premiums collected from long-term accident and health products. To provide the insurance market with more capacity to insure accident and health risks, clause 4 amends section 3 to allow both life insurer and general insurers to underwrite short-term accident and health insurance products. When consumers purchase health insurance products, it is important to provide them with adequate and clear information disclosure so that they can make informed decisions. In addition, to help consumers obtain appropriate insurance coverage, insurance intermediaries need to be competent and provide advice on a sound basis. To help achieve these objectives, clauses 28 and 31 amend section 35P and introduce a new section 35TA to empower MAS to specify market conduct requirements, such as those relating to disclosure and the advisory process for an insurance intermediary. Authorisation Framework for the Cross-Border Supply of Reinsurance Currently, reinsurance services can be provided on a cross-border basis to Singapore without the service provider establishing a physical presence here.”
“The formula to calculate capital requirements that will be prescribed under the amended section 18 takes into account not only insurance risks undertaken by an insurer, but also risks arising from the way an insurer invests the premiums that it has collected. The amended section 18 will also empower MAS to further adjust capital requirements to capture risks that cannot be quantitatively determined, for example, operational risks. MAS has also reviewed the operation of insurance funds in developing the new capital regime. Clause 18 amends section 17 to empower MAS to issue rules to clarify what constitutes receipts, income, liabilities or expenses of an insurance fund. This will help protect policyholders' interest from being compromised by unfair practices, for example, charging costs of compensation resulting from the misconduct of an insurer or its intermediaries to insurance funds. Accident and Health Insurance Regulatory Framework There is currently no specific provision in the Insurance Act applicable to health insurance business, although there are provisions for general insurance business that apply to health insurance. These provisions are suitable for regulating short-term, yearly-renewable health insurance products. Recognising the needs of consumers for insurance products that provide long-term health insurance coverage, and the long-term obligations that such needs impose on insurers, we are amending the legislation to help ensure that insurers are better able to meet those obligations. Clause 55 amends the Schedule to define "accident and health benefits" and further differentiates such benefits into those that are long-term and short-term in nature.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". As part of an on-going effort to bring the regulatory framework for the insurance sector to international best practice standards, this Bill amends the Insurance Act to establish a risk-based capital framework for life and general insurance companies, and a regulatory framework to deal with accident and health insurance business. The Monetary Authority of Singapore (MAS) is also putting in place an authorisation framework to strengthen its supervision over the cross-border supply of reinsurance services in Singapore through this Bill. MAS invited feedback from the industry and the public on the draft Bill in May 2003, and has posted its detailed responses to the comments received during this consultation on its website. Mr Speaker, Sir, I will now go through the main amendments in the Bill. Risk-based Capital Framework The existing statutory valuation and solvency framework uses prescribed valuation methods and bases. In an insurance market that is relatively homogeneous, this approach provides a simple and conservative way to determine the capital adequacy of insurers. This "one-size-fits-all" approach is, however, not always reflective of an insurance company's true financial strength. Increasing volatility, diversity and competition in the financial services sector have resulted in the need for a more transparent and risk-focused capital framework that better reflects the true financial conditions of an insurance company. Banks operate under such a risk-based framework, which is being refined in the Basel II proposals. Insurance companies need something similar. Clause 19 amends section 18 of the Insurance Act to establish the new risk-focused capital regime for insurance companies.”
“The Second Minister for Finance (Mr Lim Hng Kiang) (for the Deputy Prime Minister and Minister for Finance): Sir, the purpose of the Wealth Management Institute (WMI) is to expand and develop Singapore's pool of expertise to meet the needs of a growing wealth management industry. It is a concerted effort to bring together existing academic institutions, wealth management institutions and industry associations in a private and public sector collaboration to provide training and development of wealth management professionals. The WMI is the first of its kind in Asia. It will work with, rather than compete against, professional and private training service providers. The WMI's academic and industry partners are involved in the curriculum-planning, programme development and provision of on-the-ground training to WMI students. Its flagship programme, the Master of Science in Wealth Management, will be conducted by the Singapore Management University in collaboration with the Swiss Banking School. The WMI is prepared to work with relevant SMEs as its training service partners. As for whether the Government has plans to assist SMEs who can offer suitable training through some sort of funding, SPRING Singapore already has various assistance programmes such as the Local Enterprise Financing Scheme (LEFS) and the Local Enterprise Technical Assistance Scheme (LETAS) which can help SMEs strengthen their capability as training service providers.”
“I would say, firstly, if the Member will tell me in confidence who this financial planner is, I will look into the matter immediately. Secondly, the solution really is financial education for the public. So if they understand what they are doing and they know what they do not know, that is the purpose of the MoneySense programme. We are not trying to make everybody an expert or a financial wizard but at least be aware of what major financial categories we are talking about. Is it an investment, is it a deposit, are you going for an up and down ride, or is it a risk-free investment? So, at least, you must have some basic understanding of what is involved. Thirdly, of course, the most important thing which you must learn when you get your financial education is if you do not understand it, do not put your money in it. I read last week in the newspapers that somebody received a notice from the Diamond Bank of Nigeria and invested $300,000. I am not sure who his MP is. I feel a bit sorry for him, but perhaps others will learn from his experience and will be more cautious. FORMATION OF WEALTH MANAGEMENT INSTITUTE (Effects on small and medium enterprises) 11. Mdm Ho Geok Choo asked the Deputy Prime Minister and Minister for Finance (a) how can his Ministry assure the SMEs and small players that the formation of the Wealth Management Institute (WMI) with Government's money and resources is not an unfair competition over the private and professional parties; and (b) what plans are there to assist the SMEs with such schemes through some sort of funding.”
“They are given a prospectus and that is, in many cases, considered a full disclosure which may not be adequate. In recent years, many of these products have also become very complicated and difficult to understand. Is the Ministry making some checks on the unit trust sellers as well as requiring a certain basic level of education for financial planners that is over and above what is required today under the FAA?”
“Mr Speaker, Sir, I think we have to have a set of rules which are fair and which encourage responsibility. When you enter into a contract, it is a serious matter. You have signed. You are an adult. It has been explained to you. There is a procedure. There may even have been a fact-find to ascertain your ability to bear risks and your financial needs. Then you sign on the dotted line. Under normal law, that is settled and you are bound. But because we recognise that consumers sometimes are pressured by high pressure sales tactics and may not fully know what they are doing and may conceivably regret what has happened, we have provided a 7-day cooling off period. But if you have an after-thought, you should have your after-thought quite soon. You cannot look at the way the market moves. When the market moves down, you say, "Oh, dear". Then it is not an after-thought but it looks like you made a bad bet, and you want to cancel your bet after seeing the cards. I think that is very difficult. So I would not be in favour of having a long free-look period. If you have a long free-look period nobody will want to sell you unit trusts, because I am getting you a free option - market goes up, you are happy; market goes down, you return the deal to me. I think that is a very difficult business to do. Miss Penny Low: I have recently paid a visit to a personal financial planner just to check out what are the current practices in the market. What I found to my dismay was that even the sellers themselves who sat at the bank counter did not quite know what they were selling. So, in many cases, the ordinary consumers who walk into a bank and are introduced to various types of unit trusts may not know what are the relevant questions to ask.”
“Mr Speaker, Sir, I have not studied this in detail but, off hand, I would say we are more likely to harmonise on the unit trust rule because, in fact, investment-linked insurance products are almost entirely investment and only a very small part for insurance.”
“There is no need for MAS to extend the scheme to allow for refund of the original investment sum to consumers. The courts and the industry-based dispute resolution schemes would be well-placed to assess whether the losses suffered by consumers are the result of the non-disclosure and, if so, to direct the financial institution to make good the losses suffered by the consumers.”
“Miss Penny Low has asked whether any penalty is imposed on a seller who breaches the full disclosure requirements at the point of sale, whether any specific remedy is available to the aggrieved consumer; and whether in the case of a breach of the full disclosure requirements, the Government will extend the scheme to allow for full refund, so that the consumer will not be at risk of a fall in market price of the unit trust during the cancellation period. Under the Financial Advisers Act (FAA), when recommending a unit trust, financial institutions are required to disclose and explain to the consumers certain information about the unit trust. This includes the nature and objective of the fund, details of the fund provider, the consumers' contractual rights, the risks and benefits of the fund, fees and charges to be borne by the consumers, and the cancellation rights of the consumers. Financial institutions are also prohibited from making false and misleading statements or omitting to disclose any material matter about an investment product. A breach of these requirements, including failure to make full disclosure, is an offence under the FAA, which would cause MAS to take appropriate action against the offender. MAS does not, however, have the power to direct financial institutions to pay compensation to aggrieved consumers. Aggrieved consumers should approach the financial institutions or industry-based dispute resolution mechanisms to resolve their disputes. MAS expects financial institutions to institute a structured internal dispute resolution process, and has encouraged the industry to set up industry-based dispute resolution mechanisms. Consumers may seek legal redress through the courts.”
“Mr Speaker, the Monetary Authority of Singapore (MAS) introduced the cancellation period for unit trusts in July this year. This affords consumers an opportunity to reconsider a hasty investment decision made under the influence of pressure selling tactics of sales advisers. Consumers who exercise their right to cancel will get a full refund of the original sum invested, including the initial sales charges, but subject to any market loss. The cancellation requirements for unit trusts seek to strike a balance of responsibility among fund managers, distributors and consumers. Fund managers and distributors will have the incentive to ensure that their sales and advisory processes are fair and proper, and that the product features are properly explained to minimise the possibility of consumers changing their minds subsequently. For consumers, having to bear the risk of adverse market movements, in turn encourages them to exercise care and discipline in selecting unit trusts and deters them from frivolously exercising their right to cancel. The 14-day free-look period for life insurance was implemented in the early 1990s. This longer free-look period is justified for life policies, because these policies can have high early termination penalties. The 14 days will allow consumers sufficient time to understand fully the terms and conditions of the policy. For such policies, consumers will, in general, also not be subject to market risk during these 14 days. However, I agree with Ms Penny Low that investment-linked insurance policies are very similar to unit trusts, apart from the element of death benefit. There may therefore be a case to harmonise the cooling-off or cancellation period requirements for these two types of products. MAS will study this further.”
“Mr Speaker, Sir, I think we have a ticklish problem, but we do have to make up our minds whether we want to solve people's problems by lending them more or by lending them less. And if you want to lend them less, then certain stringent rules have to apply. If you want to lend them more, then you must be prepared to accept the possibility that at some point, they will look for the MP after having dug themselves deeper into a hole. UNIT TRUST PURCHASES (Cooling-off period) 10. Miss Penny Low asked the Deputy Prime Minister and Minister for Finance with respect to the mandatory seven-day cooling-off period for the purchase of unit trust by consumers, (a) whether the consumer will be saddled with the risk of a fall in market price of the unit trust during that seven-day cooling-off period; (b) why is there a difference in the cooling period between 'pure' unit trust and investment-linked unit trust issued by insurers, when the underlying mechanisms and assets for some are similar; (c) whether there is any penalty imposed on a seller who breaches the full disclosure requirements at the point of sale and any specific remedy available to the aggrieved consumer; and (d) in the case of breach of the full disclosure requirements, whether the Government will extend the scheme to allow for full refund so that the consumer will not be at risk of a fall in market price of the unit trust during the cooling-off period.”
“Sir, Mr Ravindran has raised an interesting point. Actually, while the moneylenders are lending to low-end customers, the credit card companies are not lending to low-end customers. We have made our rules such that the credit card companies can only lend to people who have a certain reasonable income. We have set it at $30,000 a year. So, that is not a very low-end customer and I think somebody with that income ought to be allowed to make some of his own decisions.”
“Mr Speaker, Sir, it is not for me to explain how these charges can be justified. This is a free market. There are many credit card companies. Our responsibility is to make sure that their charges are prominently displayed, and if people want to borrow at these rates, I do not think we should stop them completely. What we have done is to impose restrictions on who can borrow and how much they can borrow. So, we have set a minimum annual income of $30,000 and when you borrow, the maximum amount you can borrow is twice your monthly income per card. Unfortunately, we have not yet found a way to stop people from having multiple cards. I know there are some people who have half a dozen cards and they go for two months each, and that is why they run into trouble. We are studying this matter but I do not think it is easy to solve.”
“All banks now provide an information leaflet together with the credit card application, highlighting in plain language significant terms and conditions, as well as fees and charges relating to the use of a credit card. ABS is also working to improve its existing Code of Consumer Banking Practice to enhance industry standards in the area of credit cards, and other forms of consumer credit such as housing loans and car loans. Introducing new regulations for credit is unlikely to solve the problem of rising bankruptcies in Singapore. The long-term solution to a rising incidence of loan defaults and bankruptcies is for Singaporeans to learn how to better manage their finances, including ensuring that they understand all the salient terms and conditions of obtaining credit. To this end, MAS recently launched a national financial education programme, MoneySENSE, to help Singaporeans acquire the skills and knowledge to better manage their finances. Under the programme, Government agencies, industry associations and consumer bodies will work closely together to ensure that consumers get adequate information on areas such as budgeting, saving and using credit responsibly. MAS will also work with the Association of Banks and the Consumer Association of Singapore (CASE) to educate consumers on the consequences of late payment on credit cards, and how penalties and late interest charges are computed. Ultimately, consumers must be responsible for their own spending, and not live beyond their means. With the MoneySENSE programme, we hope that consumers will avoid imprudent use of credit, manage their finances proactively and become self-reliant.”
“Mr Speaker, Sir, over the past two years, the economic downturn has led to an increase in the number of bankruptcies and a rise in unemployment. In this more difficult economic environment, the number of people defaulting on loans and credit card debt will naturally increase, especially when those who are highly leveraged lose their jobs and, consequently, are unable to service their loans. MAS is keeping a close watch on the growing default rates and the rise in consumer credit card debt. Ms Ng has asked whether there are adequate checks on credit card companies here and suggests that credit card issuers may be extending credit too easily to those in the lower-income group. Banks and other credit card issuers are supervised by the Monetary Authority of Singapore (MAS), and are expected to behave prudently when extending credit. Currently, MAS permits credit card companies to offer credit cards and unsecured credit facilities only to individuals with a minimum annual income of $30,000. This is to prevent lower-income individuals from borrowing from financial institutions for consumption, as such individuals are more likely to find themselves unable to service their debts. This policy has served us well thus far, and MAS has no intention of easing our restrictions on credit cards. Ms Ng has also asked whether consumer credit laws need to be reviewed to ensure consumers have clear information on penalties for late payments on loans and on how interest is charged. MAS' guidelines currently require credit card companies to disclose late payment and finance charges prominently on all monthly statements. The Association of Banks in Singapore (ABS) has also worked on a number of initiatives to improve standards of disclosure.”
“In the light of the recent problems with the critical year issue, MAS has reviewed its position and confirmed that the reasons for excluding financial services from the proposed Act remain valid. However, MAS will continue to monitor the situation and will review the position in two years. An important consideration will be the effectiveness of industry initiatives to promote fair dealing with consumers. For our disclosure-based regime and consumer self-reliance to work, there must not be an imbalance of power between the consumers and financial institutions. Consumers must be equipped with convenient and affordable means to enforce their legal rights and seek fair redress for their grievances. Introducing a class action regime in Singapore can be helpful, by making it easier or more affordable for large groups of aggrieved consumers to band together to seek redress in the courts. The Attorney-General's Chambers is currently studying the issue of representative and class actions in the context of the Singapore legal system as a whole. Column No : 3134 DEATHS OF NATIONAL SERVICEMEN 7. Mdm Halimah Yacob asked the Minister for Defence (a) what is the cause of the recent deaths of three National Servicemen (NSmen), all within the period of one month; and (b) whether adequate measures have been taken to ensure the health and safety of our NSmen when they undergo training.”
“MAS is hopeful that IDRO will minimise the need for more formal regulatory or statutory arrangements. MAS will not allow insurance companies to use the participating policyholders' fund to compensate policyholders who have been mis-sold insurance products. This is against the principles of fairness and equity to participating policyholders. Participating policyholders' interests should not be adversely affected by financial losses caused by inadequacies in a company's own practices or internal controls, or mis-selling by its agents. For greater clarity, MAS will be amending section 17(5) of the Insurance Act, to give the Authority the power to set rules on what constitute receipts, income, expenses, and liabilities that are attributable to insurance funds, and the ways to derive each item. This would safeguard policyholders' interests from being compromised by unfair practices by insurers. An example of unfair treatment is to charge expenses and liabilities incurred as a result of mis-selling by an insurer or its intermediaries to insurance funds. MAS had earlier decided not to include financial services in the proposed Consumer Protection (Fair Trading) Act (CPFTA). The Securities and Futures Act and the Financial Advisers Act have only recently been introduced, and financial institutions are still making the necessary adjustments. Also, industry mechanisms, such as the Consumer Mediation Unit and the Insurance Disputes Resolution Organisation, have only recently been launched. MAS therefore concluded that the industry should be given more time to develop and strengthen these and other initiatives to enhance business conduct standards so that they can be effective and credible.”
“Mr Speaker, Sir, since this Question was filed, there have been some significant developments on the critical year (CY) issue. At the request of the Consumers' Association of Singapore (CASE), AIA, the major insurer involved, has improved its support package and adjudication process for affected policyholders. Details of the revised package were released on Tuesday. The Monetary Authority of Singapore (MAS) welcomes this development. As the regulator of the insurance industry, MAS takes the supervisory approach of full disclosure and consumer self-reliance. While MAS is not in a position to settle disputes between financial institutions and their customers, it will ensure that institutions disclose information promptly, accurately and adequately, and abide by high standards of professional and business conduct. MAS had earlier issued a Policyholders' Guide, to help consumers to understand better their policies, organise their documentation and be aware of the options available to them. MAS has also encouraged companies that issued policies with a critical year feature to deal fairly with these complaints and has been monitoring steps taken by these companies to address the concerns of affected policyholders. At the same time, MAS is working with industry bodies to make available to consumers the information and channels for them to ascertain and enforce their legal rights, conveniently and affordably. MAS is also strongly committed to ensuring that a robust dispute resolution mechanism is in place to provide an affordable and convenient alternative for consumers to seek redress. The insurance companies have entered into a voluntary arrangement, known as the Insurance Dispute Resolution Organisation (IDRO).”
“Members can also use the CPF Savings Projector at the CPF Board's website to project their future CPF savings and estimate the monthly income they would receive from their Retirement Account. The Monetary Authority of Singapore (MAS) does not regulate the provision of advice relating to mortgages, as these are not investment products. Members are encouraged to ask for more information from their lending institutions on the mortgage repayment schedules and clarify their monthly loan statements, if they feel that they require additional information on their mortgages to better plan for their finances. They can also use the various information services and tools provided by the CPF Board. We have, what we call, the online Housing Withdrawal Limit calculator. For members using their CPF monies to service their housing loans, the Board provides them a three-month advance notice before they reach their CPF withdrawal limit for housing. This will give members some time to make alternative financial arrangements to meet their mortgage payments. But of course we should not wait till then. The CPF Board will work closely with the MAS and other Government agencies, as well as industry associations, to provide more consumer education on financial products and services under the MoneySENSE programme, as announced by DPM Lee earlier.”
“The Acting Minister for Manpower (Dr Ng Eng Hen): Mr Speaker, Sir, because Singaporeans will live longer, they need to consider carefully how they use their CPF monies which, in essence, is their personal retirement fund. This is implicit in Dr Amy Khor's question and I agree with her. To help Singaporeans prepare adequately for retirement is a mandate for the CPF Board. And therefore, the CPF Board will enhance its public education programme to meet this objective. It will make available to members educational information modules structured to their life events, such as when they start work, get married, buy a house, and so on. And these modules will cover basic financial planning and investment. They will guide the member on what to consider when making a decision over the use of his CPF monies and how these decisions would affect his retirement savings. These modules will be ready by the first half of next year. They will be made available through the CPF website and at CPF Board offices, and supplemented by other mediums, such as newsletters, publications, seminars, print and broadcast media. Second, the Board will provide more information on various features of investment products, I think a point brought up in the last parliamentary Question. For these investment products, information such as charges by different agent banks, the market value of investments held under the CPF investment schemes and, for each member, how the products they have bought have performed compared if they have left it in the CPF, will be given. Third, the CPF Board already makes available to its members relevant tools, such as online calculators at its website to let members estimate how long their CPF savings can be used before reaching the housing withdrawal limit.”
“Mr Speaker, Sir, that is really a different subject, but just a very brief answer. No, we do not intend to have guidelines to have a certain proportion given out to a private placement. We do have guidelines to ensure that there is a reasonably wide distribution of shares and not all of it is given to a small number of purchasers. In Mid-Continent, there were lapses which, I think, have been identified and are being put right. The solution is to continue to watch vigilantly to see how the present rules work, rather than to go back to a formula where you require a certain amount of public placement, where you are just transferring the problem, because a public placement does not guarantee a good market. It just generates a different kind of excitement and more enthusiasm frenzy for the next round. Column No : 3131 CENTRAL PROVIDENT FUND MONIES (Education of public on its use) 5. Dr Amy Khor Lean Suan asked the Acting Minister for Manpower in light of the recent Central Provident Fund (CPF) changes (a) what kind of information and through what medium the CPF Board will provide and use as a means of educating the public on the use of their CPF monies for housing purchases and other approved investments so that CPF members will make the most informed decision; and (b) if the CPF Board or financial institutions can be tasked or required by the Monetary Authority of Singapore to mandatorily advise Singaporeans who use CPF monies to finance their housing purchases as to the estimated time when they will exhaust their allowable CPF monies for mortgage repayments and thus will need to service their loans entirely with cash.”
“This is a question which should of course be addressed to my colleague, the Acting Minister, at the next parliamentary Question. But I should say that, by and large, most Singaporeans with CPF money have been quite conservative because they have just left their money in the CPF. They bought a house, they are living in it, and the rest they have just put in the CPF earning 2.5%, or 4% on a Special Account, and feeling quite happy that is rather a lot of interest in this current environment. Some people have taken the money out and invested mostly in stocks and shares, some unit trusts, some investment-linked insurance products. They have performed variously, not all have out-performed, leaving their money in the CPF. But we have felt that, as a matter of public policy, we should not lock up their money. But if they feel that they can do better, we should allow them avenues to do so, and this is what we have done. We have adjusted the rules as we have gone along and cut back on the proportion which you can put in stocks and shares directly. So you cannot take your life savings and go and buy one company's stock. If you had bought Pan El, 15 years ago, you would be feeling very sad. And we would continue to adjust these rules. But I think, even with CPF, the general approach should be that the individual is responsible so long as he is investing the money and not spending it. We should give him latitude to do so with both the upside and the downside to be taken into account.”
“But it is something that we have to get people to understand because an IPO is not a sure-win thing. When you read the newspapers and each time the market is hot, IPO becomes exciting, and people say 200 times over-subscription was the last number they saw, something fabulous like that. They do not say that the denominator is very small, it is a few million dollars and everybody is putting in. It is a market which is excited without being knowledgeable, and that is worrying. An IPO is not an opportunity for retail investors to get rich. It is an opportunity for companies to raise equity capital, to raise shareholders' funds, or to sell part of their holdings. And that is something which people have to learn.”
“Mr Speaker, Sir, the answer is we have to go on disclosure and listing standards where certain listing standards which SGX requires and which companies must comply with before they are allowed to list, either a track record, growth potential or a certain amount of shareholders' funds which are publicly known. So before they can be listed on the Stock Exchange, they have to comply with these. Secondly, there has to be full disclosures or the risks, what are the business prospects, what sort of business you are in, what are the problems, what are the potential legal issues which may come up. All these have to be fully disclosed in a disclosure document in the prospectus before you can go for an IPO. Thirdly, of course, there is a process for the IPO. The Stock Exchange has to agree, the IPO has to be posted publicly, MAS has to register it, and if all that passes, finally, the IPO can proceed. And you would have seen that there had been a couple of cases where this process had not gone through to completion, but somewhere along the way, some issues had popped up and the IPO had been withdrawn, or something else had to happen. So these are precautions which we have in place to make sure that the Stock Exchange is a place to raise equity capital and not a casino. But the final safeguard, as I have said several times, is disclosure and consumer responsibility. In other words, before you invest in a stock, whether it is an IPO stock or any other stock listed on the Exchange, make sure you know what it is about, what is this company doing, what are the risks, can you or can you not accept the risks of putting your money there and maybe losing part of it or all of it. It is not an easy lesson to get through.”
“The idea of the MoneySENSE programme is to raise awareness as well as offer the programmes. But if you are talking about a nation-wide audience, a very wide range of people, the sort of education which you must provide will depend on each person's background, his ability to absorb and what his needs are. If he is investing $5,000, that is different. If he is investing $50,000, or he has half a million dollars because he is a professional who puts some nest-egg away, his needs will be different. But we will make the programmes available to them. And if we are talking about Investment 101, maybe that is a good alternative name for the MoneySENSE programme.”
“Mr Speaker, Sir, we will use many avenues. We have roped in many agencies - PA, CPF Board, Ministry of Education. So we will try all avenues. The MAS website is only one of them. And we will try Rediffusion too, if I can persuade Mr Phua Chu Kang to lose some money and learn a lesson that would be helpful. As for comparison of products, there are many, many products on the market. So I am not sure if you can find one comprehensive compendium or encyclopaedia where you have all of them put down with all of their characteristics and ups and downs. But we will make sure that each time somebody sells a product and markets a scheme and says, "This is marvellous! 10% over 15 years" or some number like that, there is full disclosure and, hence, there is a comprehensible disclosure, not just dozens of pages of small prints and legalese, but something in plain English which you read and you understand what it is. We have gone for a disclosure-based regime. We have gone for caveat emptor, which means "buyer beware". I think there are all sorts of investment schemes, unit trusts and structured products on the market. I sometimes receive some of these blurbs too, and I look at them, and I need to read it three times to figure out what it is first; secondly, whether it makes sense - usually it does not - and thirdly, what to do with them next, which is either to send them to the staff to look at and ask what are all these about, or put them away and think about something else. But I think it is a learning process. If we clamp down and say, no, you cannot offer products like these, because I decide that individual savers or depositors should not have such products, I think we are doing the wrong thing. We have to take that responsibility.”
“Mr Speaker, Sir, yes, the programme will be in many languages. We are going to go down to the grassroots. So we will have to have materials in many languages too. The first requirement is to get people to have a basic literacy to understand money, how to save, how to put aside for the future, and how to budget. The next step beyond that is to have some knowledge of financial markets, some ideas of what are the risks and the possibilities, if you invest. The whole idea of the programme is to get people to understand and therefore take responsibility for themselves. If we work on the basis that the Government will guard you, and if we allow you to invest, that means it is safe, I think we have a very serious problem of moral hazard, which means that there is no incentive for consumers to look out for themselves, and they will depend on the Government. If things go well, they congratulate themselves on their good fortune and high skills. If things go badly, well, the Government should have prevented them from being foolish. I think this is a very dangerous situation. One of the major objectives of this MoneySENSE programme is to get people to understand that they have to make their own decisions. It is their responsibility, it is their money, it is their savings and investments, and they decide what risk they can bear. And if they commit and it turns out well, good for them. If it does not turn out well, they knew what they were going into. That is what we have to aim for.”
“These will provide practical advice on how to manage money, evaluate financial products, and avoid financial scams. MoneySENSE programmes will also be delivered to working Singaporeans and young adults through MCDS' network of almost 800 Family Life Ambassadors and institutions of higher learning. MOE will look at ways to deliver financial literacy concepts through the economic literacy messages that are currently infused into the school curriculum. MAS will be launching a new Consumer Portal on its website, which will serve as a central repository for all financial education materials, including activities and events that are organised under MoneySENSE. MAS will also be developing consumer guides to explain financial regulations or policies that impact the consumer. These include guides on what to look out for when seeking financial advice and how to seek redress in the event of a dispute with a financial institution. To kickstart the MoneySENSE programme, the Financial Sector Development Fund will be setting aside S$1 million per year over the next three years to co-fund financial education initiatives. This will provide seed money to develop the MoneySENSE programmes, and ensure a steady stream of activities in the initial years. Financial education will require a sustained effort by the public sector, the financial industry and consumers. The "MoneySENSE" programme will launch this effort. But its success depends ultimately on individual consumers realising that they lack financial knowledge and making the effort to seek advice and information. Consumers should be aware that they are responsible for their own financial decisions and that it is in their own interest to have a working understanding of financial matters. This is what self-reliance means.”
“The committee has therefore recommended a coordinated national financial education programme that brings together current industry and public sector initiatives. I will share some details of the programme today. The programme is called "MoneySENSE". It aims to take a more structured and comprehensive approach to increase the level and effectiveness of existing financial education programmes, and to enhance the basic financial literacy of consumers. The MoneySENSE programme will cover three tiers of financial literacy: Tier I - Basic Money Management - which covers basic money management skills such as budgeting and saving, and tips on the responsible use of credit; Tier II - Financial Planning - to equip Singaporeans with the skills and knowledge to plan for their long-term financial needs; and Tier III - Investment Know-How - which imparts knowledge about the different investment products and skills for investing. Over the next few months, the Committee will work closely with industry groups such as the Association of Banks in Singapore (ABS), the Financial Planning Association of Singapore (FPAS), General Insurance Association of Singapore (GIA), Investment Management Association of Singapore (IMAS), the Life Insurance Association of Singapore (LIA), and Securities Investors Association of Singapore (SIAS) to develop activities to support the national financial education programme. The Committee will also work with consumer bodies such as the Consumers' Association of Singapore (CASE) and other community organisations to ensure that consumer issues are adequately addressed through financial education. Public sector agencies such as MCDS, CPF Board and PA will help to organise regular workshops and seminars at CDCs and other neighbourhood venues.”
“Mr Speaker, Sir, over the past few years, we have been progressively liberalising the financial markets. This has led to greater innovation in the financial services industry, with institutions offering more complex and varied products. We have also moved away from a prescriptive approach to a disclosure-based regime. Amid these changes, we have experienced an economic downturn and have made changes to our Central Provident Fund. In this new and changing environment, Singaporeans need to become more self-reliant in their financial affairs. They must acquire the knowledge and skills to manage their day-to-day finances, make prudent investments and plan for their long-term needs. They must also be equipped to exercise their rights as consumers, so that financial institutions will treat them fairly, or else lose customers. This makes it important to educate Singaporeans to be knowledgeable in financial affairs. In February this year, MAS formed a public sector committee to recommend ways to increase the effectiveness of financial education in Singapore. Chaired by MAS, the committee comprises representatives from Ministry of Community Development and Sports (MCDS), Ministry of Education (MOE), Ministry of Manpower (MOM), Central Provident Fund Board (CPF Board) and People's Association (PA). The committee found that over the last few years, public sector agencies such as the CPF Board and MCDS, as well as industry players, had made a significant effort in financial education. They had produced educational guides and organised various investment seminars and workshops. However, while resources had been put into financial education initiatives, there had not been close enough coordination, resulting in some duplication and gaps in content and reach.”
“Mr Speaker, Sir, under the current rules, Singaporeans who are 21 years of age as at 1st December of the year before, and not 30th November, are eligible for the Economic Restructuring Shares (or ERS). The cut-off date was set at 1st December to tie in with the cut-off date for making the $50 CPF contribution in order to get the shares on 1st January. I take note of Mr Nandan's concern that Singaporeans born between 1st and 31st December would be 21 years old when the shares are allotted. For the next tranche of ERS, I have therefore decided to extend the cut-off date to those who turn 21 by 31st December this year, but they must still make their $50 contribution by 30th November to get their shares on 1st January, or if they make their contribution by December, then they will get their shares on 1st February.”
“But what we do requires the trust of Singaporeans, requires a Government which is resolved to make vital structural changes and then, together, we take the pain and adjust together. Then we would have not just a partnership in good times, but a bond that will hold even in bad times, and it is because of this that we have confidence that we can tackle the future. [Applause.] EXEMPTED BUSINESS (Motion) Resolved, That the proceedings on the business set down on the Order Paper for today be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Mr Wong Kan Seng]. RETUNING THE CPF Debate resumed.”
“Consequently, although consumer prices have risen slightly this year, labour costs have held steady or even fallen, helping companies hold the line on costs." So, overall, we are not wildly out of line. We need to adjust, but the water is not boiling yet. We just have to adjust the thermostat. The report goes on to say: "Office and housing rents in Singapore are where the island has held a big advantage over Asia's other developed economies. A large proportion of the population lives in public housing, much larger than in Hong Kong. This has helped to hold down demand for private sector premises. Rents are still high compared to most developing economies in the region, but not compared with the developed economies of Asia, or even with major Chinese cities like Shanghai or Beijing." So our rents are high compared to developing economies, but not so when compared to the developed economies or even Shanghai and Beijing. If we take the whole picture in perspective, there is no need to panic. But we know we have to adjust, that is what we are doing and we are sending the right signals to investors, creating the right investment environment. With that we are able to create jobs for Singaporeans. That we can do this together is an enormous plus. That we are here seriously discussing these issues, debating them, and have everybody understand what needs to be done - is a plus. Even Mr Low Thia Khiang, after quite a fierce speech, at the end said why not just fix the CPF rate at 35%. That showed a recognition of the reality. We are sitting here debating, not out there joining a million-man demonstration in Parliament Square. That would be a totally different kind of Singapore.”
“Residential has gone down to 76, ie, a quarter down. And if you look at the chart below, you will see that the trend has been down. And if you compare the decline not from 1994 but from the peak at around 1996/1997, the decline has been even sharper. So to say, "Let us bring land prices down", is to make statements without looking at the facts. We have to judge Singapore on our overall competitiveness. Wages are important, but they are part of our overall competitiveness. The newspapers reported Dr Tony Tan's statement. Over the weekend, he made a speech, I think at a Sembawang National Day observance ceremony, and pointed out that a PERC report said that Singapore wages appeared to be higher than that in the US, which is a serious matter. But that is only one part of the picture. We also have to look at the rest of the picture to complete the perspective. If we look at the PERC report which was published on 2nd July 2003, for Singapore, it says: "Still competitive compared to Asia's more developed economies, but expensive compared to most developing ones." There is a spectrum of economies. If we are a properly developed economy, we are okay. If we are not a developed country, we have a problem. We are almost developed. But, compared to the developing economies, we have to watch our competitiveness. The report further explained that: "The Singapore Government has historically done a very good job of holding down the rate of inflation. This year is no exception. It has allowed labour costs to increase fairly rapidly during boom times, but it has also allowed them to fall during difficult periods, such as the island is currently experiencing.”
“A gas plant produces electricity much cheaper than a steam plant. But we did not keep out the gas plants in order to guarantee the steam plants a rate of return. We proceeded to build the gas plants, bought the gas, and now the steam plants are "stranded". In other words, their value has gone down. The price of electricity can no longer cover the full cost to operate a steam plant. It is the wrong thing to do for the Government as a shareholder of the steam plants, but we did it because that is a sensible thing for the economy. We write-off the value of the steam plants, move to gas, and everybody benefits from cheaper electricity prices, and the Government's loss as shareholder is the people's gain. Not all Members knew or understood what we did. From time to time, we get requests - why not just reduce the utility charges? It is not so simple. But what we have done has been significant. Our land cost and rentals have also come down. I have a table (Cols. 2851-2). May I ask the Clerk to distribute it? [Copies of Table distributed to hon. Members.] Table - Changes in property and land prices (1994-2003) I had this argument twice with Mr Inderjit Singh. He is not here today, so Mr Low Thia Khiang took it up for him. But let me show you what the real numbers look like. Land prices have come down in Singapore significantly. If we look back 10 years, to just the beginning of the property upturn in 1994, and index the property prices then as 100. Today, 10 years down the road, JTC flatted factories have gone down to 67, ie, one-third down. JTC industrial land has gone down to 75, ie, one-quarter down. Private industrial factories have gone down to 78 or one-fifth down. Office, to 59 - about 40% down. Shops have gone down to 68, ie, one-third down.”
“But when the economic conditions improve and our fiscal situation is stuck in the wrong position, then we will have a structural deficit and a big problem. Hong Kong has a deficit that is 7% of their GDP, which is a serious matter. If that happens to us, investors will lose confidence, the Singapore dollar will depreciate, and our savings will lose value. Mr Low Thia Khiang said just now that we dare not depreciate the Singapore dollar, and are therefore cutting the CPF. I think he is quite right. Would he dare to depreciate the Singapore dollar if he can do so? To depreciate the Singapore dollar means inflation will go up, workers' savings will be worth less, confidence will go down, interest rates will go up, and many consequences which I think any responsible government will have to think very carefully before doing. Therefore, if we need to spend now, we will spend. But we will make sure that when we get back on track and the economy is growing, our budget is back in balance. And that is one of the reasons why we cannot put off the GST increase further. Finally, let me talk about the CPF changes. Some people are asking if these will make Singapore competitive. Will they work? The CPF changes are only part of our strategy. We have tackled many other components of our business costs. Our income tax rates are now one of the lowest in the world. Our utilities charges, despite people's complaints, are low compared to other countries. In other countries, where the electricity industry is protected, once a plant is built, it is guaranteed a rate of return. If the plant cannot fetch the target rate of return, the tariffs are raised. On the other hand, we have opened up our market, which used to comprise steam plants. Then gas became available.”
“This is a real issue but a very complicated one which we are taking some time to study. We will see what, if anything, needs to be done. But it does not affect our immediate policy decisions. As Finance Minister, my approach is to set the appropriate fiscal policy - tax levels, spending levels, budget surplus or deficit - such that it is appropriate to the state of the economy. If it needs to be stimulated, we will stimulate it. If it needs to be cooled down, we will cool it down. And if we have to draw on reserves, so be it. If I have to ask the President for approval, I will have to make the case and the President will have to decide. We are prepared to run deficits in a downturn. Our public expenditure has been counter-cyclical. Last year was a slow year and we ran a small deficit. This year, we are going to run a much bigger deficit. As I told you, it is going to be more than $2 billion. We will probably run an even bigger deficit next year in FY 2004. And if we have to go to the President, I think we can make a good case. I think he will listen to it rationally and, hopefully, sympathetically. But we cannot draw on reserves to put off essential structural changes. If our economy is out of kilter, if our wage structure is wrong, if our CPF system is wrong, we cannot leave things be and just live on our past savings. We have to take a long view, look beyond the present and set our policies so that it will work in the long term. I do not mind if we run a big deficit this year or next year. My concern is: can we balance our books after the economy has recovered? It is very easy to say this is a transient problem, which is part and parcel of the automatic stabiliser at work.”
“You turn up the fire, the water warms up, it adapts, it continues to swim around. You turn up the fire a bit higher, it adapts, it swims around some more, until it is cooked alive. So that is what it means to be a boiled frog. What happened to us in 1998 was the first scenario. Boiling water, sudden crisis, we were in it and we jumped out. We cut CPF contribution rate from 40% to 30%. What is happening now is that we are in warm water and we have to decide what we are going to do. I can tell you we are not going to be boiled, but we have to judge the moment to jump out. In the meantime, we have made one adjustment to 33%. And if we have to, we will do it again. Because we have to watch the situation closely as it changes, month to month, year to year, and calibrate ourselves so that we neither over react, nor become inured and insensitive to the changes in the environment, and then end up boiled alive. I wanted to contribute to the Fabric of a Nation a piece with a green frog on it, but I was told it was too late. Therefore, we may well change further. There is no going back to 40%. We are also making other important changes - the withdrawal rule at 55 is a very major change. All the CPF changes are going to lead to savings of $1.3 billion per year for employers, or about 1% of GDP. Each employer may not save that much, but for the economy as a whole, it is a lot of money and it will make a significant difference. Dr Wang Kai Yuen yesterday made a good speech, asking about the Government's money. He said that our electoral cycle does not coincide with the property cycle and does not coincide with the business cycle. So when the market is up, we sell our land. When we have an election, we lock up the money. After the election, we have a problem.”
“Of course, some employers prefer to cut to 30%. Some workers prefer to stay at 36%. There are a few who suggested going back to 40%, but not that many. But we have to make a judgement. You cannot calculate this. It is not a matter of right or wrong. It is a feel - how far do you need to go, how far can you go, where do the benefits tail off, and the negatives and the problems, such as the impact on housing affordability and on confidence, come on. And we decided on 33%. It is a collective judgement. It is not a unanimous view. But it is where we have decided to move. Even after we do this, our wages are still going to be many multiples of the Chinese and Indian wages. You have heard the figures PM cited - we are 15 times China, 18 times India, and so on. But this is not an exercise to match Chinese or Indian wages. They are trying their best to come up and we are trying our best to stay up. And if we are too far out of line, we have to adjust. We always work on the basis that our workers need to be paid more, ought to be paid more and can be paid more, provided our value-added, our efficiency and productivity are there, and our Government is there to generate extra value in Singapore. By putting all the pieces together, we can justify our higher wages. So although we are making these CPF adjustments it is the overall competitiveness that we have to watch closely. We will cut the statutory burden, but we will take it one step at a time. We will not become a boiled frog. For those who have not heard of the boiled frog, let me explain the story. This is a scientific fact. If you take a pot of boiling water and you drop a live frog into it, it will say "Ouch!", it jumps out, and lives. If you take a pot of cold water and you put a live frog into it, it swims around.”
“I do not want to lock in a rate because the conditions are too unpredictable, too uncertain, too changeable. But somewhere in there will be an appropriate rate and we may have to change it from time to time, not every year, but when conditions change and we have to respond. But we cannot promise people anything fixed. Mr Low Thia Khiang said, " Why are you not promising a rice bowl?" I was disappointed he did not ask why we are not promising an iron rice bowl. But he knows even in China there are no iron rice bowls. And if he has one in Singapore, we will buy it from him. This is the right path forward. From 40% to 33% is a big move and so we studied it very carefully. We started studying this in March, immediately after the ERC Report, because I was worried that we would not be able to hold the position for very long. We were not certain if we were going to do anything, but I was convinced that we had better study it. If we had to do something, then at least we would know what would be the implications. How low could the contribution go? How much would be needed for housing, for retirement, for medical expenses? So by the time we decided we needed to do something, some ground work had already been done. Therefore, when we announced a target range of 30%-36%, we are confident that, at 30%, the majority can still get by, provided we change the withdrawal rules at 55. If you take money out at 55, whether it is for a good cause, like for your children's overseas education, or for fun like starting a new home in Batam, we cannot afford it anymore. If Singaporeans take out that amount at 55, they will not have enough to see them through from 62 to 80, or as PM says, to maybe even 100. Going from a 40% target to 33% actual contribution rate is not such a small move.”
“We expected it to pick up end of last year. But it did not. Now we are hoping for recovery in the second half of this year. We hope it does. Secondly, SARS was a further setback. No question about it. Thirdly, the landscape has changed. If you look at America, they have not been growing so well. They are neither in a recession nor booming. They have growth, but no jobs are created. It is a jobless growth. It impacts us directly because we are not exporting as much to America. But also indirectly, are we going to have jobless growth too? And, finally, you see the trend of migration of white collar jobs from America and Europe, to China and India - not bottle washers, but doctors, computer programmers, designers, accountants. That is a different phenomenon and it is beginning to happen to us, and much faster than we expect. Therefore, after SARS, we re-evaluated our position and decided that although we had been reluctant to change, let us change now. We have to respond. We have to send the right signals, then investors will know that we are moving. And I think we have successfully done so. We made the statement yesterday, and in the Wall Street Journal today, there is a long report on page 3 on our CPF changes. It is a factual report, but with one significant paragraph. It says, "While the widely expected changes are painful and could hurt consumer spending in the housing sector, they signal the Government's intention to help companies better compete against rivals in China and India." That is exactly what we are trying to do, and what we must convince people that we are trying to do. So we are moving now to reposition the CPF to be sustainable over the long term. What rate, we cannot be sure. Is it 30%? Is it 36%?”
“And we know that even if we reached 40%, one day we may have to come back down again. We did not want to give up so lightly what we had promised. We had a long discussion with the ERC members, with the union Members of Parliament, and with Mr Lim Boon Heng. Finally, we agreed to maintain the 40% target but to delay the restoration. Sustaining 40% was at that time not an immediate problem, but as a long-term problem which we could do something about later. Further, we already had major changes needing to be done, such as the salary ceiling, the rules on using CPF for housing, contribution rate for older workers. So we thought that the changes we were making were already very drastic, and we should do what we could, and take another step later. By the time we were preparing the ERC's final report, which was February 2003, we were getting more concerned. The Sub-Committees, including the CPF one, have all released their reports. We were putting the pieces together to get the shape of the whole package of recommendation. We asked ourselves: Have we gone far enough? Do we need to make further adjustments? The CPF question popped up again. Should we change the 40% target? Again, we thought, let us wait. The situation was still changing, but let's not make precipitately a U-turn. Changing the 40% target would take time, we needed to study all the implications and prepare the ground. So we decided to freeze 36% for two years, and decide what to do next. Even that took a lot of discussions before all ERC members accepted it. That was February this year. Now post-SARS, we have to re-evaluate our position again. If you look back over the last 12 months, circumstances have changed significantly. First, the Singapore economy is recovering much more slowly.”
“It was not a hard decision either to make or to sell even though it was a big cut, because the urgency was obvious. Everybody could see it. From July, when I was not convinced about a CPF cut, to November when I had to make the statement to announce a CPF cut, everybody saw the contagion spreading and Indonesia running into serious trouble. We had to move. We thought then that because the crisis was sharp and we reacted promptly, once the storm had passed we could go back to 40% quickly. We did not want to take six or seven years, so we made the public commitment to go back to 40% quickly. But we could not do it. We went up to 36% when we had a good year in 2000, then came 9/11, SARS and so many other things. We now find ourselves in a different situation. Last year, the Economic Review Committee met. One of the items on our agenda was the CPF. We started off discussing this. I told Dr Lee Boon Yang we had to review the CPF. Dr Lee said, "Well, we just take a look. If we have to change, we have to change." Neither he nor I was persuaded that it was necessary for us to turn the system upside down. We thought we could look at it and there could be some improvements, and that was it. But as we discussed it at length, and as the situation unfolded, we began to understand that we actually needed to make quite significant changes to the rules on using CPF for housing, to the salary ceiling, to the older workers' contribution rate, and we had some difficult decisions on our hands. And one of the issues we considered was the 40% contribution rate, could we sustain it? The Government had made a commitment. Should the ERC recommend turning back on that commitment? We had two choices, either we abandon the commitment or we go up slowly but carefully.”
“Is that something which the Government takes away from the workers? Or is it something which is part of the salary, which belongs to the workers, something which the workers use to spend for Medisave, for a house and for old age? CPF is part of the worker's earnings, and we are proud that we are able to have such a large amount of savings put aside for a house to live in and for old age. Very few countries can do this." I thought I won the argument and we proceeded on that basis, cutting all other rates and charges, but not disturbing the CPF because it is workers' wages. But, over the course of the year, as the recession deepened and as we discussed the issues in depth at the Economic Committee, I got educated. People persuaded me that we had to do something about the CPF. It was an overhead, and a cost to businesses. Yes, it is wages, but it cannot be helped. So we changed. The Economic Committee recommended that we cut the CPF to 35%, from 50%. That is a 15 percentage point cut. Today, we are talking about a 3 percentage point adjustment. The Government accepted the proposal. We sold it to the workers and the unions, with a lot of help from Mr Ong Teng Cheong, who was then the Secretary-General of the NTUC and also from Mr Lim Boon Heng, who was then the Deputy Secretary-General of the NTUC. We had some quite fierce meetings, some closed-doors, some not. I am sure some of the union members will remember. But eventually we sold it to them, they were persuaded and the medicine worked. After 1985, we gradually built the CPF back to 40%. We said that this is the long-term target rate and we got there after 6-7 years. We maintained it at 40% for quite a long time. Then came 1998, the Asian financial crisis, and we cut the rate from 40% overnight to 30%.”