Source: The Reform Party
CPF Needs Radical Reform Not Cosmetic Changes
Published: 6th February 2015
We are extremely disappointed by the recommendations of the CPF Advisory Panel, which have been accepted by the Government. The recommended changes amount to the mildest of tweaks to a flawed and conflicted system. In the case of the new tiers (Basic, Full and Enhanced Retirement Sums), which replace the current Minimum Sum, there is no relaxation of the rules just a name change. The Government continues to require Singaporeans to pledge their property if they only have the Basic Retirement Sum at 55.
We need radical reform to CPF, which is now widely seen for what it is: a forced savings scheme that exploits middle- to low-income Singaporeans.
Fundamental Conflict of Interest
There is a fundamental conflict of interest between the interests of Singaporeans as savers and investors and the interests of the Government in borrowing as cheaply as possible. We pointed this out in our White Paper on CPF Reform published in June 2014.
The money is lent to GIC (and indirectly allows the Government to inject money into Temasek. The SWFs are able to arbitrage the difference between what we are paid and the yields on higher-risk assets. Many of the assets GIC and Temasek invest in are illiquid and difficult to value. This is the real reason why the PAP keep increasing the Minimum Sum making it more difficult for you to withdraw your money.
The PAP claim that your CPF savings are invested in AAA securities issued by the Government. However they are only rated AAA because if the SWFs lose the money through bad investments you would have to repay the money lent to them through higher taxes. Ultimately you are guaranteeing yourself. If the value of GIC’s investments fell by30-40%, as happened during the 2009 financial crisis, there would not be enough money to repay CPF holders and the PAP Government would need to raise taxes.
PM and Wife Should Not Head Our SWFs
The conflict of interest is made worse by the fact that the PM is Chairman of GIC and his wife is CEO of Temasek. As Chairman of GIC he must act in GIC’s best interests which conflicts with his responsibility to ensure Singaporeans’ interests are protected. The Government refuses to disclose how much the PM’s wife is paid though this is likely to be much more than the PM. However we know that Temasek’s management’s bonuses are dependent on achieving better than a hurdle rate of return. This hurdle will undoubtedly be linked to the Government’s cost of borrowing, which in turn is determined by how low it sets the rates paid to CPF account holders.
Unfairness of Current CPF Scheme
The Special Advisory Panel has not addressed this fundamental conflict of interest. Nor has it put right the broken promise to return our CPF at 55 or help middle- and low-income Singaporeans deal with financial hardship caused by the PAP policies of needless austerity. As we said in our White Paper, the CPF scheme is inequitable for the following reasons:
Excess Government Savings
Nor does the Advisory Panel address our macroeconomic problem, which is one of excess savings. This is a global problem but particularly acute in Singapore. At the same time many Singaporeans struggle to make ends meet, go without seeing a doctor or buying needed medicines and send their children to school hungry or without money to buy lunch.
As the PAP Government already runs a Budget surplus of 8-10% of GDP. According to the Monthly Digest of Statistics (MDS) for January 2015, the Government had surplus cash flow over and above its spending commitments of $36 billion in 2011 and $29 billion in 2012. The figure for 2013 has not been released yet but is likely to be of the same size. According to the PAP government’s figures, it has huge external assets of over $800 billion and net assets (after CPF liabilities) of roughly $360 billion. This represents accumulated net assets of over $110,000 per citizen over and above what every Singaporean has in his or her CPF account.
In the context of these staggering and immoral surpluses, it is difficult to understand why the PAP Government insists on all Singaporeans, especially the elderly, disabled, and median- to low-income families with children, undergoing unnecessary financial hardship. This is especially true given the low returns achieved by Temasek and GIC over the past few years when converted back into Singapore dollars.
In particular why are Singaporeans not allowed to withdraw their CPF in the Special and Ordinary Accounts at the age of 55 as was originally promised? It is not as though the withdrawal of the money will place a fiscal burden on the state.
It is only through our citizens’ hard work and sacrifice in going without free education, health care, help for children and dependents, old age pensions and other benefits that citizens of rich countries take for granted that has enabled the PAP to make such huge and immoral surpluses. There is a global glut of savings, which results in low to negative returns on investment. In addition we expect productivity to increase exponentially over the coming decade due to the advance of Artificial Intelligence and automation resulting in higher living standards for all. As a result these surpluses no longer make any sense if they ever did.
Special Advisory Panel Recommendations Just A Rebranding Exercise
The recommendation of the Special Advisory Panel to allow us to withdraw 20% of our CPF at 65 is totally inadequate.
In addition the introduction of three tiers for savings is largely just a cosmetic change without real substance. Singaporeans are already required to pledge their property if bought with CPF savings for half the Minimum Sum if they fall short of the total sum. The Advisory Panel new tier at 50% of the current Minimum Sum allowing you to withdraw money above that level if you pledge your property is theoretically slightly less restrictive than the old rule by which if you failed to meet the full Minimum Sum your property was automatically pledged. This is just the reintroduction of the 50% Withdrawal Rule which the PAP Government scrapped in 2009 when Temasek and GIC had sustained large losses.
However most Singaporeans will have used their savings on purchasing their HDB and so will have less than the Basic Sum in their accounts. Thus they will be unable to withdraw any money. In addition the equity in their HDB is likely to be worth considerably more than 50% of the new Full Minimum Sum so in effect they will be pledging more security than the Minimum Sum.
Reforming CPF
The core of our proposed reforms is essentially the same as in our White Paper published in June 2014:
Individuals to continue to be allowed to use both employee and employer CPF to fund property purchases. Subsidies and tax exemption for housing purchases have helped to fuel the housing bubble. However ending subsidies too quickly could cause a housing price collapse with severe consequences for the economy
Reform Party Proposes that Government Fund Most of Basic Old Age Pension
The People Should Own Temasek and GIC
Reform Party has since 2009 called for Temasek and GIC to be owned by the Singapore people. We would achieve this through a share listing and distribution of shares directly to the citizens. This would achieve transparency and align the interests of the managers of the SWFs with the people as shareholders. This was in our Election Manifesto for 2011.
Also see this article written in 2013:
http://sonofadud.com/2013/05/04/how...through-the-privatization-of-temasek-and-gic/
CPF Needs Radical Reform Not Cosmetic Changes
Published: 6th February 2015
We are extremely disappointed by the recommendations of the CPF Advisory Panel, which have been accepted by the Government. The recommended changes amount to the mildest of tweaks to a flawed and conflicted system. In the case of the new tiers (Basic, Full and Enhanced Retirement Sums), which replace the current Minimum Sum, there is no relaxation of the rules just a name change. The Government continues to require Singaporeans to pledge their property if they only have the Basic Retirement Sum at 55.
We need radical reform to CPF, which is now widely seen for what it is: a forced savings scheme that exploits middle- to low-income Singaporeans.
Fundamental Conflict of Interest
There is a fundamental conflict of interest between the interests of Singaporeans as savers and investors and the interests of the Government in borrowing as cheaply as possible. We pointed this out in our White Paper on CPF Reform published in June 2014.
The money is lent to GIC (and indirectly allows the Government to inject money into Temasek. The SWFs are able to arbitrage the difference between what we are paid and the yields on higher-risk assets. Many of the assets GIC and Temasek invest in are illiquid and difficult to value. This is the real reason why the PAP keep increasing the Minimum Sum making it more difficult for you to withdraw your money.
The PAP claim that your CPF savings are invested in AAA securities issued by the Government. However they are only rated AAA because if the SWFs lose the money through bad investments you would have to repay the money lent to them through higher taxes. Ultimately you are guaranteeing yourself. If the value of GIC’s investments fell by30-40%, as happened during the 2009 financial crisis, there would not be enough money to repay CPF holders and the PAP Government would need to raise taxes.
PM and Wife Should Not Head Our SWFs
The conflict of interest is made worse by the fact that the PM is Chairman of GIC and his wife is CEO of Temasek. As Chairman of GIC he must act in GIC’s best interests which conflicts with his responsibility to ensure Singaporeans’ interests are protected. The Government refuses to disclose how much the PM’s wife is paid though this is likely to be much more than the PM. However we know that Temasek’s management’s bonuses are dependent on achieving better than a hurdle rate of return. This hurdle will undoubtedly be linked to the Government’s cost of borrowing, which in turn is determined by how low it sets the rates paid to CPF account holders.
Unfairness of Current CPF Scheme
The Special Advisory Panel has not addressed this fundamental conflict of interest. Nor has it put right the broken promise to return our CPF at 55 or help middle- and low-income Singaporeans deal with financial hardship caused by the PAP policies of needless austerity. As we said in our White Paper, the CPF scheme is inequitable for the following reasons:
- It is regressive because of the upper income limit of $85,000 on CPF contributions
- It represents a form of taxation because Singaporeans’ savings are locked up till at least 55. Even then we cannot withdraw any money unless we have the minimum sum in our accounts or have a terminal illness. The interest rates paid are well below what we would be able to earn on AAA investments with similar restrictions on withdrawal.
- Allowing us to use CPF funds to purchase housing has just boosted the price of housing. The supply of housing is controlled by the government through its ownership of land and the position of HDB as the monopoly house builder to 90% of the population. The rise in property prices has more than negated the value of the rise in our savings.
- Expats and foreigners are not required to pay CPF.
Excess Government Savings
Nor does the Advisory Panel address our macroeconomic problem, which is one of excess savings. This is a global problem but particularly acute in Singapore. At the same time many Singaporeans struggle to make ends meet, go without seeing a doctor or buying needed medicines and send their children to school hungry or without money to buy lunch.
As the PAP Government already runs a Budget surplus of 8-10% of GDP. According to the Monthly Digest of Statistics (MDS) for January 2015, the Government had surplus cash flow over and above its spending commitments of $36 billion in 2011 and $29 billion in 2012. The figure for 2013 has not been released yet but is likely to be of the same size. According to the PAP government’s figures, it has huge external assets of over $800 billion and net assets (after CPF liabilities) of roughly $360 billion. This represents accumulated net assets of over $110,000 per citizen over and above what every Singaporean has in his or her CPF account.
In the context of these staggering and immoral surpluses, it is difficult to understand why the PAP Government insists on all Singaporeans, especially the elderly, disabled, and median- to low-income families with children, undergoing unnecessary financial hardship. This is especially true given the low returns achieved by Temasek and GIC over the past few years when converted back into Singapore dollars.
In particular why are Singaporeans not allowed to withdraw their CPF in the Special and Ordinary Accounts at the age of 55 as was originally promised? It is not as though the withdrawal of the money will place a fiscal burden on the state.
It is only through our citizens’ hard work and sacrifice in going without free education, health care, help for children and dependents, old age pensions and other benefits that citizens of rich countries take for granted that has enabled the PAP to make such huge and immoral surpluses. There is a global glut of savings, which results in low to negative returns on investment. In addition we expect productivity to increase exponentially over the coming decade due to the advance of Artificial Intelligence and automation resulting in higher living standards for all. As a result these surpluses no longer make any sense if they ever did.
Special Advisory Panel Recommendations Just A Rebranding Exercise
The recommendation of the Special Advisory Panel to allow us to withdraw 20% of our CPF at 65 is totally inadequate.
In addition the introduction of three tiers for savings is largely just a cosmetic change without real substance. Singaporeans are already required to pledge their property if bought with CPF savings for half the Minimum Sum if they fall short of the total sum. The Advisory Panel new tier at 50% of the current Minimum Sum allowing you to withdraw money above that level if you pledge your property is theoretically slightly less restrictive than the old rule by which if you failed to meet the full Minimum Sum your property was automatically pledged. This is just the reintroduction of the 50% Withdrawal Rule which the PAP Government scrapped in 2009 when Temasek and GIC had sustained large losses.
However most Singaporeans will have used their savings on purchasing their HDB and so will have less than the Basic Sum in their accounts. Thus they will be unable to withdraw any money. In addition the equity in their HDB is likely to be worth considerably more than 50% of the new Full Minimum Sum so in effect they will be pledging more security than the Minimum Sum.
Reforming CPF
The core of our proposed reforms is essentially the same as in our White Paper published in June 2014:
- Everyone should be allowed to either withdraw 100% of the money in their Special and Ordinary Accounts from, leave their money in or buy an annuity providing an income for life
- A universal comprehensive health insurance plan would replace Medisave and Medishield Life (More details on our proposed health insurance reforms shortly)
- Apart from health insurance individuals would be required to contribute a small percentage of income towards a universal basic old age pension to be paid from age 65.
- Everyone unless certified unable to work would be required to have worked a certain number of years to qualify.
- The Government would subsidise or pay the premiums and pension contributions of those on low incomes, the disabled and the elderly. Subsidies or payments would also be dependent on the value of assets owned by the individual including housing
- After these deductions, individuals to be free to choose what proportion of their income, up to the earnings limit and capped at the current 20%, to save for retirement.
- These savings to continue to be tax-exempt up to the current earnings limit of $85,000 adjusted for inflation.
- Individuals can elect to buy a private pension scheme or one provided by CPF.
- Employers to make contributions of 16% of final salary up to current earnings limit into a pension scheme of the employee’s choice. These contributions to be tax-exempt.
- Private sector pension providers (regulated by MAS) to be allowed to compete with CPF on equal terms.
- CPF no longer to be required to invest solely in Singapore Government Securities but to be allowed to invest in approved investments above a certain rating level.
Individuals to continue to be allowed to use both employee and employer CPF to fund property purchases. Subsidies and tax exemption for housing purchases have helped to fuel the housing bubble. However ending subsidies too quickly could cause a housing price collapse with severe consequences for the economy
Reform Party Proposes that Government Fund Most of Basic Old Age Pension
- We propose that initially the Government fund $500 per month of a proposed basic old age pension of $650-700 per month. This would be raised in line with the CPI. According to the MDS there are less than 500,000 Singaporean residents over the age of 65.
- To be eligible you would need to have worked in Singapore for a certain number of years unless exempted on the grounds of medical disability.
- The total cost should be less than $3 billion a year. The Government is currently generating surplus cash flow of at least $30 billion a year so this would be a small proportion of the surplus. Part of the cost would be recouped in higher tax collections as a result of the increased demand and spending in the economy. The payments would also serve the purpose of increasing domestic consumption and rebalancing the economy away from excessive saving and current account surpluses.
- We would set the total basic pension at $650-700 per month, which would be increased in line with inflation. This would require only a small percentage of income to be contributed by Singaporeans to meet the additional cost over and above the Government payment.
- As life expectancy rises and there are greater numbers of over-65s it may be necessary to put back the age at which the Government-funded portion of the pension becomes payable. This would depend on the Government’s finances.
The People Should Own Temasek and GIC
Reform Party has since 2009 called for Temasek and GIC to be owned by the Singapore people. We would achieve this through a share listing and distribution of shares directly to the citizens. This would achieve transparency and align the interests of the managers of the SWFs with the people as shareholders. This was in our Election Manifesto for 2011.
Also see this article written in 2013:
http://sonofadud.com/2013/05/04/how...through-the-privatization-of-temasek-and-gic/
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