Wednesday, October 12, 2011

CPF : New Face, New Media, Old Ideas....

This is a critique of what Tan Chuan-Jin wrote on on his Facebook on CPF [Link]. Before you think of me being too harsh on him, I actually think he is one of the more promising young leaders from the PAP. It is rare that I praise someone from the PAP but I think he has a natural flair for leadership. The problem is ideology - his article on CPF illustrates the problem.  As a new leader in the PAP, he appears to be constrained by old ideas and can't seem to get out of the box (my comments in RED)
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Looking at CPF from the other side...[Link]
This is one of the significant responsibilities in MOM. DPM and myself spend a fair bit of time on this, and rightfully so. Sometimes, I wonder if my job would be easier if we just let people withdraw their CPF totally.
(It is their money and earlier promised to them for withdrawal at age 55. I agree early withdrawal would create other practical problems. But shouldn't the PAP have pursued a course of action to fulfil that earlier pronmise?...we will get to that a little later).

It would make things easier...for awhile. But it would be wrong.

Life expectancy is going up to 82 and beyond. One is likely to live for a good 20 years after retirement. There is a strong likelihood that many may not have saved enough.
(Here again we fall into this trap in thinking. Just like the PAP justifying the large foreign influx using low fertility rates. A large part of the inadequacy is caused by liberalisation of CPF for housing, and money set aside Medisave programs so that the govt can lower its own expenditure on health care (lowest in the developed world as a % of total expenditure).  If CPF is kept strictly as a provident fund and HDB live up to its mandate is to provide affordable housing without touching the CPF, Singaporeans would have a better retirement if public housing is more reasonable priced and does not drain our CPF which is kept strictly for retirement. .

CPF pay outs would help to ensure some form of regular income stream for individuals. With an ageing population, this becomes more critical because the burden on our children's generation will be significant if older Singaporeans are not providing for themselves.

(In the ideal state, we have each generation paying for its own retirement. The issue here is not whether the those who are retiring have paid - they were setting aside 20% of their income for CPF...so did they end up with insufficent to retire on? ...We will go to the other factors later on. However, each generation paying for its retirement is a good principle to go by to we don't end up in a vicious cycle of either heavier taxation or debts with each generation. However, within each generation and the current generation,. there is income disparity. When you have disparity as large as those we have today, some people cannot have a proper retirement due to this inequality - that is where progressive taxation can help to bring some equality and provision for those who cannot afford to retire. How long do we Singaporeans have to endure the sight of 70 year old cleaners - it is a human rights issue. The PAP insists on an every man for himself system but creates a system with the highest income gap in the developed world without minimum wages and extremely pro-business policies that makes it hard for many Singaporeans to "provide for themselves").

As a citizen, I did not really bother too much trying to understand the CPF construct. (Okay, generals in the SAF are well paid so they don't have to worry about CPF). Like many, I wondered if the returns made sense, especially a number of years ago (seems like a long time ago actually!) when bank interest rates were high. Why can't I withdraw my OWN money when I retire?

Things look quite different now that I am on the other side of the fence. CPF is an important part of retirement provision for our people. For an almost risk free profile, the returns are reasonable. This is worth reading to understand how your CPF returns have fared given inflation rates over the recent years

http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_9Oct2011_MF3.htm

(There are numerous pension funds around the world that invest stakeholders money for higher returns so that it grows and beats inflation. From Chilean pension fund that return an average of 10% to Calpers to the Malaysian EPF, the people  properly managed pension funds means that workers can set aside less money and still enjoy a good retirement.

What he said about reasonable return for "risk free profile" is not true. He should reflect on this. Our CPF money is loaned to GICs at a fix rate. GIC then uses this money to make risky investments. Its ability to pay us and the fix return depends on how the risky investments turn out. Hence we incur a very high risk but GIC keeps the extra return when their investments does well. It is a very bad deal. If GIC falters all the way, our CPF money will be risked and since the PAP is the govt, they might try to legislate their way out of it by delaying withdrawal age and reducing the amount we can withdraw.

Locking our money at a fix rate makes us vulnerabe to sudden increase in inflation rate (esp imported inflation) is in fact a highly dangerous strategy.


Singaporeans are only asking for their pension funds to be managed based on how successful pension funds around the world are managed.)

Higher returns would always be nice but it would entail greater risks. The challenge of any portfolio that includes equities is volatility. At point of withdrawal, you may be right in the throes of a downturn. (Pension funds manage this volatility by smoothing out over longer durations.) To  provide for some balance, we had opened up the space for individuals to invest part of their CPF monies via the CPF Investment Scheme should they wish to do so. Hence, one should therefore treat the 'untouchable' part of the CPF monies as the very stable and low risk component of your portfolio.

A guaranteed floor of 2.5% on your Ordinary Account, and 4% on your Special, Medisave and Retirement Account or SMRA, and an additional 1% to the first $60,000 of the SMRA monies, represents a reasonable return for such a portfolio, especially in an increasingly volatile environment (and the current batch of retirees missed out on the spectacular investment returns of the past 25 years based on GIC's own record it is 6% per annum).

A big plus of our CPF construct is that it helps facilitate our owning our own home. This is important not just from a home ownership perspective but housing is a decent hedge against inflation. Meaning that instead of keeping our CPF monies as cash, part of this is now 'saved' in the form of housing. If needed, this can be monetized (lease buy back, rental of rooms, or adjusting accommodation to smaller units like studio flats) to release the monies. Some analysts tend to leave out this component of our CPF savings; it is actually an important feature of our savings.(Mixing retirement with housing means people have to monetise their homes to retire properly. It is better to keep the 2 separate. Home prices can also crash as we have seen in Japan, USA, Ireland, Spain. If you link retirement to housing, it is a disaster when housing prices crash down. If the PAP keeps public housing prices through its policy artificially high, it burdens our next generation.)

Some seem troubled by the CPF Minimum Sum Scheme, especially when we announce the increase. No, we have not run out of money! :) This scheme has been articulated before and the increases have been announced. At 55, you can withdraw your monies but must retain the minimum sum. Why?

The CPF Minimum Sum Scheme provides members with a monthly income to support a modest standard of living during retirement. The Minimum Sum left with the CPF Board currently earns 4% interest per annum. The interest rate is revised every yearly.
Upon reaching 55, you will be able to withdraw a portion of your CPF savings based on your available CPF balances. Setting aside the Minimum Sum when you reach 55 ensures that you have some regular income from the current Draw-Down Age (ranging from 62-65) to live on in your retirement.

The Minimum Sum was set at $80,000 in 2003 and will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013. These amounts will be adjusted yearly for inflation. If you are unable to set aside your full Minimum Sum in cash, your property, bought with your CPF savings, will be automatically pledged for up to half of your Minimum Sum. You will receive a monthly income from your Draw-Down Age until your Minimum Sum is exhausted. You may wish to start your monthly payouts later. It benefits you as your payouts will last longer.

There is probably more to talk about this in the coming months and years as we see how best to improve the system. I have not talked about the medisave component. There is also CPF LIFE which is an annuity that provides life long payouts instead of the present one which will stop when your CPF savings run out. This is important with life expectancy increasing.
(The CPF Life is an application of PAP ideology that simply refuses to move slightly away from an "every man for himself" approach. In doing so they insists on individual stretching the CPF even further to cover unexpected(unplanned) longevity. During the parliament debate, the Workers party proposed that individuals fund their retirement up to a certain fixed age and the govt starts a fund to take care of the small minority who live beyond that age. This scheme is simple and practical sharing the burden between state and individuals. Pushing CPF further using CPF Life to cover ultra-longevity, stretches and complicates the CPF making it less adequate for those who have normal or below normal lifespan. In an already unequal society, we make things even more unequal for the person who dies one yr after enrolling CPF Life - he dies younger and loses his CPF funds to others who live longer).

Please see the following links to provide a better understanding of our considerations behind this important scheme.

Check out the CPF website. Its a good site with useful explanations...try it!
http://mycpf.cpf.gov.sg/Members/Gen-Info/mbr-Gen-info.htm

Speech at Ee Peng Liang Memorial Fund Forum at NUS on 22 Aug 11
http://www.mom.gov.sg/newsroom/Pages/SpeechesDetail.aspx?listid=344

Speech at the launch of the "Are You Ready" campaign on 9 Oct 11.
http://www.mom.gov.sg/newsroom/Pages/SpeechesDetail.aspx?listid=349

38 comments:

Anonymous said...

just some comments on
"However, each generation paying for its retirement is a good principle to go by to we don't end up in a vicious cycle of either heavier taxation or debts with each generation."

each generation paying for its retirement is just a myth. Every generation depends on next generation for their retirement. When you are old, you will not eat the rice and wear the clothes, which your generation made when you were young. You do not make food, clothes etc today and keep them for your retirement.

At individual level, you save some money for your retirement is sounded like you pay for your own retirement. But at macro level, the money you save has to be a debt to someone in your generation. So at macro level, no money is saved. Singaporean huge saving is translating to huge debt in countries like US.

The only way to have a better retirement is to invest in next generation. Increase the productivity of the next generation will ensure that the next generation is capable to provide you a better resources for retirement.

We invest in countries like US and hope that their future generation becomes our "slave" to feed us when we are old. We forget that US can always change any rule to their benefit and print any amount of money to repay our investment

ultraman

Anonymous said...

The plain truth is that one cannot rely on CPF ALONE for retirement.

And if there are enough in CPF, it is just a bonus!

One needs to have lots of cash savings or other liquid assets if one wants to retire decently or well.

The only way to achieve this is to have a good income and save before retirement.

If not, just too bad lah. Plain and simple.

Because without cash in Singapore, there is no countryside where you can retire to and survive, like growing your own food.

Anonymous said...

I think majority (at least 60 or even 70%) have enough cash to survive and also happy and satisfied.

At least happy and satisfied enough to vote for PAP at every election.

So it is not really how much money one has but how happy and satisfied they are.

Anonymous said...

Lucky, you are damn right the problem is an ideological one.

At the beginning he wrote, "It would make things easier...for awhile. But it would be wrong." But there is really no RIGHT or WRONG, only good or bad and for who. I pretty much stopped reading after that.

Today's PAP is like the US Republican party and their right-wing Tea Party nut jobs. If you think this Tan guy is bad, wait till you see kee chiu.

Lucky Tan said...

anon 10:13,

Success sometimes bring rigidity especially when the PAP believes it policies are the sole factor in Singapore's success. When the PAP believes its own myth, it carries on its own world with a different perception and we have started viewing them in a different light which they are still locked in their own box of ideas.

Anonymous said...

BG Tan talks the way he talks because he knows who butters his bread.

Also, he is paid so handsomely that his income and CPF contributions alone beat inflation and also enlarges his retirement funds at a much faster rate.

Basically, we are listening to a sermon about the "high returns" of CPF from a guy who doesn't even need to depend on his CPF for retirement.

Not much difference from another minister who drives a car all the time and only very recently hinted that our public transport MAY be getting a wee bit crowded.

Anonymous said...

"When the PAP believes its own myth..." Lucky Tan 10:37

It is not a myth, it is a fact. A fact attested by at least 60% of voters every election and whatever the situation.

It only becomes a myth when PAP loses its 2/3 majority seats or voted out in elections.

Anonymous said...

The salary limit for CPF deduction is only $5000 per month.

So if one earns tens or hundreds of thousands per month, what is CPF?

Provided one also save lah. If not, also not much savings like those lesser mortals earning much less.

Anonymous said...

Thai govt cares for its people. I like to see what the Sg govt says when floods. Once in 50 years, move on, freak weather....we should sack them.

Anonymous said...

"The salary limit for CPF deduction is only $5000 per month. So if one earns tens or hundreds of thousands per month, what is CPF?"



Makes one wonder doesn't it? If CPF is that useful, there should be no income limit and everyone should be part of it and forced to save. Hehe.

Alan Wong said...

"In an already unequal society, we make things even more unequal for the person who dies one yr after enrolling CPF Life - he dies younger and loses his CPF funds to others who live longer)."

Not only is it unequal, it is both discriminating and cruel to punish those CPF members who by no fault of theirs, merely on account of living a shorter lifespan than others.

The fact that for many CPF members, the change comes at such a late stage without giving them any option of a choice shows how arrogant our PAP govt can be in formulating such policies.

It would be more equitable if this late change only comes in effect affecting new members.

But for those majority who trusted our govt that withdrawal at 55 is guaranteed, is it not almost a complete betrayal of that trust by our PAP govt ? And if they can just change the rules at will, what other promise is our PAP govt not capable of betraying later ?

Anonymous said...

Whatever the CPF policies, as long as it does not translate into more anti-PAP votes, then it is OK (for PAP).

And so far it is OK. If I were the PAP, I would consider it better than expected. It did not turn out worse than I had feared due to blogs like Lucky Tan's.

Anonymous said...

"But for those majority who trusted our govt that withdrawal at 55 is guaranteed, is it not almost a complete betrayal of that trust by our PAP govt ? And if they can just change the rules at will, what other promise is our PAP govt not capable of betraying later ?"

60.1% do not mind the betrayal by the rule changes affecting their savings and monies. And if they do not mind when it comes to their monies and savings, what other betrayal would make them change their minds about the PAP?

They do not mind sacrificing their CPF. They have housing that is appreciating and the PAP provides them an opportunity to work till they drop. Just look at LKY, in his eighties and holding multiple jobs! Isn't that bliss?

Anonymous said...

LKY is a role model for old Singaporeans to grow old gracefully and continue working and living a full life, even at 88 years old!

So if at 88 one can still do so, what is 65 or 70?

Anonymous said...

"Today's PAP is like the US Republican party and their right-wing Tea Party nut jobs. If you think this Tan guy is bad, wait till you see kee chiu".

The way 'kee chiu'(raise your hand) talks, one day some one will respond with 'kee kah'(a kick in arse)

Anonymous said...

I fully agree that while others (eg malaysia) are getting more than 6% from their pensions, why are we lagging behind? Should the gov take pay cut since it is not performing to standard.

Veritas said...

The problem is whether we can preserve our value in CPF?

As I have written in my blog, the aim of PAP is stealth default through inflation.

If PAP really cares to make CPF a viable pension fund, then interest rate must be peg to inflation.

We know at we already have high inflation of 5%.

Anonymous said...

Life expectancy going up is a self fulfilling prophecy and a lie. My grandpa died in his 70s and my dad died in his 50s. Many of my uncles also died in their 50s and 60s. Probably only the elites experience their life expectancy going up.

Anonymous said...

i think pap has bankrupt the cpf thru the investment bankers so all these stuff on foreigners imports, increasing minimum sum, increasing property prices to cover the huge loss.

Lucky Tan said...

veritas,

The real default on pensioners is at the US when they print money to debase pension funds. Unfortunately when they do that we import much of the effects as we cannot allow the S$ to go up too much due to export competitiveness.

Anonymous said...

Yes we will import much of the effects when the US print money.

But luckily majority of our people (60%) are strong enough to absorb much of the (inflation) effects.

Hence the country is politically stable and socially peaceful in times of high inflation like now.

Anonymous said...

Like you , I thought very highly of BG TCJ until his post on this CPF piece. It's really disappointing that he demonstrated an inability to think outside of the box.

"each generation pay for its retirement " is a myth more than a reality. Starting from our parents generation, I pretty can tell you that I am responsible for their healthcare, housing & retirement through my own CPF. Had it not been for our siblings, and no thanks to the govt for not playing their part, I rest on our (the children) shoulders. How much do you think there's still left over for our own retirement. Why do you think people TFR went down. Plus a fixed interest rate that doesn't peg to inflation rate, singaporeans are doomed. They keep letting these MIW get away with their SWF gambling without being accountable to the people. And they have the cheek to go on moral preaching about what is "right or wrong" thing to do?!!! Fxxxk off.

TCJ has just lost all my respect. And I am tired of waiting for any new reforming idea from PAP. They need to go.

Anonymous said...

CPF life is crazy, it make you poorer. For balance plan, 30% of the saving will go to premium and annuity will only come in after you reach 80. take in the cost, you will win say when you live beyond 84. For basic plan, 10% of the saving go to premium, annuity will come in after you reach 90.
Robbed by anyone at least I have a chance to fight back. Now I have been robbed by a policeman!

Anonymous said...

CPF contribution reduces your income by one-third. This is serious money.

Money you could have used to turn this idea that you had 10 years ago of creating a website for social networking into a small startup.

Money you could have used to fund the low-budget film about a local witch legend that your son had wanted to make 15 years ago.

Money you could have lent to your wife, who had wanted to buy stocks in a company on the verge of bankruptcy 20 years ago but whose potential she saw.

But of course you didn't have any excess money to do any of these. You lived from hand to mouth --- after deducting your CPF, whatever was left was barely enough for a small family to subsist.

So instead of starting FaceBook, you remained a computer sys ad at NTU. Instead of making "The Blairwitch Project" (which grossed 250 million on a budget of 60k), your son became an assistant cameraman at TCS. Instead of buying up Apple stocks at $7 a share and see it rise to $400 a share today, your wife remained a housewife whose only investment is the occasional lottery ticket.

All these great things that could have been did not happen for you because Lee Kuan Yew took your money away and gave it to GIC and Temasek to squander on the Suzhou Industrial Park, Optus, Micropolis, Shin Corp, Merrill Lynch, Peter Cooper Village, UBS,....

Among all countries in the world, you have the unique honor of living in the one where people contribute the largest proportion of their income towards retirement. And yet now you realize that whatever you're getting back from your 40 years of contributions is not anywhere near enough for you to retire.

Life really sucks as a Singaporean.

Anonymous said...

It is sad to think just how many Singaporeans who would have achieved greatness didn't --- simply because their government has deprived them of their own wealth.

Lee Kuan Yew's philosophy is: Let's make everybody give us all their excess cash and let my son and daughter-in-law, who are president scholars with double first class honors, invest the money for everybody. Surely this is going to be better than leaving money in the hands of a record salesman who can't even pass his A-levels or a truck driver with silly dreams about making movies or a school dropout who works in a plastic factory.

Singapore is a country where Richard Branson would have remained a record salesman till the day he dies, where James Cameron would have stayed a truck driver all his life, and where Li Ka-Shing would have retired as a plastic factory worker.

Lee Kuan Yew has used the CPF to impoverish the commoners, thereby destroying dreams and extinguishing aspirations of a whole nation. And he wonders why there are so few entrepreneurs in Singapore.

Mental Crutch said...

Hey Lucky, don't be so harsh on TCJ..

Do you seriously believe this first term minister of state does not have to work within OB markers set by the higher powers?? I think he is doing the best he can already...

Give him a break la.. He is not the Chosen One... Not like Full minister Kee Chiu Chan, who is also the unofficial LKY Crutches.. Last time must help steady LKY at nomination centre, more recently had to help LKY walk into parliament and to his seat!!

Carrot said...
This comment has been removed by the author.
Carrot said...

Just sharing some blogs I happened upon who wrote about their thoughts on the financial markets, the economy and its effects on lay people.

Sounding the Deeps by George Monbiot

The Big Picture at The Automatic Earth

De Leviathan @ Sg said...

Read here about Singaporeans' CPF Savings & Wage Cuts ...

Link :-
http://de-leviathan.blogspot.com/2011/07/presidential-election-watch-part-iii-dr.html

Anonymous said...

This Tan together with Heng, Lui I think have something arguably uncommon where they are. Their leadership flair and abundant EQ are things that aren't the guaranteed outcomes of good college education or academic prowess. Rightfully these things are natural.. just like Steve Jobs was a natural CEO. This fact wont go down well with those P scholars though. Understandably too.

The said...

/// CPF life is crazy, it make you poorer. For balance plan, 30% of the saving will go to premium and annuity will only come in after you reach 80. ///

Wrong. The annuity kicks in when you reach 65.

Anonymous said...

CPF is a well planned Ponzi Scheme but unlike Bernard Madoff no one is going to get charged in Singapore

Kaffein said...

Spot on, Lucky. They are just rehashing the same old story to a different tune, using a different guy. C'mon if CPF works, why are there so much flak about it now?

To those who think CPF is a good policy, please tell that to the ministers who are drawing their pensions. If CPF is so good, then why a need for pension for these elites? Gee you Singgies are really selling yourself short!

To use CPF to pay for housing when housing is not affordable to the common man now is the most glaring mistake the PAP has made on CPF. The next beef I have is fixing the interest returns. When you have nothing left in your CPF after buy an apartment, whatever 4% returns are nothing.

Then we have this special and medi account which I feel are ruses the PAP uses to keep money. And throw in increasing minimum sum and we have it altogether.

Seriously Singaporeans don't think deep and far, do they? Which developed country citizens allow the government to dictate their monies and also give the government the liberty to run amok with these monies? Imagine billions of CPF monies losses and not a squeak about it.

*rolls eyes*

Kaffein

Anonymous said...

Unless there is an alternative which the majority voters think is better than the PAP, we can argue till the cows come home and nothing will change.

Of course there is one way to change. Emigrate (if you can) to a better place where the govt there will treat you like foreign talents.

Or make lots of money (cash) so that the (can see but cannot touch) CPF is not an issue.

E said...

I'm not competent enough in statistics/mathematics to do this, but maybe Lucky Tan or Leong Sze Hian can try doing this...

Why not try to reverse engineer the CPR minimum sum requirement for some young couple who just got married and want to buy a BTO flat (using median/mean figures as required to reflect the typical Sporean)? What I mean is given the median income/median BTO prices etc for an average couple, use them to project a figure for their CPF when they are 55/65 assuming a typical trend to sort of predict what's the CPF amount they would have got at 55 and whether it fulfils the minimum sum.

Some guesswork is required, e.g. interest rates for SMRA for the next 25/30 years/ minimum sum adjustment over the next 25/30 years etc...

We'll be able to judge from this thought experiment whether it's possible for a typical couple to clear their BTO mortage AND have sufficient CPF left to meet the MS then.

Anonymous said...

Excellent write-up! Many Singaporeans in their late 20s and 30s are fed up with the government.

Anonymous said...

Dear Mr Tan,

I was reading your entry.

"Higher returns would always be nice but it would entail greater risks. The challenge of any portfolio that includes equities is volatility. At point of withdrawal, you may be right in the throes of a downturn. (Pension funds manage this volatility by smoothing out over longer durations.)"

Could you explain how higher returns entails greater risks? I don't understand the equities bit.

Thank you in advance.

Amanda said...

Unless there is an alternative which the majority voters think is better than the PAP, we can argue till the cows come home and nothing will change. Of course there is one way to change. Emigrate (if you can) to a better place where the govt there will treat you like foreign talents. Or make lots of money (cash) so that the (can see but cannot touch) CPF is not an issue.