Chile’s pension scheme?


I refer to the article “‘Singaporeans don’t realise what a good deal the CPF is’” (Sunday Times, Aug 29).

It states that “The Central Provident Fund (CPF) system has its share of detractors among Singaporeans but, overseas, it attracts a lot of positive attention.

CPF savings currently accumulate interest of between 2.5 and 6 per cent, including additional interest on lower balances as well as for older members.

There is a legislated minimum interest of 2.5 per cent per year on Ordinary Account savings”.

On the day before (Aug 27) – according to the article “Chile’s pensions – The perils of not saving – A pioneering system, now in need of reform” (The Economist) – “PALLBEARERS bearing coffins scrawled with the legend “No+AFP” joined tens of thousands of Chileans in Santiago on August 21st to protest against the country’s privatised pension system. Organisers—a mix of unions, pensioners’ associations and consumer-advocacy groups—say that a million demonstrated nationwide (perhaps an exaggeration).

The scheme they revile, launched by the dictatorship of Augusto Pinochet 35 years ago, was a model for other developing countries such as Peru and Colombia. Rather than saddle the government with an unaffordable pay-as-you-go system, in which today’s taxpayers support today’s pensioners even as the population ages, Chile created one in which workers save for their own retirement by paying 10% of their earnings into individual accounts. These are managed by private administrators (AFPs).

The system has generated high returns for pensioners, averaging 8.6% a year between 1981 and 2013. But the AFPs’ high fees have bitten a huge chunk out of those returns, reducing them to 3-5.4%.

A new state-owned AFP will provide more competition to private ones. Hidden charges will be eliminated.”

In the Singapore context – what is the difference between the CPF’s historical interest rates and the returns derived from CPF funds?

Leong Sze Hian


About the Author

Leong Sze Hian has served as president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), invited to speak more than 200 times in over 30 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of Indonesia and Brunei. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.