Monday, June 27, 2011

Badly needed CPF Reforms ....

Recently the govt announced another increase of CPF minimum sum(MS) to $131,000. from $123K For many who are unfamiliar, this sum seems somewhat astonishing and arbitrary but the rules and rationale for the minimum sum was laid out during Goh Chok Tong's time as PM in 2003. The goal was to raise minimum sum to $120K of  2003 dollars i.e. adjusted for inflation.

Only if you have more than the minimum sum when you reach  age 55 you can take out the excess. Otherwise you have with until age 65 to start the monthly drawdown. The principles applied in the minimum sum legislation is very simple - the goal is to minimise the govt financial responsibility and push as much responsibility of retirement to individuals themselves. If individuals still can't take care of themselves, the govt backup is the Maintenance of Parents Act which forces children to take care of their parents. The minimum sum scheme effectively pushes retirement to 65 for many Singaporeans and a large segment will never retire because they cannot build up enough funds to do so. We are not talking about a 1st world quality of retirement for Singaporeans but maintaining basic subsistence ....even this is a problem for a large segment of people given less than half the people  can meet the minimum sum[Link].

Singaporeans have the 2nd highest savings rate in the world  of about 20% (China took over us as the highest) due to the CPF yet do not have enough to retire. What has gone wrong?

1. Use of CPF for housing. The liberalisation of CPF for housing is believed to have caused the rise in housing prices in the 90s[Link]. Through land sales, the Singapore govt has been able buid up reserves which are now one of the biggest in the world due to higher property prices.

2. Low fixed returns on CPF Funds. Every single major pension fund in the world invest to get good returns for the account holders to ensure that they obtain an real return on the account. This done for, say, the Malaysia EPF which consistent beats our return on CPF funds relative to inflation(see article below). The long term implication of low returns is Singaporeans have to set much higher proportion of their income for retirement than in schemes where pension funds are properly invested to achieve higher above inflation returns. In a parliamentary sitting, Minister Hen revealed that CPF funds are loaned to the GIC  which invests it and keep the excess returns. This again trades off Singaporeans' ability to retire for building state reserves.

3. High income gap. The very large income gap in Singapore makes it hard to uphold the principle that everyone should be responsible for his own retirement. A  large segment of the population will never be able to retire because of low income. The lack of a scheme to take care of the old has led to many working at a very advanced age. Many Singaporeans find this inhumane, unconscionable and unjust as we see elderly workers from a generation that was considered the number one workforce in the world still doing menial jobs to make ends meet. There is no money to help them but there is cash for voters during election period \and money to fund all sorts of estate upgrading including an artificial river in Bishan if people cast their votes to support the PAP.

CPF has to be reformed to give our retirement funds a higher return above inflation. There is also need for a scheme that will  take care of  a large number low income workers who will never be able to save enough for retirement- these can be done if the PAP govt can overcome its ideological contrants to do the right thing. The link between CPF and property unfortnately is not so easy to unentangle. Too many Singaporeans have invested too much of the CPF in property and are vulnerable to long term decline in this asset class. There are schemes now such as the lease-buybacks which monetise the homes of the poor who don't have enough to live on when they retire - designed to take back the homes from the low income folks when they die leaving nothing for their next-of-kin who are also likely to be  poor.
EPF's investment income best ever at

PETALING JAYA: The Employees Provident Fund
(EPF) returned its best performance to date to post a gross investment income of
RM24.06bil in its financial year ended Dec 31, 2010 reflecting a 39.8%
year-on-year growth amid the impressive recovery of the Malaysian economy from
the 2009 global economic recession,

The growth had also led EPF to
declare a dividend rate of 5.8% for 2010, up 15 basis points compared with the
previous year.

The EPF also recorded its highest ever dividend payout
amount of RM21.61bil, an increase of 11.55% over the 2009 dividend payout of

“Financially, we leveraged on the recovery in the markets to
garner our highest gross income to date, while operationally, we further built
upon the strong foundations laid to enhance operational efficiencies, deliver on
key performance targets and elevate the customer service experience,” said EPF
chairman Tan Sri Samsudin Osman in a statement yesterday.

The EPF's
Annual Report 2010 was tabled in Parliament yesterday.

The retirement
fund maintained its prudent strategy and devoted the majority of its investments
in 2010 to fixed income assets with 32.38% invested in loans and bonds, 26.9% in
Malaysia Government Securities and 5.45% in money market instruments.

Equities emerged as the single-largest asset class comprising about one
third or 34.85% of total assets, while 0.42% was invested in properties.

The year also saw the EPF total investment assets crossing the RM400bil
mark to stand at RM440.52bil as at Dec 31, 2010.


hayek said...

Enforcing force saving when the medium of exchange is fiat currency is robbery.

Fiat currency functions fairly as medium of exchange but not on store of value.

Assuming an interest rate of 3%, S$100 of CPF saving since 1970, would have lost a whopping 90% of value.

My take of CPF reform is-- allow CPF to be saved in physical Gold bullion rather than SGD.

CPF is a tool to enrich the elite--full stop.

hayek said...

-- CPF SCAM --

Do not dream about CPF reform. CPF is the key of our elite's corruption.

1) Elite enrich themselves via property inflation by regulating CPF such that CPF saving goes into property.

2) Singapore's public debt is mostly CPF liability. Since, PAP has squandered the monies in Wall Street, PAP is going to stealth default CPF.

3) If CPF saving can be denominated in value preserve medium such as Gold,

--then GIC would need to close shop. (Every cent GIC lost needs to be paid back in Gold, instead of the rotton SGD)

-- Property will plunge. Reason, people do not need to protect against inflation by speculating on property.

In short, Singaporean has all been robbed while meanwhile, our elite bragged they are talent. To preserve our hard earned wealth, we need nothing short of showing our elite the guillotine.

Anonymous said...

"In short, Singaporean has all been robbed while meanwhile, our elite bragged they are talent. To preserve our hard earned wealth, we need nothing short of showing our elite the guillotine". Unquote.

You think other Singaporeans reading or listening to You?

Personally, I doubt Singaporeans are able to do anything to help themselves as they are all in shackles. Well, some are praying for their gods to help whilst others are hoping for their almighties to invoke punishment to sinners. Admittedly, these are the best the people could do. Amen!

Anonymous said...

Frankly speaking, not so easy to lower HDB prices lah.

You already ride the tiger, how to get down? Sure get eaten what?

That's why this problem cause other problems like CPF not enough problem, not enough to retire, to get married, to have kids, etc etc lah.

But then despite all these, luckily opposition still not trusted by 60% voters, so OK for PAP lah.

Anonymous said...

CPF is under the purview of the MOM. Why?

Anonymous said...

If the intention of the CPF is to enhance our retirement by law, it is only right that that our monies are protected against inflation. Otherwise, it is a flimsy excuse to leverage on the sweat money of the citizens.

Anonymous said...

PAP is operating a ponzi like scheme. It is better to sell eveything you have in Singapore, move to another country and draw out your cpf.

Hang Seng Parasite said...

Reforming the CPF is opening a cans of worms. everybody knows what inside but no one wants to open it, they just pass the can around.

MY view on CPF is to reform it gradually. reduce the percentage allowed for housing, stop allowing CPF for investments by members, start backing CPF by notes denominated by index of GIC or temasek top 50 investments. this will create transparency and will allow singaporeans to know what their CPF money is utilized in. Pay a dividends when returns are good to members. this will help in reducing pressure for withdrawal.

Anonymous said...

The return to CPF could be much higher if there is a will to do so.
We invested in an education plan since 1997 till May 2011. The cash guaranteed return rate was 6.65%!!

Anonymous said...

Dear Lucky,

I was about to suggest you write an article on CPF, the minimum sum and the CPF Life (scam) scheme. And before I could, you have already started. Kudos!

I am personaly very surprised nobody make this CPF thing an issue during the last election. It was our money. we were once told we can take ALL when we reach 55.Then, changes after changes, and the hgoal posts got smaller and smaller. By my retirement, I can only draw a small amount over time at 65, with a min sum set at close to $150 (based on current formula). My god. What has happened?

For one, I voted against Minister Gan (who drew up the CPF Life Scam). But alas, my effort was not good enough...he won the lecetion still.

I hope people can remember and do the needful at the next election. The govt MUST be sent a message not to mess around our money and keep changing the goal post betraying our trust and their promises!

Anonymous said...

Recently, I applied for a job and was called up for an interview. The employer, i.e. the boss of the company, told me during the interview that if my expected salary was $2900, he would offer the job to the foreigner whom he had interviewed earlier.

He reasoned to me that he has to pay 16.5% of $2900 = $478.50 of employer CPF contribution if he employed me as I am a Singapore citizen.
In contrast, he only need to pay the minimum amount to the foreigner, i.e. $2500 for employment pass holder and he need not have to pay any CPF contribution when he employed the foreigner.
So, employing foreigners is cheaper than employing Singapore citizens.

Actually, what the employer, i.e. the boss, wanted was to use this reasoning to pressure me to lower my expected salary to below $2145 so that he could employed me cheaply.

As I needed the job, I had no choice but to accept a salary of $2100 although my initial expected salary was $2900.

With lower salary, both my employee and employer CPF contributions will be lower. This means I have to work longer to accumulate enough amount to reach the minimum CPF amount requirement.

The moral of my real life encounter is that

Singapore citizens are finding more and more difficult to earn enough due to the low cost of foreigners flooding our job market.

As Singapore citizens have to remain cheap to compete with the foreigners in terms of who can be more cheaper, our CPF contribution are being squeezed.

Ironically, the CPF minimum amount is raised every year to the extent that by the the time we reach age 55, we will still never be able to reach the future CPF minimum amount.

Anonymous said...

Anon 27/6/11 23:53

I presume you did not vote PAP in the last election, if you are not from Tanjong Pagar GRC.

So you are the 40% minority.

Too bad lah, unless people like you become majority.

Amused said...

"The goal was to raise minimum sum to $120K of 2003 dollars i.e. adjusted for inflation."

This goal is both ironic and contradictory. First, they don't even pretend to guarantee that the money you put in is maintained at 2003 constant dollars. Yet they want you to have 2003 constant dollars in the minimum sum. So even if you have an exact minimum sum in 2003 dollars today, you will need to "top up" your account to meet the minimum sum requirement next year.

Do you see what's wrong with this picture? The CPF scheme is just another rip-off and hidden taxation by the government. Whatever money you put in loses its value immediately. How can anyone accumulate a retirement fund this way? Further, you are dealing with the power of exponent over long term. In the end, you are the biggest losers!

ser guan said...

Dear lucky tan

Are your parents still alive? Are your uncle or auntie still living? If they had died of illness or natural causes, take the average and add about 10 years. Will the figure by a good predictor of the age in which u passed away?

Take your estimated passing age and minus 65. Is it more than 20 years?

We may have a high savings rate but Singaporeans may live longer than almost all the people in the world.

Anonymous said...

Truth is most citizens/voters are not financially literate enough and do not understand or grasp the implications of CPF system which has over the years become deliberately confusing to many.

Simon Says said...

The problem with CPF is that it is for

1) housing largely
2) healthcare secondly
3) investment/education lastly (lower %)

We the increasing minimal sum, and at rate of 2.5% , inflation going at 4.5% or more, how the hell do they expect Singaporeans to have enough to retire, without actually to sell off/downgrade their house at old age?!!!

I urge all bloggers to start an extensive blogs/discussion on this topics and force CPF to really give back to the citizens what is rightly theirs. Otherwise, we will end up like the current old generations become reliant on PAP & their stooges where every 4 yrs they will shuttle you around in buses for free food to give them your vote. They are urging singaporeans to be self-sufficient, yet in reality they are giving out crutches. They want us to be beholden to them so that we are"grateful" to vote for them...don't fall for that trick.

Speak out Singaporeans. Study your CPF fund and the various implications before it's all too late.

hayek said...

--The True "Pension" of Singaporean--

CPF has long lost its purpose as a pension fund. The true Singaporean pension fund is "foreign talent".

Currently, the old in Singapore supports themselves by renting out their HDB to "FT".

In short, the old now survive in particular because they received wealth transfer from FT who are working.

And where the hell CPF comes into the picture? Ain't they suppose to be our pension?

The truth is CPF has longed been wiped out by GIC gamble in Wall Street. The CEO of GIC then is our president wannabe Tony Tan.

Hence, CPF is defaulting by means of "minimum sum" and inflation. The ultra corrupt CPF is all but vaporize out of thin air.

Anonymous said...

A blogger posted a link in relation to Income over Healthcare access. You should see how they have not made any progress at all. Must be becos we're running out of medisave too! Can you analyse?

Anonymous said...

If Malaysia can do that, Singapore has a bunch of money lover MPs that draw millions of salary but too stingy to give citizen a little more.

Anonymous said...

10ys SG yields my foot. Still insistent on 4% on medi& special. Give me back my money and I can do a better job of investing for higher 8% returns than the govt can do. Waste of my money rotting in there!

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Abdur Rahim said...

MOM, CPF are run by arrogant and care less people. They spin their stories to make it palatable

They say, CPF can be used to purchase houses. Of course they have to allow CPF to be used to buy houses coz they already forced 20% to be kept in their coffers

By the way, I know quite a number of friends who have no CPF but still can afford to buy a flat. Some have their CPF wiped out because HDB coerced them to sell their flats

When issue is regarding Government property, CPF have no qualms about member losing their CPF

The allow you to do investments in corporations they approved but they will not allow you to use you own savings to open your own business

And the corporations the approve for CPF investments have not done well. CPF conveniently blames the loss on members for not being careful


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