CPF returns are the lowest in the world?

CPF returns are the lowest in the world?
April 12
12:30
2014


By SY Lee and Leong Sze Hian

According to the study “Pension fund performance” (Antolin, P. 2008, OECD working papers) – the Czech Republic and Hong Kong have the lowest real return (after adjusting for inflation) of the 22 countries in the world – at 1.0 and 2.1% per annum, respectively.

Since the bulk of (23% of the maximum 36% total contribution rate) Singapore’s CPF (Ordinary Account) pays only 2.5% – and inflation from 1980 (CPI 59.2) to 2013 (CPI 115.8) was about 2.1% – does it mean that the real return was only about 0.4%?

If so, then our CPF’s interest rate may be the lowest in the world.

4% on Medisave and Special Accounts?

Even though the the Medisave and Special Accounts pay a higher rate of 4%, and an extra 1% on the first $60,000 of our CPF balance, since arguably our Medisave account (up to 9.5% contribution) may in effect be consumed eventually by way of our or our parents or dependents’ illness and CPF medical and ElderShield insurance premiums – the higher interest may not be of much practical use for Singaporeans when they retire – as a source of retirement income.

This leaves just the Special Account, which starts at a contribution rate of 6%, but eventually declines to just 2, 1.5 and 1%, from 56 to 60, 61 to 65, and above 65, respectively.

Hence, the contribution of the higher 4% interest rate of the Special Account to increase the overall CPF interest rate, may not be very significant, because of the low contribution rate.

I estimate that even with the overall CPF rate at say 3.0% because of the higher rate on the Medisave and Special Accounts – the real return at 0.9% may still be the lowest in the world.

Low retirement adequacy rankings?

This may be the primary reason why so many studies indicate that Singapore’s CPF ranks so lowly in the world in respect of the retirement adequacy of its citizens.

Also, perhaps as much as half of the population may fall out of the CPF system, because they are economically inactive, unemployed or self-employed for prolonged periods in their working years.

Returns of other countries’ pension funds

If we look at the returns of pension funds in the most recent year (2012) – the Dutch pension schemes reported returns of 14.3%, while pension funds in Europe and the US returned 12.5% and 11.4%, respectively.

What about CPF Life?

Let’s look at CPF Life from the perspective of a lower-income Singaporean.

If you have reached 55 years old – and only have $25,000 in your CPF OA and SA accounts – CPF Life will be mandatory for you because the $25,000 plus interest is expected to increase to at least $40,000 when you reach the starting age of 65 for CPF Life monthly payouts.

Your estimated CPF Life monthly annuity payout is $259 to $287. (Calculated via CPF life estimator calculator on their website)

How does one survive on $200 plus a month without any increase for inflation, for the rest of one’s lifetime?

If you have an illness or disability that is not serious enough to qualify for a waiver from CPF Life (terminal illness or permanent total disability qualifies) – but yet prevents you from holding a full-time job that pays you a decent pay to survive, or if you have dependents to support – you may suffer financial stress.

For such cases, is CPF Life a boon or a bain?

Shouldn’t there be some mechanism to enable perhaps appeals, on a case-by-case basis, to be exempted from CPF Life?

Low returns are one thing.

The main worry I have is that payouts from CPF Life are not indexed to inflation as pointed out by LSH. What if the 4-5% inflation of 2010-2012 were to repeat itself. Quite likely in Singapore given how the economy is managed.

Govt can also arbitrarily reduce payout if life expectancy increases. Double whammy.

Thick Face Black Heart said:

Low returns are one thing.

The main worry I have is that payouts from CPF Life are not indexed to inflation as pointed out by LSH. What if the 4-5% inflation of 2010-2012 were to repeat itself. Quite likely in Singapore given how the economy is managed.

Govt can also arbitrarily reduce payout if life expectancy increases. Double whammy.

Click to expand...

Private sector conducted economic analysis says SGP is 5% inflation. Which is why property market can spin with their fucked up evaluation method of 20 times your annual rental for your property sales price and con everyone to buy property to fight off inflation and invest. Property speculation and manipulation breeds hyper-inflation and destruction of the country and middle class. Property agents use only primary school maths but try to talk like machiam nobel prize economists. Part of the MLM group problem.

scroobal said:

2) It is the responsibility of the Govt to ensure that the value of money does not depreciate over time.

Click to expand...

What does Ho Jinx and TemaSICK have against Andy?
Knowledgeable, articulate and dares to speak truth to power?
In China the "Communist" party uses monetary policy
Sinkieland's Lightning is much more sophisticated
But one cannot expect to fool all people all of the time
Using CPF to rob people eventually triggers mass unrest


China is right to try to end its bubble addiction
Andy Xie says China has recognised that tightening the money supply is the way to rein in the excesses of the past, and, along with curbing corruption, is good for long-term economic health


China's economy is slowing. It is good news. It reflects that China's economy is finally ending its bubble addiction. Even better, the central government remains calm over the slowing news. All signs point to China's new leadership taking the plunge to digest the excesses from sometimes crazy stimulus policy under the previous government.

From 2004, China pursued a bubbly path by refusing to rein in monetary growth despite inflationary pressure and an emerging labour shortage. The bubbly path was amplified by a slow but steady appreciation of the renminbi against the dollar.

The perception of a sure winner enticed a huge amount of hot money to flood into China. The resulting liquidity orgy caused one asset bubble after another.

After China joined the World Trade Organisation, it became the factory for the world. The success is due to the competitiveness of Chinese workers. China's wealth is created at factories and construction sites by workers who are as productive as their counterparts in the West but paid one-eighth to one-tenth as much.

A consequence of China's bubbly path is wealth redistribution to the vested interests, who can line their pockets from negative real interest rates. As the credit bubble lasts, the credit-to-GDP ratio has surged. China's credit is twice its gross domestic product.

The real interest rate should be equal to total factor productivity. In China's case, it should be 4-5 per cent. Instead, if one uses a GDP deflator as the real gauge for inflation, China's real interest rate is about minus 5 per cent. The macro policy redistributes a percentage of GDP from the people to vested interests. This is the biggest reason that China's household consumption is one-third of GDP instead of a normal 50 per cent for such an emerging economy.

The state-owned enterprises [in Sinkieland read GLC, GIC, TemaSICK] are the biggest beneficiaries. They have grown their assets massively in the past decade. But their returns on assets have deteriorated. Fast growth of an inefficient sector could only be made possible by massive subsidies. In China's case, it is done through monetary policy.

Financial transactions have become a major money spinner for those who can control them. When the subsidy is so big, the demand of course exceeds supply. Hence, who gets credit becomes a privilege. Those who can arrange access can take a cut.

Redistribution through manipulating finance seems like a victimless crime. Few people are willing to fight a battle against a predatory monetary policy. There are no names for people to focus their fury on. Hijacking monetary policy to enrich vested interests appears to be the favoured form of corruption in the 21st century. Sicilian-style mobs are definitely passé.

China's property bubble is really a tool for the monetary bubble. It is where the printed money is warehoused. Local government debt is another sinkhole.

Real rich people are cash rich. For some to be cash rich, there must be an equal amount of debt for others. Hence the unique discussions in China on where to sink the printed money to contain inflation. Wouldn't it be nice to print less to contain inflation in the first place?

Deflating the monetary bubble and implementing an anti-corruption campaign are the only effective means to restore China's vitality and resume its course to becoming a developed economy. China has been talking about rebalancing the economy for a decade. But the economy has become more unbalanced. The reason is the policy that puts short-term growth above all other objectives.

The excuse is the necessity to create 10 million jobs a year. Otherwise, unemployment will trigger social instability. This mantra is being repeated in all quarters despite a widespread labour shortage for all factories and construction sites. There is little doubt that the propaganda is to prolong a macro policy that favours a few at the expense of all others.

China is well positioned to absorb the fallout of a deflating credit bubble. A cooling economy removes some pressure in the labour market. It gives exporters more breathing room. An unemployment crisis is highly unlikely, removing the most important concern over a slowing economy.

A deflating bubble makes things cheaper. It increases household purchasing power and, hence, consumption. Wages are rising, probably faster than labour productivity. As long as the consumer price index doesn't rise even faster, the share of household consumption in the economy will rise. Stimulus prevents market forces from rebalancing the economy. Letting the market go is indeed the right recipe.

Corruption imposes a significant cost on the Chinese economy, and the burden is spread among people through an inflation tax. An anti-corruption campaign can remove most of the cost. In the short term, some rue the negative effect of deserted luxury entertainment venues on the economy. The business consumption, about one-tenth of GDP, is declining. But, as the money is not there, it goes to the people at large. A falling mao-tai price, for example, restores the demand from the middle class. In the end, mao-tai is consumed. When it is consumed by ordinary people, it goes into household consumption. The economy becomes more balanced.

China is at the crossroads. It must not allow speculation and corruption to continue. Using monetary policy to rob people eventually triggers mass unrest. The new leadership has shown determination to revive the country. And tightening money supply is the only way to restore China to its only path to prosperity: rewarding hard work.

Andy Xie is an independent economist

Banana republics everywhere have used inflation to fleece domestic currency bondholders. Screwed bondholders learn their lessons and price their expected return accordingly. For the PAP, no need to worry about CPF account holders getting screwed. More foreigners are arriving in droves to pick up our wonderful PR! Be thankful there are suckers born every day helping to keep the clever scheme going.

but our so called subsidized hdb pigeonholes are the highest in the world.

so u put hdb side by side to cpf, what do we get or rather lost? ALL OUR CPF SAVINGS!!

scroobal said:

CPF returns are the lowest in the world?
April 12
12:30
2014


By SY Lee and Leong Sze Hian

According to the study “Pension fund performance” (Antolin, P. 2008, OECD working papers) – the Czech Republic and Hong Kong have the lowest real return (after adjusting for inflation) of the 22 countries in the world – at 1.0 and 2.1% per annum, respectively.

Since the bulk of (23% of the maximum 36% total contribution rate) Singapore’s CPF (Ordinary Account) pays only 2.5% – and inflation from 1980 (CPI 59.2) to 2013 (CPI 115.8) was about 2.1% – does it mean that the real return was only about 0.4%?

If so, then our CPF’s interest rate may be the lowest in the world.

4% on Medisave and Special Accounts?

Even though the the Medisave and Special Accounts pay a higher rate of 4%, and an extra 1% on the first $60,000 of our CPF balance, since arguably our Medisave account (up to 9.5% contribution) may in effect be consumed eventually by way of our or our parents or dependents’ illness and CPF medical and ElderShield insurance premiums – the higher interest may not be of much practical use for Singaporeans when they retire – as a source of retirement income.

This leaves just the Special Account, which starts at a contribution rate of 6%, but eventually declines to just 2, 1.5 and 1%, from 56 to 60, 61 to 65, and above 65, respectively.

Hence, the contribution of the higher 4% interest rate of the Special Account to increase the overall CPF interest rate, may not be very significant, because of the low contribution rate.

I estimate that even with the overall CPF rate at say 3.0% because of the higher rate on the Medisave and Special Accounts – the real return at 0.9% may still be the lowest in the world.

Low retirement adequacy rankings?

This may be the primary reason why so many studies indicate that Singapore’s CPF ranks so lowly in the world in respect of the retirement adequacy of its citizens.

Also, perhaps as much as half of the population may fall out of the CPF system, because they are economically inactive, unemployed or self-employed for prolonged periods in their working years.

Returns of other countries’ pension funds

If we look at the returns of pension funds in the most recent year (2012) – the Dutch pension schemes reported returns of 14.3%, while pension funds in Europe and the US returned 12.5% and 11.4%, respectively.

What about CPF Life?

Let’s look at CPF Life from the perspective of a lower-income Singaporean.

If you have reached 55 years old – and only have $25,000 in your CPF OA and SA accounts – CPF Life will be mandatory for you because the $25,000 plus interest is expected to increase to at least $40,000 when you reach the starting age of 65 for CPF Life monthly payouts.

Your estimated CPF Life monthly annuity payout is $259 to $287. (Calculated via CPF life estimator calculator on their website)

How does one survive on $200 plus a month without any increase for inflation, for the rest of one’s lifetime?

If you have an illness or disability that is not serious enough to qualify for a waiver from CPF Life (terminal illness or permanent total disability qualifies) – but yet prevents you from holding a full-time job that pays you a decent pay to survive, or if you have dependents to support – you may suffer financial stress.

For such cases, is CPF Life a boon or a bain?

Shouldn’t there be some mechanism to enable perhaps appeals, on a case-by-case basis, to be exempted from CPF Life?

Click to expand...

pay us 10% a year also no use.
we will still have to write off everything eventually

If both Tony and HC run road after losing all the CPF, do you want them to return or your CPF?

The point is, the risks are so high and the fucking returns so negligible.

Bigfuck said:

Private sector conducted economic analysis says SGP is 5% inflation. Which is why property market can spin with their fucked up evaluation method of 20 times your annual rental for your property sales price and con everyone to buy property to fight off inflation and invest. Property speculation and manipulation breeds hyper-inflation and destruction of the country and middle class. Property agents use only primary school maths but try to talk like machiam nobel prize economists. Part of the MLM group problem.

Click to expand...

Inflation is the end product of uncontrolled asset appreciation. In our case, it is caused our financial system absorbing large amount of foreign funds which then bid up property without sufficient government oversight. You are right in that it is a rigged market. Note that SG equities have underperformed all its regional peers and returns over the past twenty years have been mediocre from inflation-adjusted perspective. So basically Singaporeans are screwed as they have nothing to invest in that can protect them from inflation and give them noteworthy returns.

That is why the middle and upper income classes resort to property speculation in order to generate wealth. The government has been complicit in the past in encouraging speculation by allowing for lengthy mortgage terms and cheap financing. Those who started early in the 70s, 80s and 90s are now sitting on a windfall but those who started after 2010 will be in for HELL when the market unravels in the years ahead. That is why I always say to new market entrants, don't bet on SG property for your retirement anymore. The bull market is over. You better go regional or you will die a horrible death. Pity those starting out now. They have been robbed by the government.

The point is, because it owes you in Singapore dollars, the government will always have the means to pay you back - by printing more money! Which leads to higher inflation of course. Your money 100k thereabouts could buy you a few cheeseburgers at McDonalds'. CPF, GIC, MOF - lots of conflict of interest there. A less well mannered cad might even call it a den of thieves!