SINGAPORE: Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam fielded questions about the Central Provident Fund (CPF) and retirement adequacy at a forum organised by the Institute of Policy Studies on Tuesday (July 22).
Questions touched on areas ranging from increasing the withdrawal amount beyond S$5,000 for CPF members who are not able to set aside the Minimum Sum after they turn 55 years old, to coping with inflation.
In response, Mr Tharman said: “You do want to provide some flexibility for withdrawal, some people incurred debts, some people have sudden needs and allowing them to withdraw some monies meets a real need, but it comes at a cost, because if you withdraw monies early, it means that the stream of income you have for the rest of your life diminishes.
And it diminishes by more than most people expect because you are losing out not just on that lump sum but the interest that you are going to accumulate in retirement. And bear in mind that the interest rate that our annuity scheme provides through CPF Life is vastly superior to most others.”
There were also questions about helping lower-income Singaporeans meet their retirement needs. Mr Tharman said that the CPF today, along with Government subsidies targeted at lower- and middle-income CPF members, provides a solid foundation for the future.
“If you take what we are doing in the Government budget, through all the enhancements we have made, it is really a different set of social policy and social support for lower-income Singaporeans, through life and in retirement compared to what we used to have,” he said.
“If you take Workfare, if you take the housing grants, if you take the support for medical needs, if you take the range of support that we are providing, if you just look at what goes through the CPF system and leave out support outside the CPF system, what it will mean is by the time today’s lower-income young family retires, the Government would have given them about $160,000 by the time they are 65.”
Blogger Roy Ngerng, who attended the forum, asked DPM Tharman several questions, including whether Temasek Holdings had managed CPF monies prior to the establishment of GIC and why GIC did not know if it was investing CPF funds. A full of transcript of their exchange follows:
Mr Ngerng: Now that we know that the CPF is invested in the GIC, is it also possible to know what is the interest earned in SG terms since inception? Secondly, Temasek Holdings has said that they do not invest our CPF, is it possible to know if in the past Temasek Holdings had invested our CPF? Because the GIC was only set up in 1981, so prior to 1981, how was the CPF used and otherwise was it invested in Temasek Holdings? Thirdly, how much has the Government earned in absolute monetary terms from the excess returns of the CPF and will the Government consider returning some of them to Singaporeans? Finally, the GIC has said before June this year that they do not know if they invest our CPF because it is not made explicit to them – they said this on the GIC FAQ. But the Government made an about-turn in June this year and admitted that they do. So in the interest of public interest, is it possibly to know why the Government made an about-turn? It might also be intriguing because the Government is also on the board of the GIC, so it would be insightful to know why. Thank you.
DPM Tharman: I’ll start with Roy Ngerng’s points. First, a few factual matters; you asked some factual questions.
Did Temasek manage the CPF funds in the past?
No. It has never managed CPF funds. Temasek started off with a set of assets which were transferred by the Government at time of inception. I don’t have the exact figure in my head – but about $400 million dollars worth of assets in the form of a set of companies. It has never received CPF monies to invest.
What was the case in the early days, before we amended the constitution in 1992, is that CPF monies, which were invested in Special Singapore Government Securities (SSGS), could be used by the Government to finance infrastructure – such as road infrastructure, Singapore’s economic infrastructure and social infrastructure. Just like (other) Singapore Government Securities (SGS), the Government was allowed to use borrowings in addition to the revenues it got in its budget, to finance infrastructural investments. That was the old system.
That changed in 1992. Together with Constitutional amendments, we introduced the new Government Securities Act, which disallowed the Government from using borrowings for spending. From then onwards, all borrowings – the SGS, SSGS – have had to be invested.
How are they invested?
Prior to the formation of the GIC, it was the MAS (Monetary Authority of Singapore). It was an old-fashioned, central bank investment system. Dr Goh (Keng Swee) changed that, explained why, explained that these are basically longer-term assets, and we should invest them for the longer term. And a significant chunk of reserves that were managed by the MAS were passed back to the Government, which then had the GIC manage them.
So that was the system in the old days; the MAS manages the CPF assets, but after the GIC was set up in the early 1980s, it was essentially the GIC that manages CPF assets – but not as CPF assets. It is managing Government assets: managing all Government assets put together.
Which brings me to the next question about whether GIC knows it is managing CPF assets.
GIC knows it is managing Government assets. That is the Government’s mandate for the GIC. The mandate is irrespective of the sources of funds it manages, which comprise the SSGS, the SGS, Government surpluses, the proceeds from land sales – all Government funds.
And the GIC (hence) pays no regard to what the source of funds is. It just has to meet its mandate: to invest for the long term, take risks, in the hope of achieving good long-term returns, significantly about global inflation.
And that is a real strength of our system. The real strength of our system is that besides the CPF, we have unencumbered Government assets – Government assets that don’t have liabilities like the CPF. And the GIC is therefore able to invest, blind to where the funds come from. It’s able to invest the whole pool of funds for the long term. If the GIC was just managing CPF funds as a CPF fund manager, it would be managed quite differently. To provide a guaranteed interest rate of four to five per cent of the Special Account, or 2.5 to 3.5 per cent of the Ordinary Account, capital guaranteed and interest rate guaranteed, it would be a very different fund that it would be managing.
It would be invested largely in bond securities, and earning returns that are very different from what it is able to earn by investing for the long term in higher-risk assets. Plus, it would mean the interest rates that the Government has committed to would be unsustainable, because it is no longer possible to earn these interest rates on a guaranteed basis, using a bond portfolio. It’s very difficult.
So the GIC manages a pool of Government assets, irrespective of sources of the funds. It is the Government that then takes the risk. The Government takes the risk that the performance of the GIC from year to year, sometimes even over five-year periods, may not be adequate for it to meet commitments to the CPF. But the Government balance sheet takes the risk to ensure that we can meet those commitments.
And that’s the strength of the system. The strength of the system is we have assets that exceed our liabilities, that enable us to meet our commitments. And that’s why we’re not just triple-A-rated, but we’re able to provide CPF members with a very fair return on a guaranteed basis.
That’s the system. For the GIC as the manager, it is blind to the sources of funds, because of our strength of having assets significantly in excess of liabilities. GIC managers do not need to know exactly where the funds come from because that’s not part of their mandate. There’s no mystery to that.
Next question had to do with excess returns.
The GIC publishes five-year, 10-year, 20-year returns. You can look at the returns, and they are easily computed into Singapore dollars. Over the last five years it earned 0.5 per cent in Singapore dollar terms, over the last 10 years it earned five per cent in Singapore dollar terms, over the last 20 years it earned five per cent in Singapore dollar terms. So those are the facts, but that’s not returns gained from investing CPF monies. That’s returns gained from investing all Government assets including the unencumbered assets; it’s returns gained from investing in higher-risk portfolios for the long term. If it was just CPF monies, it will be a different portfolio and a different set of returns.
Every serious financial professional knows that.
- Over a period of time, I have looked at the profile of a number of people who accuse the government of breaking their promise to return their CPF to them at 55. Some of them are so young they aren’t even anywhere near retirement. They weren’t even born when CPF was introduced by the British with retirement at 55 and therefore CPF returned at 55 because people generally lived up to around 62 at that time. Which makes me wonder at the cry to ‘return my CPF’.
- It’s always easier to complain than to lead. Try switching roles and all arguments will be moot. Promises on CPF returns 2 decades back cannot be compared to national conditions of today. Changes are happening fast and furious. If a government lacks the foresight to see this, or hold on to an old model that is only relevant in the past, then we will all be in trouble. Just like biz, must always innovate and adapt to survive. In order to pass solid comments , pls pls have the whole picture. If one has only a suboptimal level of knowledge derived from loose info found here or there, better keep quiet. This is only common sense . Our government is not the best, but I dare say it’s one of the best globally. Go see more of the world before coming back to complain.
- My CPF is too locked within but I see the other flip side of the coin. At least I know my money is there and I can tap into it when I’m old. Yes it may be installment paid out to me but so what? I’m not keen to take them out all one lump sum. Humans are emotional creatures with needs . With more money comes more desires and greed. It’s inevitable . A rat race so to speak. Earn more , spend more. Ask yourself when was the last time you rejected the notion of treating yourself to some good purchases when you have a pay raise? Almost none . We always have wants. In the end, whatever pay increment we have goes to that new desire. Be it a car, an installment free plan, a holiday etc. Bills accumulate and we can never get out. Thats when we have to work even harder to pay those extra bills.If I’m wrong, just look at the stats on overdue credit cards amongst Singaporeans nowadays. It’s our duty to ensure that we find ways to make our money work harder before retirement. CPF is just a fall back. If you want people to hear you, respect your views, then you must make sure you have that authority to do so, solid stats to prove a point and most importantly the ability to debate and critique meticulously. Somehow I see that lacking in the opposition of today. Don’t get me wrong, to challenge the govt is good, but when the opposition fails to deliver, its tough to get support . Whatever it is, these are my views. I respect yours too.
- Your complaint must come with a solution and the solution has to be for the well-being of Singaporeans and not your own hidden agenda.You complaint because you do not have enough money to spend. You do not have enough money to spend because you do not work hard and smart enough. You don’t work hard and smart enough because you are lazy or you are incapable.Complaining about/to the government is not going to solve your problems. You can have all your cpf money back and you still will be complaining about everything being too expensive. Your only solution will be to work harder and smarter or be less greedy.
It’s plain and simple.
You complaint only because you are incapable of getting what you want..
and that means YOU are incapable,
not the government.
- Overheard a man telling his friend tat his son is very active on fb about the CPF issue…when his friend asked him why is he so sad about it…..he reply.. his son set eyes on his CPF money for his marriage..and not his father well being..sad to hear this….
- Typical oppie tactic: To post controversial questions to cast a bad light as though as those questions were not addressed properly and strengthening such biased and erroneous perceptions, when it takes just a bit of effort to unravel the misconceptions. By the time these fools are lied to, it is already too late, their minds are poisoned.
- If l collect all CPF money at 55…..wonder wat will happen to me at 65 or 75
- Looks like there is no explanation under the sun that those people out there will accept. They simply want things to follow their own ways.
In the nutshell, what RN, HHH, their associates and supporters want is very straight forward. First, CPF fund should be managed by a bank owned by their fathers. Their fathers’ bank promises guaranteed interest. If the bank made extra profits from investments using other source of fund, the bank must share the profits with the CPF members. If the bank made losses, CPF members will still receive their guaranteed interest.
Second, CPF is their money. Let them withdraw whatever they want. In the event when the loss all the monies and at old age, it is their fathers’ responsibility to take care of them.
Their fathers own which bank ? Let’s all deposit every dollars of our savings with that bank.
不知道他们是天真, 无知, ..
- It’s sad that DPM had to waste time explaining public information to an asylum seeking societal failure who is obviously being string pulled by opposition politicians and who isn’t even interested in the facts
- Be it our cpf was Spent/Invested, I just know that irregardless of any time, any months, any weeks or any days, when even i login to my cpf. . The amount of money in my OA/sa is never reduce (unless I purchase property) I can understand ppl that’s have frustration over that min sum.. but I just can’t understand y ppl are bothering so much regarding abt the govt investment when ur money remain the same in cpf especially after explanation?
- The best thing that Roy can do is to go take a basic accounting course. From a real institution. Not the sort you pay money for.
- This the problem with some Singaporeans..
They wan to hav the freedom to make decisions for their retirement,finance,future etc.nothing wrong with tat not to hav a nanny state.
But currently some Singaporeans blame the Govt everything n anything.
Ppl blame the Govt coz too much rain.ppl blame Govt for falling trees,ppl blame Govt for haze,ppl blame Govt coz their business went bust.ppl blame Govt coz some ppl made wrong decisions with their hdb flats ending up at East Coast Park.Ppl blame Govt coz elderly r working.
Prove to the Government tat Singaporeans can plan for their retirement.then we can talk about abolishing the CPF.
- IMHO and to be brutually frank, I would consider CPF is a retirement scheme, equivalent to but with better flexibility than the conventional pension schemes of the west. Again becos of the flexibility involved and the “tie-up” to individual account, and over time, folks “demanded” on making it a “personal or my” monies. Well it is but with certain conditions attached which should prudently be adhered to. So suggest folks stop hallucinating further on this.
You may disagree with my personal take on the above, but suggest you minimize on your own “wild demands”, becos our CPF scheme is for the national good and require “balancing acts” on decisions which from time to time may not agree with individual cases.