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Written by Ng E-Jay
28 May 2014
The Central Provident Fund (CPF) was started by the British colonial authority in Singapore in 1955. It was designed to be a retirement scheme for Singaporeans, and both workers and employers would contribute to the scheme. In the early years of our independence, the CPF served the needs of our citizens well.
Over the years, however, the PAP government made gradual modifications to the CPF scheme. To prevent Singaporeans from withdrawing all their CPF funds when they reached the age of 55 years old, the government introduced the Minimum Sum scheme. This scheme mandated that nearly all CPF members, upon reaching the age of 55, set aside a certain portion of their savings in the CPF Retirement Account which can only be drawn down much later. Subsequently, in 2009, the Mininum Sum scheme was replaced by CPF Life, which provides an annuity for life.
When the Minimum Sum scheme was first implemented, there was an outcry from the public. People who had planned to use their CPF money to fund their children’s education or to fund some other purpose in life felt that they had been denied access to their hard-earned savings. They felt that the money in their CPF should be given back to them to be used as they saw fit, and not dictated by the government. The first seeds of resentment against the CPF system was thus planted.
Furthermore, as the life expectancy of Singaporeans increased, the government started to delay the Draw Down Age, which is the age at which Singaporeans can start withdrawing their Minimum Sum or start receiving monthly annuity payouts from CPF Life. This led to even further resentment from the public. People rightfully complained that the government was shifting the goalposts constantly and arbitrarily, and was preventing them from effectively planning for their retirement or for their families’ financial future.
The Minimum Sum scheme, CPF Life, and the ever increasing Draw Down Age are not the only sources of grievances that Singaporeans have about the CPF system.
When Singapore faced economic downturns, the government would lower employer contribution rates so as to relieve the financial burden on businesses. This was deemed necessary in order for businesses to recover faster and avoid having to retrench so many people.
During boom times, the government was supposed to increase employer contribution rates again, but this did not always happen. After the dot-com bubble burst in 2000 and the economy recovered in 2003-2004, employer contribution rates were never restored to the same level as before. The government came out with another excuse — that this was to make Singapore more competitive, and in so doing, save more jobs. Again, the people were angered. Business interests seemed to be favoured over employee interests.
In order to ensure that all Singaporeans could own a home, the PAP government also made CPF funds available for the purchase of property.
However in recent years, as the prices of property started to appreciate rapidly, the CPF gradually evolved from what was originally a retirement scheme into an escrow account designed to ensure that Singaporeans would be able to pay for public housing that was rapidly becoming more expensive.
Escalating property prices mean that many Singaporeans can no longer retire with peace of mind, because their CPF accounts are being depleted by having to pay for expensive property. The young, in their prime working years, are heavily burdened by lengthy and expensive mortgages that become a fountain of debt.
The government also tells Singaporeans to rely on their CPF Medisave accounts and Medishield insurance to cover their hospitalization expenses. At the same time, the PAP government spends the least on healthcare as a percentage of GDP compared to other developed nations.
Clearly, the government is using the CPF system to transfer the burden of caring for the population’s healthcare needs back onto the individual.
Whilst self-reliance is a virtue, not enough is done to help those who fall between the cracks. The escalating cost of healthcare coupled with low government expenditure on healthcare as a percentage of GDP also means that Singaporeans are becoming increasingly burdened financially by their healthcare needs.
Therefore, the purpose of CPF as a retirement vehicle for Singaporeans has been perverted. The CPF has become woefully inadequate as a retirement scheme for Singaporeans because of rising costs and the lack of state support in containing these costs and helping the needy.
Presently, these are the main deficiencies of the CPF system:
(a) The government can change the rules arbitrarily either by increasing the Draw Down Age or by implementing new schemes like CPF Life to forcibly retain CPF members’ savings in their CPF accounts and in so doing, prevent them from using the funds to benefit their families.
(b) Wages have not kept pace with inflation and have lagged very far behind the rapid increase in property prices over the past two decades. As a result, more than half of CPF members cannot meet the Minimum Sum requirement and many cannot retire with peace of mind. The CPF system as a retirement scheme has failed.
(c) The incessant and rapid increases in the Minimum Sum have not helped Singaporeans retire better, because the root of the problem which is low and stagnant wages have not been addressed. You cannot improve the quality of life of our retirees by mandating that they set aside higher and higher sums of money in their CPF Retirement Accounts. That does not solve the core of the problem at all, because if wages remain flat, then retirees will have less and less savings which they can withdraw from their CPF accounts for their own use.
(d) Payouts under the CPF Life scheme are not indexed to the inflation rate. This poses a very grave risk to retirees, because if retirees live a long life, the purchasing power of their monthly annuity payouts will be gradually eroded by inflation, which is inexorable.
(e) Payouts under the CPF Life scheme are also subject to change if mortality rates change. Again this poses a serious risk to retirees who face uncertainties as to whether their payouts will remain stable over time.
In light of the above deficiencies of the CPF system, Singaporeans must also start to question why the CPF is earning such low returns and why the government has not been forthcoming as to how exactly CPF member funds are invested.
The CPF Board uses CPF funds in member accounts to invest in a special class of government bonds called Special Singapore Government Securities (SSGS) which, like the regular SGS, are fully guaranteed by the government. SGSS are non-tradable, non-marketable, floating rate bonds that earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
Under the Protection of Reserves Framework in the Singapore Constitution, all the proceeds from both SGS and SSGS cannot be spent, and they therefore have to be invested.
However, the investment mandate, total assets held, and total returns generated by MAS, GIC, and Temasek Holdings, are not subject to public scrutiny. It is estimated that these three entities combined may hold anywhere from $600 billion to one trillion dollars worth of assets.
What is unfair about the current arrangement is that the investment returns generated by the government are not given back to Singaporeans. We earn a paltry 2.5% to 4% on our CPF accounts, but every indication has been that GIC and Temasek have earned returns far in excess of that.
We, as Singaporeans, have the right to demand that more of those investment returns accrue to us.
We must demand that more investment returns generated by GIC and Temasek be used to build up Singapore’s infrastructure, which has in recent years been heavily burdened by our rapidly expanding population. Our public transport system has been strained to the limit. Overcrowding is rife. Our roads, our shopping hubs, are all feeling the strain. We need serious investment into building public and housing infrastructure that can accommodate our greatly expanded population.
We must also demand that GIC and Temasek be more transparent about their investment mandate, and the actual level of borrowing involved in making asset purchases.
http://www.sgpolitics.net/?p=8785
28 May 2014
The Central Provident Fund (CPF) was started by the British colonial authority in Singapore in 1955. It was designed to be a retirement scheme for Singaporeans, and both workers and employers would contribute to the scheme. In the early years of our independence, the CPF served the needs of our citizens well.
Over the years, however, the PAP government made gradual modifications to the CPF scheme. To prevent Singaporeans from withdrawing all their CPF funds when they reached the age of 55 years old, the government introduced the Minimum Sum scheme. This scheme mandated that nearly all CPF members, upon reaching the age of 55, set aside a certain portion of their savings in the CPF Retirement Account which can only be drawn down much later. Subsequently, in 2009, the Mininum Sum scheme was replaced by CPF Life, which provides an annuity for life.
When the Minimum Sum scheme was first implemented, there was an outcry from the public. People who had planned to use their CPF money to fund their children’s education or to fund some other purpose in life felt that they had been denied access to their hard-earned savings. They felt that the money in their CPF should be given back to them to be used as they saw fit, and not dictated by the government. The first seeds of resentment against the CPF system was thus planted.
Furthermore, as the life expectancy of Singaporeans increased, the government started to delay the Draw Down Age, which is the age at which Singaporeans can start withdrawing their Minimum Sum or start receiving monthly annuity payouts from CPF Life. This led to even further resentment from the public. People rightfully complained that the government was shifting the goalposts constantly and arbitrarily, and was preventing them from effectively planning for their retirement or for their families’ financial future.
The Minimum Sum scheme, CPF Life, and the ever increasing Draw Down Age are not the only sources of grievances that Singaporeans have about the CPF system.
When Singapore faced economic downturns, the government would lower employer contribution rates so as to relieve the financial burden on businesses. This was deemed necessary in order for businesses to recover faster and avoid having to retrench so many people.
During boom times, the government was supposed to increase employer contribution rates again, but this did not always happen. After the dot-com bubble burst in 2000 and the economy recovered in 2003-2004, employer contribution rates were never restored to the same level as before. The government came out with another excuse — that this was to make Singapore more competitive, and in so doing, save more jobs. Again, the people were angered. Business interests seemed to be favoured over employee interests.
In order to ensure that all Singaporeans could own a home, the PAP government also made CPF funds available for the purchase of property.
However in recent years, as the prices of property started to appreciate rapidly, the CPF gradually evolved from what was originally a retirement scheme into an escrow account designed to ensure that Singaporeans would be able to pay for public housing that was rapidly becoming more expensive.
Escalating property prices mean that many Singaporeans can no longer retire with peace of mind, because their CPF accounts are being depleted by having to pay for expensive property. The young, in their prime working years, are heavily burdened by lengthy and expensive mortgages that become a fountain of debt.
The government also tells Singaporeans to rely on their CPF Medisave accounts and Medishield insurance to cover their hospitalization expenses. At the same time, the PAP government spends the least on healthcare as a percentage of GDP compared to other developed nations.
Clearly, the government is using the CPF system to transfer the burden of caring for the population’s healthcare needs back onto the individual.
Whilst self-reliance is a virtue, not enough is done to help those who fall between the cracks. The escalating cost of healthcare coupled with low government expenditure on healthcare as a percentage of GDP also means that Singaporeans are becoming increasingly burdened financially by their healthcare needs.
Therefore, the purpose of CPF as a retirement vehicle for Singaporeans has been perverted. The CPF has become woefully inadequate as a retirement scheme for Singaporeans because of rising costs and the lack of state support in containing these costs and helping the needy.
Presently, these are the main deficiencies of the CPF system:
(a) The government can change the rules arbitrarily either by increasing the Draw Down Age or by implementing new schemes like CPF Life to forcibly retain CPF members’ savings in their CPF accounts and in so doing, prevent them from using the funds to benefit their families.
(b) Wages have not kept pace with inflation and have lagged very far behind the rapid increase in property prices over the past two decades. As a result, more than half of CPF members cannot meet the Minimum Sum requirement and many cannot retire with peace of mind. The CPF system as a retirement scheme has failed.
(c) The incessant and rapid increases in the Minimum Sum have not helped Singaporeans retire better, because the root of the problem which is low and stagnant wages have not been addressed. You cannot improve the quality of life of our retirees by mandating that they set aside higher and higher sums of money in their CPF Retirement Accounts. That does not solve the core of the problem at all, because if wages remain flat, then retirees will have less and less savings which they can withdraw from their CPF accounts for their own use.
(d) Payouts under the CPF Life scheme are not indexed to the inflation rate. This poses a very grave risk to retirees, because if retirees live a long life, the purchasing power of their monthly annuity payouts will be gradually eroded by inflation, which is inexorable.
(e) Payouts under the CPF Life scheme are also subject to change if mortality rates change. Again this poses a serious risk to retirees who face uncertainties as to whether their payouts will remain stable over time.
In light of the above deficiencies of the CPF system, Singaporeans must also start to question why the CPF is earning such low returns and why the government has not been forthcoming as to how exactly CPF member funds are invested.
The CPF Board uses CPF funds in member accounts to invest in a special class of government bonds called Special Singapore Government Securities (SSGS) which, like the regular SGS, are fully guaranteed by the government. SGSS are non-tradable, non-marketable, floating rate bonds that earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
Under the Protection of Reserves Framework in the Singapore Constitution, all the proceeds from both SGS and SSGS cannot be spent, and they therefore have to be invested.
However, the investment mandate, total assets held, and total returns generated by MAS, GIC, and Temasek Holdings, are not subject to public scrutiny. It is estimated that these three entities combined may hold anywhere from $600 billion to one trillion dollars worth of assets.
What is unfair about the current arrangement is that the investment returns generated by the government are not given back to Singaporeans. We earn a paltry 2.5% to 4% on our CPF accounts, but every indication has been that GIC and Temasek have earned returns far in excess of that.
We, as Singaporeans, have the right to demand that more of those investment returns accrue to us.
We must demand that more investment returns generated by GIC and Temasek be used to build up Singapore’s infrastructure, which has in recent years been heavily burdened by our rapidly expanding population. Our public transport system has been strained to the limit. Overcrowding is rife. Our roads, our shopping hubs, are all feeling the strain. We need serious investment into building public and housing infrastructure that can accommodate our greatly expanded population.
We must also demand that GIC and Temasek be more transparent about their investment mandate, and the actual level of borrowing involved in making asset purchases.
http://www.sgpolitics.net/?p=8785
