The Singaporean government recently increased the minimum amount required for Central Provident Accounts which as caused concern among many people. Given that I have written numerous times about CPF, I will only recap the highlights before moving on to my primary topic about CPF today.
First, the Central Provident Fund is vital to understand Singapore government finances. The CPF pays 2.5-4% on funds from savers but then loans that money to the government who issue long term debt securities and unsurprisingly pays a nearly identical weighted amount on what it borrows. The Singapore government then invests the money in different ways, and by all appearances, keeps whatever in excess of the 2.5-4% it earns. The CPF is a central organization to understand Singapore public finances.
Second, despite Singapore government claims to the contrary, the CPF is imposing enormous implicit taxes or costs on Singaporean savers. If the average Singaporean had earned the average Singaporean wage since 1980 and saved the amount required by law but earned the GIC long term average rather than CPF interest, the average Singaporean would have approximately $850,000 SGD in the bank. This is approximately $300,000 more than they would have earned with the same amount of savings in a CPF account. To put this number in perspective, Singaporeans pay higher fees than what the typical hedge fund would charge. The Singaporean government is directly harming everyday Singaporeans by mandating savings into a seriously underperforming asset for the governments benefit.
Third, Singapore operates a one sided model where the tax payer assumes the risk but the government gets the benefit. If the investments do well,
http://www.baldingsworld.com/2014/05/13/the-real-cpf-problem/
First, the Central Provident Fund is vital to understand Singapore government finances. The CPF pays 2.5-4% on funds from savers but then loans that money to the government who issue long term debt securities and unsurprisingly pays a nearly identical weighted amount on what it borrows. The Singapore government then invests the money in different ways, and by all appearances, keeps whatever in excess of the 2.5-4% it earns. The CPF is a central organization to understand Singapore public finances.
Second, despite Singapore government claims to the contrary, the CPF is imposing enormous implicit taxes or costs on Singaporean savers. If the average Singaporean had earned the average Singaporean wage since 1980 and saved the amount required by law but earned the GIC long term average rather than CPF interest, the average Singaporean would have approximately $850,000 SGD in the bank. This is approximately $300,000 more than they would have earned with the same amount of savings in a CPF account. To put this number in perspective, Singaporeans pay higher fees than what the typical hedge fund would charge. The Singaporean government is directly harming everyday Singaporeans by mandating savings into a seriously underperforming asset for the governments benefit.
Third, Singapore operates a one sided model where the tax payer assumes the risk but the government gets the benefit. If the investments do well,
http://www.baldingsworld.com/2014/05/13/the-real-cpf-problem/
