The elusive dream of CPF returns
I refer to the article “CPF savings and the elusive dream of high returns, low risk” (Straits Times, Jan 20).
GIC vs CPF returns?
It states that “GIC’s annualised 20-year rate of return, taking into account inflation, for the year ended March 31, 2014, was an impressive 4.1 per cent. Another way of looking at it is that if you had given $100 to GIC to manage 20 years ago, your $100 would grow to about $223 today, in real terms.
By contrast, $100 left in the CPF Ordinary Account 20 years ago would grow to about $163 today.
By adding part of GIC’s returns to the OA funds, members will get higher returns.”
Comparing real to nominal returns?
Actually, according to the GIC’s latest annual report released in July 2015 – its 20 years real annualised return was 4.9 per cent (the 4.1 per cent cited in the article is for 2014).
Also, the comparison may not be very appropriate as it compares GIC’s real return in US$ against the CPF’s nominal return in S$.
Since the GIC does not give the returns in S$ – if we assume that the S$ nominal return is 5.1 per cent (6.1 per cent in US$) – then the difference would be $270 (instead of $223) against the CPF’s $163.
CPF vs EPF?
As to “Under Malaysian law, the EPF provides a base of 2.5 per cent in returns a year to funds it manages. Over the past 40 years, the lowest dividend rate has been 4.25 per cent, in 2002. In 2014, it declared a dividend of 6.75 per cent” – the EPF’s historical returns was as high as 8.5 per cent.
Also, how can “A key difference, however, is that EPF members are not shielded from market risk, unlike CPF members” – when “under Malaysian law, the EPF provides a base of 2.5 per cent in returns a year to funds it manages”?
With regard to “If one had invested RM100 in the EPF in 2005, the initial investment would have risen to RM174.30 over 10 years. In 2014, RM174.30 was worth about S$66.
How much each S’porean lost?
The Singdollar equivalent of RM100 in 2005 was $45.50. If $45.50 had been invested in Singapore’s CPF for 10 years from 2005 to 2014, it would have grown to $58.40, lower than the EPF returns” – if one had converted S$ to RM every year and then compare EPF with CPF – the difference in the lifetime of an ordinary citizen may have been a few hundred thousand dollars, and going forward about a million dollars.
In respect of “Up to 50 per cent of Net Investment Returns (NIR) of net assets managed by GIC and MAS can be used by the Government for its Budget.
For the current fiscal year, the NIR Contributions account for about $8.9 billion, or 13 per cent of the entire Budget.
Much of the investment returns pay for the increased spending on social welfare, including income support for older folk and needy families.
How much cumulative loss by S’poreans?
So the question on GIC returns is really a philosophical one. It is about whether individuals should benefit directly or whether the Government should de cide how best to channel these returns and to whom – in a sense, the cumulative “loss” (difference between the actual returns derived from CPF funds and CPF interest) to Singaporeans over the years may be about $200 billion.
Are there any countries in the world that keeps so much of the pensions’ returns of its people?
As to “The Government believes it can, through targeted subsidies and support, be more efficient in channelling the surpluses from investment returns to people and families who need more help, rather than to place the returns directly in the hands of CPF members” – the cash Budget surplus for FY2012 and FY2013 was $25 billion (each year) under IMF fiscal reporting guidelines.
Leong Sze Hian
