Ok, so there are a lot of posts and threads here and elsewhere on the CPF and its various flaws. We know what they are, and there is discussion ad nauseam about it. But what actually is CPF, how does it work, why is it set up this way, etc.? This thread is not designed to address how much CPF you can withdraw, or all the various schemes, mainly because each individual’s situation is different and the PAP keeps shifting the goalposts. So without much further ado, ………………………………………….
What is the CPF?
The Central Provident Fund was set up in July 1st 1955 by the British Colonial Govt. (yes the Brits, not the PAP) who envision it as a compulsory savings plan for retirement. It is legislated into law as The Central Provident Fund Act, and consists of a CPF Board and the actual funds. The Board handles the administration of the funds and overseas the operations of the CPF.
Who is on the Board of CPF?
Constitutionally, the CPF board is set up to have a balance between the Govt, Employers and employees. As such, 2 members of the Board must represent the govt., 2 from the employers, and 2 from the employees. This was envisioned as an internal check and balance. But is it? Well, both the employee representatives, Joshua Loy (NTUC Union Centric OTSI) and Ma Wei Ching (Amalgamated Union of Public Employees) are affiliated with and work for NTUC organizations. NTUC itself is dominated by govt. appointees and share the same bed. So, we will hardly expect an independent representation from these 2. The 2 representatives for the employers are Lim Suet Wun (sounds familiar? She is the sister in law of the Prime Minister), and John Ng (CEO of government owned Singapore LNG). Guess who these 2 “employer” representatives will vote with? In other words, the whole board is set up with govt. insiders and representatives. Now ask yourself why it was so easy to keep passing Board resolutions allowing for low interest rates, larger minimum sums, and other various activities detrimental to the plan holders.
What is the CPF entity?
Is it a limited company? Is it a GLC? Is it an NGO? It turns out that CPF is a statutory board set up as a Trust.
Establishment of Central Provident Fund
6.
—(1) For the purposes of this Act, there shall be established a fund to be called the Central Provident Fund into which shall be paid all contributions authorised under this Act and out of which shall be met all payments authorised to be paid under this Act.
(2) The Board shall be the trustee of the Fund and all moneys belonging to the Fund may be —
Therefore, CPF (more specifically the CPF Board) is the trustee of our money and we are the beneficiaries. As Trustees, they have a fiduciary duty to safeguard and manage our retirement funds and give us the highest possible return on it. The big question is “Have they fulfilled their fiduciary duty?”.
What does CPF do with our money?
The CPF takes the money you give them every month and keeps a portion for withdrawals. For example, we know that all departing PRs are withdrawing at least $400 million a year, as well, plan holders are withdrawing money for HDB flat down payments and month mortgage payments. It turns out that fully 50% of all CPF contributions is withdrawn every year. The remaining funds are loaned to the government through the purchase of Special Singapore Government Securities (SSGS). The govt. pays an interest ranging from 2.5% - 5.0% on these SSGS. Here, CPF falls on its face when it comes to Fiduciary duties. The CPF constitution allows it to invest in a broad range of investments, including simply depositing it with the banks. Nowhere does it say it has to buy only SSGS. Imagine if you left all your retirement funds with your financial advisor, and he puts all the money into only one type of investment, and that investment pays only 2.5%. You would fire him, right? But the CPF insists that it will only loan its money to one type of investment, the SSGS. Be very sure on this. In the relationship that CPF has with the govt. it’s a relationship of borrower and lender. CPF lends its funds to the govt. and the govt. borrows the money from them and pays an interest.
What does the Govt do with the CPF money it borrowed?
It transfers the money mostly to GIC and leaves some with MAS. It is claimed that no CPF funds go to Temasek. So basically, the Govt. (the borrower) comes to CPF (the lender) to borrow money to put into its business (GIC), so that the business (GIC) can earn a good return and in turn enables the borrower to repay the loan with interest. If CPF was a commercial bank, it would do due diligence on the borrower to examine the borrower’s creditworthiness and the soundness and viability of his business. Well, the credit worthiness of the Govt. (even though it has the highest level of indebtedness among first world countries) is not the real issue. The issue is the profitability of GIC and the ability of GIC to repay the funds that the govt. has transferred to it from its sale of SSGS. The 20 year annualized return of GIC is only 4%. That is astoundingly low. How can a borrower pay 2.5%-5% for the funds that it borrows and earns only 4% annually? Not to mention that the borrower’s company has suffered billions of dollars in losses from UBS, and even as recently, over $675 million last year in the Stuyvesant real estate deal in New York. Most commercial lenders I know would have called the loan long ago.
But the Govt. will always be able to repay the SSGS with interest when they mature
Yes, and no. The govt. according to the CPF Act cannot just print more money or issue govt. bonds to raise money to repay the SSGS. It cannot use any tax revenues or sales of any assets to repay the SSGS. This is very clear, the CPF was designed with a separation component so that the govt. funds and assets are not comingle with the retirement fund. The only mechanism in place for the govt. to repay the SSGS is through GIC transferring funds back to the Govt. in order for it to allow CPF to redeem the SSGS. Well, what happens when GIC is losing money? Will it have to liquidate assets to pay the govt, back.? How will it do that if its assets are in companies and are illiquid?
Why is the CPF Board ok with a 2.5% interest for our money?
This is another fail in their fiduciary duty. You can buy 7 year corporate bonds issued by GLCs like SIA for a yield of 3.175% or 10 year notes at 3.75%. SIA has a high credit rating just like the Singapore Govt. Which trustee would deliberately take a lower return on their funds for no apparent reason, and consider themselves to be doing their duty? The whole board should be sued in court through a class action lawsuit. The People of Singapore VS CPF Board. The lack of oversight and fiduciary duty is criminal as far as I can see. These boards members are placed there through obvious conflict of interest, and merrily collect their directors fees while selling everyone down the river. They should all be sued individually and collectively.
What is the alternative?
CPF should manage its own funds, as that was what it was set up to do. Not pass the management of the fund off to GIC or through the Singapore govt. You don’t need a whole room full of investment analysts like GIC does to do due diligence on dubious companies that they lose money on. You can park the funds with large reputable companies and negotiate a volume discount for their MERs. According to Kiplinger, the Fidelity Large Company fund has a 20 year return of 9.7%, as well as a one year return of 29.17%. Vanguard has a fund that has a 20 year return of 12.76%. Anything earned by CPF through its own direct investments should be added back into the plan holder's accounts. By allowing the govt. to use GIC, it has in effect created another bureaucracy with its attendent overhead. It’s incredible that part of CPF’s duties is not to review other investment alternatives on a regular basis. CPF has allowed itself to be turned into a piggy bank for the PAP.
What is the CPF?
The Central Provident Fund was set up in July 1st 1955 by the British Colonial Govt. (yes the Brits, not the PAP) who envision it as a compulsory savings plan for retirement. It is legislated into law as The Central Provident Fund Act, and consists of a CPF Board and the actual funds. The Board handles the administration of the funds and overseas the operations of the CPF.
Who is on the Board of CPF?
Constitutionally, the CPF board is set up to have a balance between the Govt, Employers and employees. As such, 2 members of the Board must represent the govt., 2 from the employers, and 2 from the employees. This was envisioned as an internal check and balance. But is it? Well, both the employee representatives, Joshua Loy (NTUC Union Centric OTSI) and Ma Wei Ching (Amalgamated Union of Public Employees) are affiliated with and work for NTUC organizations. NTUC itself is dominated by govt. appointees and share the same bed. So, we will hardly expect an independent representation from these 2. The 2 representatives for the employers are Lim Suet Wun (sounds familiar? She is the sister in law of the Prime Minister), and John Ng (CEO of government owned Singapore LNG). Guess who these 2 “employer” representatives will vote with? In other words, the whole board is set up with govt. insiders and representatives. Now ask yourself why it was so easy to keep passing Board resolutions allowing for low interest rates, larger minimum sums, and other various activities detrimental to the plan holders.
What is the CPF entity?
Is it a limited company? Is it a GLC? Is it an NGO? It turns out that CPF is a statutory board set up as a Trust.
Establishment of Central Provident Fund
6.
—(1) For the purposes of this Act, there shall be established a fund to be called the Central Provident Fund into which shall be paid all contributions authorised under this Act and out of which shall be met all payments authorised to be paid under this Act.
(2) The Board shall be the trustee of the Fund and all moneys belonging to the Fund may be —
Therefore, CPF (more specifically the CPF Board) is the trustee of our money and we are the beneficiaries. As Trustees, they have a fiduciary duty to safeguard and manage our retirement funds and give us the highest possible return on it. The big question is “Have they fulfilled their fiduciary duty?”.
What does CPF do with our money?
The CPF takes the money you give them every month and keeps a portion for withdrawals. For example, we know that all departing PRs are withdrawing at least $400 million a year, as well, plan holders are withdrawing money for HDB flat down payments and month mortgage payments. It turns out that fully 50% of all CPF contributions is withdrawn every year. The remaining funds are loaned to the government through the purchase of Special Singapore Government Securities (SSGS). The govt. pays an interest ranging from 2.5% - 5.0% on these SSGS. Here, CPF falls on its face when it comes to Fiduciary duties. The CPF constitution allows it to invest in a broad range of investments, including simply depositing it with the banks. Nowhere does it say it has to buy only SSGS. Imagine if you left all your retirement funds with your financial advisor, and he puts all the money into only one type of investment, and that investment pays only 2.5%. You would fire him, right? But the CPF insists that it will only loan its money to one type of investment, the SSGS. Be very sure on this. In the relationship that CPF has with the govt. it’s a relationship of borrower and lender. CPF lends its funds to the govt. and the govt. borrows the money from them and pays an interest.
What does the Govt do with the CPF money it borrowed?
It transfers the money mostly to GIC and leaves some with MAS. It is claimed that no CPF funds go to Temasek. So basically, the Govt. (the borrower) comes to CPF (the lender) to borrow money to put into its business (GIC), so that the business (GIC) can earn a good return and in turn enables the borrower to repay the loan with interest. If CPF was a commercial bank, it would do due diligence on the borrower to examine the borrower’s creditworthiness and the soundness and viability of his business. Well, the credit worthiness of the Govt. (even though it has the highest level of indebtedness among first world countries) is not the real issue. The issue is the profitability of GIC and the ability of GIC to repay the funds that the govt. has transferred to it from its sale of SSGS. The 20 year annualized return of GIC is only 4%. That is astoundingly low. How can a borrower pay 2.5%-5% for the funds that it borrows and earns only 4% annually? Not to mention that the borrower’s company has suffered billions of dollars in losses from UBS, and even as recently, over $675 million last year in the Stuyvesant real estate deal in New York. Most commercial lenders I know would have called the loan long ago.
But the Govt. will always be able to repay the SSGS with interest when they mature
Yes, and no. The govt. according to the CPF Act cannot just print more money or issue govt. bonds to raise money to repay the SSGS. It cannot use any tax revenues or sales of any assets to repay the SSGS. This is very clear, the CPF was designed with a separation component so that the govt. funds and assets are not comingle with the retirement fund. The only mechanism in place for the govt. to repay the SSGS is through GIC transferring funds back to the Govt. in order for it to allow CPF to redeem the SSGS. Well, what happens when GIC is losing money? Will it have to liquidate assets to pay the govt, back.? How will it do that if its assets are in companies and are illiquid?
Why is the CPF Board ok with a 2.5% interest for our money?
This is another fail in their fiduciary duty. You can buy 7 year corporate bonds issued by GLCs like SIA for a yield of 3.175% or 10 year notes at 3.75%. SIA has a high credit rating just like the Singapore Govt. Which trustee would deliberately take a lower return on their funds for no apparent reason, and consider themselves to be doing their duty? The whole board should be sued in court through a class action lawsuit. The People of Singapore VS CPF Board. The lack of oversight and fiduciary duty is criminal as far as I can see. These boards members are placed there through obvious conflict of interest, and merrily collect their directors fees while selling everyone down the river. They should all be sued individually and collectively.
What is the alternative?
CPF should manage its own funds, as that was what it was set up to do. Not pass the management of the fund off to GIC or through the Singapore govt. You don’t need a whole room full of investment analysts like GIC does to do due diligence on dubious companies that they lose money on. You can park the funds with large reputable companies and negotiate a volume discount for their MERs. According to Kiplinger, the Fidelity Large Company fund has a 20 year return of 9.7%, as well as a one year return of 29.17%. Vanguard has a fund that has a 20 year return of 12.76%. Anything earned by CPF through its own direct investments should be added back into the plan holder's accounts. By allowing the govt. to use GIC, it has in effect created another bureaucracy with its attendent overhead. It’s incredible that part of CPF’s duties is not to review other investment alternatives on a regular basis. CPF has allowed itself to be turned into a piggy bank for the PAP.
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