No reason to doubt CPF’s intentions

Source: The Business Times © Singapore Press Holdings Limited.    Author: Christopher Tan     11/6/2014

Source Link : No reason to doubt CPF’s intentions

Excerpt :

I KNOW for a fact that many of us do not really understand our CPF (Central Provident Fund) well. To many, it is just one of the many ways our government “hoards” our assets. Over the past two weeks, online postings and discussions have brought this mistrust to a higher level.

To understand the CPF, we must understand that its primary purpose is to help us meet our basic retirement needs. It is on this premise that the scheme was built upon and it is from this perspective that we must look from. All other uses of CPF monies are meant to support this purpose. Therefore, rules are set such that if you use your CPF monies for housing, children’s education, insurance, paying medical expenses and investments, they must either help you in your retirement or not affect your retirement.

Excerpt :

For this purpose, the CPF Board was started on July 1, 1955. Life was hard then and the government at that time feared that our forefathers might not have the knowledge and ability to save for their retirement. CPF became a form of forced savings for them. When Singapore was forced to leave Malaysia and became independent in 1965, we were struggling to survive and many needs arose. The government implemented schemes to meet those needs, such as Public Housing (1968), Medisave (1984), the Minimum Sum (1987), Medishield (1990), CPF Investment (1997) and CPF Life (2008), while keeping the primary purpose of the CPF in mind.

Excerpt :

Minimum Sum Scheme (MSS, 1987)

Each year, at the end of the Chinese New Year season, my children always excitedly count how much money they have collected in their angpows (red packets) and plan for the things they want to buy. This is when my wife steps in, takes a portion of the money and “force saves” it on the children’s behalf, in their bank accounts. The children are left with some money to spend, usually on unnecessary things. Are they happy? Never. But we know that they will grow up seeing a pretty decent sum in their account, and knowing that their parents always have their welfare in mind.

Excerpt :

The hottest debate now

Allow me to share with you a parable. Two men, Peter and John, struck an agreement with each other. Peter will lend to John $100,000 on the understanding that John will pay Peter a guaranteed 4 per cent per annum with no risk of losing the capital. The deal was done and John took the $100,000 he borrowed from Peter and invested it.

At the end of the year, John made 7 per cent from his own investments and as agreed, paid Peter 4 per cent. Peter became angry with John and insisted that John pay him more, since he had made more with his money. Although this was not the original agreement, John was prepared to change the agreement, but told Peter that in the same way, if he loses money in his investments, in the future, Peter must be prepared to get lesser than 4 per cent or even suffer a capital loss. Peter was very angry. He scolded John for not being trustworthy as getting a guaranteed 4 per cent per annum with no capital loss was what they had agreed on.

By now, you will understand that I am referring to the interest rates we are getting from our CPF accounts. Our CPF is invested into special issues of Singapore Government Securities (SGS) – otherwise known as Singapore Government Bonds – as they are rated AAA and deemed very safe. These bonds are issued specifically to the Board to meet its interest and other obligations.

Excerpt :

By investing it in Special SGS, we are effectively lending our monies to the Singapore government for a guaranteed 2.5 per cent per annum to 4 per cent per annum with very low risk. If the monies are subsequently invested by our government and reaped higher returns, I do not think it is fair for us to demand a higher return for our CPF monies because we cannot ask for a higher return without taking on higher risk.

Source Link : No reason to doubt CPF’s intentions

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