CPF’s low %: S’poreans lost $147b cumulatively?


Is our CPF the highest “implicit tax” in the history of the world? 

I refer to the article “Taxing CPF, SRS savings could raise $1b” (Straits Times, Jan 12).

It states that “Prime Minister Lee Hsien Loong and Finance Minister Heng Swee Keat have warned that the Government needs to raise revenue to fund increasing social expenditure.

Actually, this begs the question of whether the Government should fund the expenditure from financial reserves accumulated by past governments or by raising taxes from earners today.

Both options involve real costs. Society must pay today or in the future. But leaving aside this issue for another day and assuming that the preference is to raise tax revenue today, let’s consider how additional revenue should be raised.

Our second suggestion is: Rescind the tax relief on contributions to the Central Provident Fund (CPF). CPF contributions up to specified limits are exempt from income tax, and the returns on CPF investments accumulate tax-free.

Again, like the SRS, this sounds helpful for retirement. But there is a cost – in foregone revenue to the Government.”

Difference between CPF % and CPF returns?
Whilst there may be many different issues relating to our CPF, perhaps the most significant one may be how much Singaporeans have in a sense, lost due to the difference between the returns derived from CPF funds and the interest paid on CPF accounts?
Transparency and accountability on CPF?
Of course, if the Government is transparent – it should disclose the historical yearly returns of say the GIC, yearly weighted average CPF interest rate on all the CPF accounts, yearly total cumulative CPF balance, yearly net surplus of annual CPF contributions less withdrawals, etc.
“Cumulative loss” of Singaporeans’ CPF?
From the above data, we can try to estimate and derive what is, in a sense – the “cumulative loss” of Singaporeans’ CPF since the inception of the scheme. It would be even better if the Government computes the figure. Let’s attempt to estimate this amount.
$8.8b excess returns in 1 year?
The excess returns of the GIC over the CPF interest in just one year is estimated to be more than $8.8 billion, on the current CPF balance of about $353 billion as of September 2017 (2.5% x $353 billion).

Since we know that the current CPF balance is $353 billion – let’s make some assumptions…. historical annualised returns of GIC – 6.0 per cent… historical weighted average CPF interest rate – 3.5 per cent… start date of 1981 – the year GIC was formed

… historical annual increase in net CPF contributions less withdrawals – 4 per cent

Difference between 3.5 and 6.0% is about $180b?

From the above, computing the CPF balance now assuming 6.0 instead of 3.5 per cent, is estimated to be about $500 billion.

Does this mean that the “cumulative loss” of Singaporeans’ CPF may be about $147 billion ($500 billion at 6.0% – $353 billion balance now)?

And what about the loss to Singaporeans, from now into the future – as long as the CPF interest rates are much less than the actual returns derived from our CPF funds?


The above may be an underestimate as Temasek started in 1974 (not the 1981 used in the computation), and also the CPF interest rates and returns derived from CPF funds in the early years, may have been higher than the assumed 2.5 per cent differential between 3.5 and 6.0 per cent.

Any Govt keeps pension fund returns?

Are there any national pension funds in the world that keeps so much of the returns derived from its citizens?

Lowest real rate of return in the world?
Is our real interest rate on the Ordinary Account the lowest in the world since 1999 – when it had remained at just 2.5 per cent till now?
According to Phillip Ang – CPF interest rates were generally below the rate of inflation from 1972 to 1981 – “In 1982, Minister Toh Chin Chye confirmed that our CPF was used for “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.”
On a cumulative simple interest basis, it was 63.5 per cent (CPF interest) against 65.4 per cent (inflation) during this period.On a cumulative compound interest basis. it was 85.1 per cent (CPF interest) against 98.5 per cent (inflation).
The mother of all our problems?
In the final analysis – is the “cumulative loss” of Singaporeans’ CPF – arguably, the mother of most of our problems today?

In this connection – I agree with the remarks “listed three things that leaders must do to build trust with their people.First is to be upfront and help people understand the issues at stake and the trade-offs involved in policy considerations.

Second, they must keep finding new ways to communicate with people, especially in an age when “inaccurate or misleading information can ‘go viral’, possibly clouding a person’s view on an issue”.

Third, they must be accountable and responsible, he said, adding: “That means making good on our promises. And when there are problems, we work hard to put things right immediately.”” (“Leaders must be upfront with people, says Minister Chan Chun Sing“, The New Paper, Jan 12).

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.