HDB is biggest problem: Wait till you look at CPF?

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The HDB 99-year lease is the mother of our problems – what about CPF?

I refer to the article “Australian pensions: Not so super” (The Economist, Aug 18).

It states that “In 1992 he made it compulsory for employers to set aside 3% of all but the very lowest-income workers’ wages. The payment has since crept up to 9.5%, and, by law, will rise further in 2021.

In 2014 the Grattan Institute, a think-tank, calculated that fees were more than three times the median for the OECD, a group of mostly rich countries. Administration fees have been falling, yet funds still cream off A$30bn annually, not far off what the country spends on defence.”

As to “With assets of about A$2.6trn ($1.9trn)” – does it mean that the administration fees are about 1.15% (A$30 billion divided by A$2.6 trillion)?

In this connection, since the excess of the annualised returns derived from our CPF funds, over the estimated weighted average interest rate of 3.5% on all CPF accounts, is estimated to be about 2.5% (6% GIC returns from its inception – 3.5%) – does it mean that in a sense, our ‘administration fees’ (returns kept by the Government) is more than double Australia’s (2.5% divided by 1.15%)?

According to the article “The not-so-super news about super” (Sydney Morning Herald, Jun 4) – “It’s costing Australians billions of dollars a year in poor returns and undue fees. At the individual level, the gouging and mismanagement means many are receiving final balances hundreds of thousands of dollars less than they should. The report says the average worker could be more than $400,000 better off by the time they retire if given the option to join one of the top 10 performing funds”.

Difference between CPF % and CPF returns?
In this connection, 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.
$9.4b 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 $9.4 billion, on the current CPF balance of about $376.6 billion as of June 2018 (2.5% x $376.6 billion).

Since we know that the current CPF balance is $376.6 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 $123b?

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 $123.4 billion ($500 billion at 6.0% – $376.6 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, among all national pension funds,  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 respect of “It should go without saying that members’ interests must be the primary concern of superannuation funds. But a landmark report by the leading independent policy adviser to the federal government, the Productivity Commission, forensically demonstrates this fundamental duty is being downgraded” – by the same token, is our CPF system in tune with “members’ interests must be the primary concern of superannuation funds” and “this fundamental duty is being downgraded”?
Leong Sze Hian


About the Author

Leong Sze Hian has served as the 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), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.