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Written by Ng E-Jay
24 June 2014
Mr Lim Swee Say spoke about the CPF at the Singapore Model Parliament debates held last week. However, the statements he made do not make any sense, and certain points he made about the CPF being risk free also deserve a rebuttal.
Firstly, Mr Lim said that people should use less of their CPF money when they are young, and they should also try to defer drawing down their CPF when they reach the age of 55. These statements were made in BOTH the original press interview as well as the clarification that he later sent to the media (see here).
However, Mr Lim also asserts that the CPF is for housing, healthcare and education, in addition to serving retirement needs. He makes this assertion in the context of assuring Singaporeans that “CPF is your money“. Again, this point is repeated in BOTH the media interview as well as his subsequent clarification.
Why does this not make sense? If you want citizens to save more CPF money for retirement, then you should not be asking them to spend the CPF on so many needs including housing, healthcare and education simultaneously.
In other words, the CPF should NOT be turned into an escrow account to ensure that all Singaporeans pay for their expensive houses and medical bills from their own retirement savings, and in so doing relieve the state of the burden of caring for its citizens.
When the government allows property prices to skyrocket, it benefits property owners, but it also means people entering the workforce have to spend more and more on housing, leaving less for retirement. This is what has been happening thus far.
In terms of healthcare, the government through its Medishield Life plan, is also trying to push the burden of healthcare financing onto its citizens so that it does not have to spend so much money taking care of them.
Amongst the developed nations, Singapore spends very little on healthcare when measured as a percentage of GDP, or even when measured as a percentage of annual government revenue.
The government has used the Medishield accounts and the Medishield Life plan to pass the buck back onto the citizens. It should instead be enacting measure to keep the cost of healthcare under control and prevent abuse.
In the long run, only sound government policy can prevent the cost of medical expenses from rising too fast. Merely asking citizens to save more and spend more money on insurance will not keep costs under control.
Second, Mr Lim says that “your money with CPF is 100% safe and continues to earn risk free interest”.
This statement unfortunately neglects other forms of risk, including liquidity risk, duration risk and policy risk.
CPF members suffer from liquidity and policy risk because the government can arbitrarily delay the draw down age as and when it pleases. The government also has the policy of increasing the minimum sum periodically. In fact, the increase in minimum sum over the past 10 years has even outstripped the high inflation rate in Singapore.
CPF members also suffer from duration risk. Why is this so? This is due to the fact that the government can change the CPF interest rate as it pleases. Also, the government can change the CPF Life payouts whenever it detects changes in the inflation rate, mortality rate, or life expectancy of the population.
Thus, whilst CPF funds are treated on the same status as sovereign bonds, CPF members are subjected to other forms of risk which sovereign bonds are not subjected to, including policy risk, duration risk, and liquidity risk.
Thirdly, Mr Lim Swee Say (once again) mangles the English language by asserting that “young refers to those who are aged 55“. I leave this statement for my readers to refute. It is beneath discussion.
http://www.sgpolitics.net/?p=8838
24 June 2014
Mr Lim Swee Say spoke about the CPF at the Singapore Model Parliament debates held last week. However, the statements he made do not make any sense, and certain points he made about the CPF being risk free also deserve a rebuttal.
Firstly, Mr Lim said that people should use less of their CPF money when they are young, and they should also try to defer drawing down their CPF when they reach the age of 55. These statements were made in BOTH the original press interview as well as the clarification that he later sent to the media (see here).
However, Mr Lim also asserts that the CPF is for housing, healthcare and education, in addition to serving retirement needs. He makes this assertion in the context of assuring Singaporeans that “CPF is your money“. Again, this point is repeated in BOTH the media interview as well as his subsequent clarification.
Why does this not make sense? If you want citizens to save more CPF money for retirement, then you should not be asking them to spend the CPF on so many needs including housing, healthcare and education simultaneously.
In other words, the CPF should NOT be turned into an escrow account to ensure that all Singaporeans pay for their expensive houses and medical bills from their own retirement savings, and in so doing relieve the state of the burden of caring for its citizens.
When the government allows property prices to skyrocket, it benefits property owners, but it also means people entering the workforce have to spend more and more on housing, leaving less for retirement. This is what has been happening thus far.
In terms of healthcare, the government through its Medishield Life plan, is also trying to push the burden of healthcare financing onto its citizens so that it does not have to spend so much money taking care of them.
Amongst the developed nations, Singapore spends very little on healthcare when measured as a percentage of GDP, or even when measured as a percentage of annual government revenue.
The government has used the Medishield accounts and the Medishield Life plan to pass the buck back onto the citizens. It should instead be enacting measure to keep the cost of healthcare under control and prevent abuse.
In the long run, only sound government policy can prevent the cost of medical expenses from rising too fast. Merely asking citizens to save more and spend more money on insurance will not keep costs under control.
Second, Mr Lim says that “your money with CPF is 100% safe and continues to earn risk free interest”.
This statement unfortunately neglects other forms of risk, including liquidity risk, duration risk and policy risk.
CPF members suffer from liquidity and policy risk because the government can arbitrarily delay the draw down age as and when it pleases. The government also has the policy of increasing the minimum sum periodically. In fact, the increase in minimum sum over the past 10 years has even outstripped the high inflation rate in Singapore.
CPF members also suffer from duration risk. Why is this so? This is due to the fact that the government can change the CPF interest rate as it pleases. Also, the government can change the CPF Life payouts whenever it detects changes in the inflation rate, mortality rate, or life expectancy of the population.
Thus, whilst CPF funds are treated on the same status as sovereign bonds, CPF members are subjected to other forms of risk which sovereign bonds are not subjected to, including policy risk, duration risk, and liquidity risk.
Thirdly, Mr Lim Swee Say (once again) mangles the English language by asserting that “young refers to those who are aged 55“. I leave this statement for my readers to refute. It is beneath discussion.
http://www.sgpolitics.net/?p=8838
