Use GIC returns in calculating CPF OA returns

I refer to the article “Use GIC returns as component in calculating CPF OA returns: academic” (Business Times, Jan 12).

Opportunity of higher CPF rate?

It states that “But linking GIC to the CPF OA interest rate allows for a more direct channel for Singaporeans to enjoy GIC returns should it do well, she noted. “We don’t want to miss the opportunity of having a higher rate.”

Assoc Prof Chia made the suggestion at an academic symposium on social security at NUS on Tuesday.”

“Academic” questions at academic symposium on CPF? 

Were any of the following “academic” questions discussed at the “academic symposium on social security”?

• What is the historical weighted average interest rate per annum of all the different CPF accounts, namely the Ordinary, Special, Medisave and Retirement accounts?
• What is the GIC’s annualised return from its inception in S$ terms?
• Is there any other country in the world that keeps so much of the returns from the national pension fund – from the people?
• Is it true that since 1999, the CPF had the lowest real rate of return amongst all national pension schemes in the world?

If we assume the weighted average CPF interest rate to be 3.5%, and the GIC’s annualised returns from its inception to be 6.5% – it has been calculated that a Singaporean earning $1,000 at age 21 at the current 37% CPF contribution rate, and his salary increasing at 4% per annum – may have lost more than $1 million by age 65, because of the difference in the interest rate. How do Singaporeans feel about this?

The Finance Minister in a Parliamentary reply in May said that only the GIC managed CPF funds. So, why is that that in 2007, when MP Low Thia Kiang asked, “I would like to seek clarifications from the Minister. Does the GIC use money derived from CPF to invest?” –

Then Manpower Minister Ng Eng Hen said, “The answer is no”?

And also why did former prime minister Lee Kuan Yew say in 2001, when he was the chairman of GIC, said that “I want to clarify that there is no direct link between the GIC and the CPF.”. The Straits Times carried an article headlined, “GIC does not use CPF funds: SM Lee”?

Then Minister for Labour and Communications Ong Teng Cheong said in 1982 that, “CPF savings form a large portion of Singapore’s savings. These savings are used for capital formation which means the construction of new factories, installation of new plant and equipment, expansion of infrastructure such as roads,’ ports and telecommunications, the building of houses and so on”. Temasek has an annualised return of 16% per annum. Since state companies like SingTel were built with CPF funds and were transferred to Temasek – how can the Finance Minister say that “No. It (Temasek) has never managed CPF funds”?

According to the article “Singapore’s GIC Suffers $41.6 Billion Loss” (The Wall Street Journal, 30 Sep, 2009) – “Government of Singapore Investment Corp. suffered a loss of about 59 billion Singapore dollars (US$41.60 billion) in the fiscal year ended March 31, making it one of the worst years for the sovereign wealth fund since it was started in 1981, people familiar with the situation said Tuesday.

One person said GIC’s portfolio currently stands at around S$265 billion after drops in equity investments and property valuations. GIC, which doesn’t disclose the value of its portfolio or amounts of yearly gains or losses, said in its annual report that its portfolio lost more than 20% in value in the latest fiscal year.”

So, if we add Temasek’s “negative Annual Wealth Added of $68.1 billion in 2009″ to GIC’s estimated loss of $59 billion in 2008/2009 – does it mean that we may have lost about $127 billion?

To put this amount in perspective, does it mean that we may have lost more than double our total Government spending in a year (2008) or about 84 per cent of our total CPF funds then of $151.3 billion in 2008 (CPF Trends, October 2013) in just one year?

Singapore’s total sum of foreign reserves is secret. Some of the reasons given as to why Singapore’s foreign reserves cannot be transparent were:

• Singapore’s Minister of State for Finance: “You asked how much reserves we have. I’m sorry – I am not able to give you that answer. There are many, many people who are interested in how much we have. It has nothing to do with not wanting Singaporeans to know. It’s only if we go public with you, a lot of other people will know”. (March 15, 2008)
• Singapore’s finance minister: “People do want to know, there is curiosity, it is a matter of public interest. That is not sufficient reason that there is curiosity and interest that you want to disclose information” ( August 18, 2009).
• Leong Sze Hian