Saturday, September 29, 2007

PAP/Straits Times answers critics on CPF!

Today the govt responds to critics. Unlike amatuer bloggers who tried to explain the CPF to the blogsphere and end up being called "PAP apologists", today's Straits Times carried a thorough and indepth explanation of why 2.5/3.5% on minimum sum is as good as it gets, why GIC returns is delinked from CPF, why Low Thia Khiang is an opportunistic rebel rouser and why the GIC doesn't need or want your money and why CPF changes are a fair deal.

Articles in the Straits Times 29 Sep 2007:

Forum : Govt Investments de-linked from CPF funds.
Insight Pg S10: CPF Returns : As good can get (1st para talks about Low Thia Khiang)
Insight Pg S11: CPF as Cheap Funds:"Wrong & plainly misleading".
Insight Pg S12: CPF Changes a fair deal so why the hesitation.

Now that is a alot of good explanation from our world class govt. I suggest you read, no study, each of these articles to get a good understanding of our govt thinking on retirement and the wonderful plan the PAP govt has for you for your retirement.

I've identified a number of important points in the articles for discussion.

Point 1 : The rate of 2.5/3.5% is risk free and guaranteed.

Well at first sight nobody can disagree with this statement. But think harder. ....

The govt has mandated that a large portion ($60K) of Singaporeans' CPF funds be set aside to earn a "risk free return of 3.5%". We are required by law to do this an have no choice....we are locked on to this strategy of earning a return on the bulk of our CPF for a period of 40 years how is that for a strategy.

Such a strategy is sure to guarantee one thing for most people - insufficiency. I haven't found a single qualified investment advisor who will go tell a 25 year old to lock his savinsg up at a fixed deposit type of rate of 3.5% for 40 years for the purpose of retirement. In fact all other asset classes real estate, equities have always out performed this 3.5% rate over any 40 year period. Also, within a 40 year period we can expect periods of high inflation, the so-called risk free rate only guarantees that the buying power of the CPF money will be badly eroded.

So the basic strategy of locking up a minimum sum earning a rate similar to treasury bonds for 40 years is a risky one - it is vulnerable to inflation, guaranteed to underperform, guaranteed to be insufficient a result we will see our retirement shifting and the quality of our retirement dropping under this strategy.

Simply google "retirement plan" to see what a plan should look like. or what watch Ben Stein's video on retirement here. Or read about Chile's pension plan for its citizens. ..or Calpers which hires professional managers to handle public servants money and they don't keep the returns for themselves but give it to the pensioners who need it.

Why is hiring a group of top professionals OR outsourcing to selected low cost asset management companies OR allowing investments in index linked ETFs/no load funds so unattainable? Just let the person choose whether he wants 3.5% or have his money managed for higher returns/risk. The fact that money is guaranteed at risk free 3.5% is meaningless because buying power of the money is not guaranteed. The best plan to preserve buying power has been to invest prudently.....why put millions of citizens on a plan that is not the best plan?

Why does the PAP mandate that we follow a plan that will not work properly? I think they want us to work longer and harder so we don't retire and become useless. It is for our own good to lead useful productive lives.

Point 2: GIC deserves its return of 9.8% for making risky investments.

CPF minimum sum is only allowed to have low returns whereas GIC deserves its higher return for making risky investments.

Again think hard.

GIC invest money of the citizens of Singapore, why is it allowed to take the type of risk that CPF holders cannot take for their minimum sum? You mean it is okay for GIC to lose citizens' money and but not okay for citizens lose their own CPF money?

Point 3: GIC can raise more cheaply by issuing treasury bills and govt securities...they don't need your money for "cheap" funds.

Singaporeans have their CPF locked up for about 40 yrs. Gee, I have never seen a 40-yr treasury bill before, I don't think any govt has issued one. Also, the withdrawal age can be changed, so its like a treasury bill with a shifting maturity. So far the Singapore govt has been able to issue small amounts of securities with 10 yr maturity at a lower rate than 2.5% however try borrowing $50B, the borrowing cost will go up. The articles actually suggest that CPF funds are "expensive" for the GIC.

Yes, the GIC does not need the "expensive" funds from CPF it has other cheap sources of funding. But somehow it doesn't tap the cheaper source of funding much preferring use the more "expensive" funding - you don't see the GIC rushing to the securities market for billions. If you're a competent fund manager and have 2 sources of funding one more expensive the other one cheaper - which would you choose?

Point 4 : 83% of CPF members who invested their OA savings in the CPFIS from 2002 to 20006 realised less than the 2.5% returns -the base rate of the OA. Half of all members who invested experienced experienced negative returns.....(forum article "Govt investments de-linked from CPF funds").

I was SHOCKED by this statement by the director from MoF....oh Singaporeans are such INCOMPETENT investors they should not be allowed to invest their own money!!!
Strangely, I was just sitting with a large group of people for lunch on Friday and everyone was talking about how well their investments which the made in the past few years did.

If you look at the STI Index, Global Indice, Regional Indices for Europe/US/Asia.... you cannot find a single day in 2002-2006 that youcan buy a unit trust linked to this hold it until today and not perform better than the 2.5% that CPF OA gives out! For example, look at the STI from 2002 until today: tell me how can one return less than 2.5% when they invest between 2002-2006. If you pull out every single major equity index, they look similiar. You can buy on any one of well diversified unit trusts on any one of the 1500 trading days in 2002-2006 and beat the 2.5% given by the CPF.

So how did Singaporeans become so incompetent. Well, look at that statement again. says "realised less than 2.5% returns", they probably only computed investments that were sold off during that period and does not included then majority of investments which are held on until today! Even for myself I've sold off 1 or 2 loss making investments during that period but those I've bought in 2002-2006 and held until today have double and this is not counted. I'm one of the 83% of incompetent investors. This is a wonderful piece of data mining, we all should be thankful for because it helps us to feel so much better about the 2.5-3.5% we are getting on our CPF.


The 2.5/3.5% is a guarantee...a guarantee of insufficiency. This insufficiency is showing up in withdrawal age being pushed, a diminished quality of retirement ($200 per month) and extended working life. It is also guarantees underperformance compared with other asset diversified classes which outperform risk free assets with 100% certainty. Risk free rate is meaningless because it does not guarantee buying power - it is not peg to the rise in oil prices, rise in bus fares, rise in milk....etc.

It is a challenge the PAP put before us to retire on such a plan that no financial advisor will ever recommend for retirement. We should be thankful for such challenges as it is chance to strengthen our work ethics to the point we don't ever have to retire. Retirement is a awful thing anyway we lose the chance to contribute to Singapore Inc wasting our time instead on walks in the park and looking after our grand children.

The GIC does not need our CPF money for its investments. It is reluctantly using it as a form of service to Singaporeans and giving them this return that is "as good as it gets"....although they get better returns, we should begrudge that it is not returned to the CPF account holders. We do see a small fraction of it just before General Elections to encourage us to make the right decisions and keep the status quo. All this is done for our own good, we have to believe what is good for the PAP govt is also good for the people of Singapore.


Anonymous said...

nice piece of article.

we really need to educate more singaporeans regarding political issues

Anonymous said...

Another insightful article, keep up the good work, we may one day, I hope, will have a caring govt. But unfortunately that day may come only when the greedy, inhumane and uncaring lee kuan yew dies - I sincerely hope before he is. 85

Anonymous said...

Lucky : "Or read about Chile's pension plan for its citizens. ..or Calpers which hire professional managers ..."

Singapore govt also got professional managers what. Ho Ching for instance.

So professional that she lost billions in Shin Corp buyout and lost another $400 million within a month recently in Barclays.

But really what does it matter?
Even if Temasek and GIC were very profitable, it won't benefit Singaporeans a whit.

Of course if they lose, we lose lah ... our CPF monies being their source of funds.

Tail we lose, head PAP wins.

Ah we must also remember that PAP always said there will be no state welfare in Singapore.

Oddly Minister Tharman says the govt gave out to a typical lower-income family $136,000.

Don't play, play hor. So much you know.

On one hand, PAP says no welfare. On the other, PAP says there is subsidies and grants.

PAP is confused?

Nah, they just jack up prices and then make a deduction and call it subsidy and grant.

Just like HDB flat subsidy. When people asks what is the actual cost of building a HDB flat, they say don't ask. Just work out the difference between private flat and HDB flat.

That's the subsidy.

They can call it what they want : subsidy or grant, it is not really that but just playing with words to make people happy.

More likely the people are subsidizing PAP in its ventures meant to benefit its own exclusive empire of PAP people which policy suffers no shortage of takers.

Anonymous said...

Was very impressed after reading about calpers pension fund.
At US$250 billion, I think it's bigger than CPF or GIC. And in the latest financial year, the fund grew by 19% !
Even over a 10-year period, it has grown by more than 10% per annum !
And the government is saying that 2.5% to 5% paid for CPF funds is better than what the market can offer ?

Anonymous said...

Ok, calpers 10-year returns was 9% per annum. Still very impressive

Anonymous said...

what risk-free rate of 2.5-3.5% are they talking about when owners have no rights to withdraw for more than 40+ years, no rights to use it as collaterals against loans, etc. Stop treating cpf monies like bank deposits for it is not liquid and i think there is a duty owed by the govt as custodian of these monies to ensure retirement goals are met properly.

Anonymous said...

is the MoF trying to give false impressions about CPFIS performance...what they said is misleading and counter-intuitive.

Anonymous said...

They don't need CPF money for cheap fund. They have a much better source, called "HDB". Everytime someone "buys" a 200k HDB flat, 100k -at least- is donated to HDB, who will then pass it to MoF. They need not pay back and there is no interest. In fact, if you don't pay cash for your flat, you end up paying 2.6% interest to HDB for money that HDB did not have from the start and has not spent on anything. So HDB borrows money from people, charge them interest on the meoney that they borrow from them and never give it back.

Anonymous said...

Very objective analysis. Thank u.

Anonymous said...

Very objective analysis. Thank you.

Anonymous said...

Keep up the good work, analysis... makes my mind tick... we need more people like you.

Anonymous said...

ai yah, every 5 year you can have a choice who you want in government. you chose them. you still want them right? so just bite the bullet till the next election loh. Ha Ha Ha . . .

Corriflute said...

Again should I be the one to provide a reality check?

Everyone goes into the market with the intention of making money, i.e. no one would want to sell a $10 note for a fiver.

What Mr Market doesn't tell you in his state of euphoria, is the fact that your principle might cut a loss, when he's having a bad day.

In the case of CPF, your principle is GUARANTEED, and in any circumstances, pay an above inflation interest rate. Such scheme can only be compared with the safest investment anyone can buy, US Treasury securities.

You get to release the money to fund your mortgage, your children's education, participate in investment, at your own risk, to attain greater yield (which I think 99% of contributors doesn't do).

What you don't get to do, is to withdraw it before retirement, that is what ALL pension fund do!

Chao_Chee_Bye_Corriflute said...


"Chao Chee Bye" describes you aptly.

What you mentioned in your comments are things that lead to insufficiency, and this causes your Chee Bye CPF maturity date to be pushed further back. And this date has NO guarantee :-)

Unlike your Chee Bye 2.5%, which guarantees your doggie salary now lah

Anonymous said...

For the kinda of salaries that ministers are getting, they should be delivering extra-ordinary results.

Instead, they spin lies to con Singaporeans.

And they know that their time is limited.

So for every public remark that any minister makes, the Internet has a long memory. People won't forget so easily come the next election.

Anonymous said...

The GIC-delinked-from-CPF spiel is just nonsense designed to hoodwink the commoners.

To put it simply, CPF used your retirement money to buy government bonds -- essentially a piece of paper saying that the government owes you a certain sum of money.

In other words, your money is being swapped for a piece of IOU. But where did the real money go to? It's not sitting in a gigantic vault buried under the Istana. Instead, the money had all been invested -- some of it locally, some of it abroad -- and by none other than the GIC.

And it is certainly rubbish that your money is insulated from the risks that GIC undertakes. The MAS controls money supply in Singapore and it answers to the same political masters as the GIC.

Suppose you have 100k and the GIC lost 90k in its many foolish investments. Well, you'll still get back your 100k in Singapore currencies -- the MAS can print as much of those as it likes -- except that a plate of Char Kway Teow will now cost S$30 instead of S$3.

Anonymous said...

The Kway Teow Man will surely charge you one plate Char Kway Teow with HUM $37 at the Istana Prata Canteen ten years down the road.

$30 Kway Teow
$ 7 GST

Have you heard of a single juicy success story from GIC investments?
In contrast, we have.....oh my, paper loss, so they claimed....and it's piling..................

palmist said...

if they can sustain so much paper loss for long term gains, surely 35 years would be good enough for long term gains even after billion dollar losses.

The problem is the funds' liquidity. I am not an expert. If we are face with a greying population we would probably be facing a declining contribution and increasing withdrawals. If that happens they might need to sell off important assets which limits their control of those companies. I see singapore acquiring strategic assets hopefully to ensure survival of the country in the future. However to hold on to them would require us to have continuous funds pumping in. Their simple solution is lock them inside CPF! :( (just my speculation)

I hate the bullshit about how much they are giving for workfare when they require people to contribute 1) CPF to qualify 2) put money in CPF as part of workfare. They are just transfering the money from one account to another. They call it giving us money but the money cannot be touched. Then they report how many millions are giving like it is big deal compared to the reserve. They can blow billions and say it is nothing compared to the reserve and go around reporting how many millions they are spending on the people as if it is a lot. Almost like delayed help. Ya to help us in our work ethic so that we don't slack and run faster on the tread mill!

Lucky you are number one!

Anonymous said...

palmist just told us something which I did'nt get just reading the workfare brochure from PAP.

I rang the workfare helpline and true indeed if you are self-employed the workfare that PAP gives out will go into the Medisave/CPF account.

If you are employed then you can get only have 28% of workfare out as cash.

The worfare scheme requires one to first deposit some money into his CPF account before he is entitled to workfare.

So the low income worker actually ends no better or even poorer in cash.

With more money now in CPF, PAP will have a greater time manipulating it for its own benefits.

What a great plan!

Anonymous said...

Oops. I didn't realize that you've already made the same point in your earlier blog entry.

Anon @ 4:57 AM

Anonymous said...

Indeed, whatever that they give you will eventually be channeled to the CPF, including workfare, 28% as cash now, but slowly nothing in cash. Money in CPF means either of two things - it gets wiped out when you buy a HDB flat which is getting increasingly more expensive or kept in CPF long long. In the final analysis, they use the right hand to give you and they take back with the left hand.

Anonymous said...

Brilliant piece!
Here's something comforting: When asked about whether govt will use CPF as cheap funds, the response was "we're not that type of govt". For me, that answered all my concerns immediately. I slept much better after reading that very comprehensive and detailed answer. We shouldn't ask anymore questions; we are not that type of people.

Anonymous said...

The Straits Times is such a wonderful Newsletter! I love reading it everyday!!

Anonymous said...

If you believe what the propaganda (oops I mean shitty times ..oops I mean Straits Times):

2.5% is as good as it gets.

GIC does not want your money but use it anyway.

GIC takes risk with your money but it is okay for them to keep the returns. Something that no pension fund in the world or govt has ever done.

Anonymous said...

Mr Tan,

Have you changed camp recently?

Anonymous said...

I have always maintained the view that politicians are blatant LIARS!! They always tell u what they want u to believe but don't always tell u what they don't want u to know. For eg :-

1) They always tell u Temasik is doing very well with their investment (to show their CEO/Chairman are good managers) but why so secretive about its financial position especially on their investment losses (don't even suggest it is the CEO/Chairman's mistake). I have always thought that transparency was the trademark of the PAP govt?

2) They have said that the CPF monies is not a cheap source of funds but why is it that they are so reluctant in releasing the CPF monies to the West Malaysians (even to the extent of souring diplomatic relations with Malaysia). I am sure they are the least concerned as far as welfare of the Malaysians are concerned.

3) They say that those living beyond 85 years should have an annuity plan so that their final years will not rely on Govt welfare. They say that the higher interest earned on CPF funds will be sufficient for the CPF members to pay for the annuity plan.

But what about those with little or no savings? Does it mean that the Govt will pay for them so that they will also have something to fall upon? Or is it a case of TOO BAD - we can't help u because u did not help yourself in the first place ?

I think the Govt owes the people an explanation as to why CPF requires new compulsory rules to be implemented because it has failed in its basic fundamental mission to ensure adequate retirement funds for its members even though it has the highest savings rate in the world.

Anonymous said...

"GIC invests the money of the citizens of Singapore".

erm, i dont think the govt thinks the same way..they're investing the hard-earned PAP money or the govt's money...i dont think they see it as "the people's money".

We have a model to follow - Hong Kong. ironically, HK came up with the MPF to emulate Singapore's CPF.

HK govt stated that they are a GOVERNMENT, and is better concerned with the running of the nation. So MPF is left to professional fund managers. HK govt sets some rules about how these fund managers operate. and they insure against these fund managers screwing up. Employers and organisations are free to choose the fund manager of their choice - whether its AIG or HSBC or Stanchart, etc. These fund managers have to report bi-annually on how well the funds are doing. Individuals are allowed to choose between a safe investment to more risky investments - but will also receive advice on whats best for each individual.

for HK citizens, a mandatory 5% of salary, but if they want to put in more, its up to them.

if the CPF Board truly says that none of the money is used by GIC or any other govt body - then by all means - why dont they publish an annual report - and be absolutely transparent as to what they do with the money?

by doing so...then it also helps Muslim citizens check if the funds are invested in a halal manner.

there are SO MANY positives in being completely transparent. why all the spin - by people who are not very good at spinning?

Anonymous said...

Because they have indeed spent your hard-earned CPF money (Why NOT hard-earned? You have to compete for tins/cans/cupboards with Foreign Trash before 85!!) on losses chalking up in overseas investments.

Deep-pocket investments trying to buy other peoples' assets? Competing with Dubai using CPF $? My FOOT!!

Deep losses, more like it.

Anonymous said...

HK's MPF returns an average of 7%. The HK does not try to keep the extra returns and give the citizens a return of 2.5%.

What the PAP govt has done is outrageous. Taking the CPF money to invest for higher returns then keeping it from the CPF account is a fact they didn't dare to reveal for many years until recently.

Anonymous said...

The reason why PAP uses the CPF to run Temasek and GIC is to maintain its power base.

There are so many vested interests of these PAP organisations employing PAP people, both in Singapore and globally.

To make CPF funds available to private investment companies is to erode this PAP's power base of GLCs.

Thus what PAP is doing is more for its own good than for the nation as a whole.

As Providence will have it, Temasek Holdings keep suffering deep losses in its investments.

At this rate, things will come to a head financially no matter how cleverly PAP tries to cover up.

This is happening now with the CPF issues.

Anonymous said...

6. Don't invest all your retirement money in bonds.

Inflation erodes the value of bonds' fixed interest payments.
From Money 101:

Stock returns, by contrast, stand a better chance of outpacing inflation. Despite the drubbing stocks sometimes take, young and middle-aged people should put a large chunk of their money in stocks. Even retirees should own some stocks, given that people are living longer than they used to.

The PAP govt give us those miserable low returns take the money to invest for higher returns than keep it for its own use. Now it tells everyone to work longer and harder. It is irresponsible and unconscionable.

Cancerian said...

Finally the Government strike back at those critics and whiners.

Good job for posting this entry.

Anonymous said...

i always thought i was lucky to be borned in singapore. now you tell me government is conning us.

die lah someone tell me how?

how howhow?

Anonymous said...

let say cpf is indeed not a cheap source of fund @ 2.5% because there are so many other options to secure funding for projects, for example we have 3-month/1 year treasury bills at 2%, other cheap statutory bonds etc.

so if one wanna to peg cpf rates to 10-years bond + 1% in a bid to ensure people have enough retirement savings, it is gg to be futile because the rate will never going any higher since the debts' yield rate is so low, diluted by so many cheap alternatives of fund available in this financial hub/city. that there is realli no incentive to have a higher yield in e free market of our.

govtt as custodian has a duty to preserve cpf monies against inflation erosion in order to ensure enough retirement savings.

Anonymous said...

Hey Tan,

Care to do a post on the raging stock mkt?

The mkt is so weird!

LuckySingaporean said...

Anon 11:59,

I believe the FED has created another bull market with its cuts. The main problem is inflation which is seeping through every thing and we are seeing it here in Singapore. We have a twin bubble forming in housing & stocks. Prior to every bust we see this phenomena.

My take is we see a final big rally and it comes down hard taking us into post 2001 situation. I'm getting ready to cash out, it is just a question of timing. We are now at a sweet spot where we get the prime-pumping of Fed cuts and inflation issues are still a few months/weeks away.

Anon 11:59 AM said...


I am of the same opinion as you, the fundamental in USA are not looking gd at all!

In fact it look worse!

Do tell us that you have cashed out as soon u have cashed out. I am beginning to regret that I have cashed out more than 0.5 of my stock just before this amazing rally!

Really feel like kicking myself. Argh!

Anon 11:59 AM

ki said...

"83% of CPF members who invested their OA savings in the CPFIS from 2002 to 20006 realised less than the 2.5% returns -the base rate of the OA."

In the yr Nov 2003 up to now, I've already made more than 87% on my original CPF-OA investment with an insurance company. I've withdrawn everything and now it's already sitting pretty in my CPF-OA for my new HDB flat, but I kinda regretted it when I learnt that HDB will sweep clean my money from CPF-OA. So my advisor has told me to re-invest it after learning of the recent changes to the CPF.

Well anyways, EVERYONE I know has gotten much much higher returns from their CPF investments externally than the miserable 2.5% from CPF Board, so I really wonder where that statement from MOF comes to be.

Anonymous said...


Many have realised their losses and not their gains. I find the words from the MoF misleading....

Anonymous said...

These 'talents' mismanaged our money, increase their own pay, make us work older, they get own pension at age 55 , brag with misleading words/figures, give excuse not to return our money ....

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