Misconceptions on the CPF, the Minimum Sum Scheme, and the state of our national reserves are worrying


   Lee Hsien Loong

There has been a lot of discussion about the CPF scheme. Unfortunately, some of the stuff online is inaccurate and confusing. Minister Tan Chuan-Jin announced in Parliament yesterday that the government will introduce a new one-on-one retirement planning service later this year. This will help CPF members understand the system and make better use of their CPF savings.

Came across this article by Mano Sabnani, the former Business Times editor, on misconceptions and facts about CPF. More information on CPF can be found here too.

link -> CPF Overview



Misconceptions on the CPF, the Minimum Sum Scheme, and the state of our national reserves are worrying…


You know, I have been thinking long and hard. And it disturbs me. There is so much misunderstanding and/or misinformation about our Central Provident Fund or CPF; whether the monies are safe; why CPF does not pay higher interest rates; why the government wants the Minimum Sum Scheme and have CPF monies actually been lost by the GIC or Temasek Holdings, the two state-owned investment entities.

Well, I don’t have any special inside information on GIC or Temasek or the CPF. But from memory alone and years as a journalist covering some of these issues, I can say things are not as bad as they are made out to be. Our citizens deserve better, and that includes those who rely only on the internet for their information needs.

So here goes. A few pointers and hard facts. Hand on heart, I think these are largely correct. And this is not a defence of any entitity or the government. Just facts!

1. CPF monies are in safe hands; no risk of loss. Interest rate paid by CPF is above market rates for FDs or fixed deposits. Go check it out. The CPF interest rate is an outlier i.e unusually high for a zero-risk investment. As high as 5 per cent on the first $60,000 for some people

2. The Minimum Sum Scheme is an essential one. It should be made more flexible as planned but it should not be abandoned. The original purpose of CPF was to provide some income in old age and that is what MSS does.The withdrawal age has been pushed back for good reasons overall: Singaporeans are living longer and so total withdrawal at 55 years is unrealistic. Also vast sums of CPF money have been invested in property, and having the effect of reducing cash balances meant for retirement. Some liquidity for retirement needs has to be ensured via MSS

3. There are those who say the CPF vaults are empty and that is why the payments back to citizens are being delayed. This empty vault scare is total nonsense
Our reserves per capita are one of the highest in the world.. with GIC, Temasek and the statutory boards all holding sizeable sums. Sums that have grown over the years

4. Some online commentators, with due respect, don’t understand how things work. CPF basically only buys special government bonds or securities, the proceeds of which are passed on to MAS and GIC for management. Its income is assured by returns on the special govt securities that it holds.

CPF does not invest directly in the GIC portfolio orTemasek portfolio. Why? It would be too risky to do so. But the corollary of that is that CPF cannot benefit from any windfall gains made by GIC or Temasek in certain years.

5. Another fact: our currency has been strong all these years because our foreign debt is low and reserves high, with relatively low inflation to boot. Singapore govt debt, while seemingly high, is largely domestic debt. It arises mainly because of the CPF scheme to ensure forced savings for all citizens.

It’s not that the government wants to hold our money or needs it. Govt is simply CUSTODIAN of our CPF savings.

6 Another fact: GIC and Temasek have done relatively well over the longer term in investments. Yes; they lost money in some investments. But overall, over many years, tbey have been doing all right. Our national reserves are now probably in excess of $600 billion on a conservative, net of debt, basis

GIC could be more transparent?: I agree. That would silence its critics. But they have their reasons. Allowing citizens to know what exactly they hold and values arising could expose the country and its reserves to unnecessary scrutiny by hedge funds and other international market players. Better to be discreet; it is part of total defence!

7.The CPF Life insurance scheme is a good one. It stretches your Minimum Sum to ensure you receive monthly payouts ALL YOUR LIFE in return for relatively low premiums. All of us should take up that option. for our own sake!

Well, you have it. The basic facts. I’m sure there will be many views. Do comment with your own perspectives.

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