We refer to “CPF Savings

How can I use my CPF money? What are the myths and facts surrounding our CPF savings?” (updated May 6)

It states that “Blogs such as The Heart Truths have made allegations about our CPF monies that are inaccurate or outright false. These are some of the myths they have perpetrated and the facts:

Myth 1: Singaporeans have the least adequate pension funds.

Screen shot from ‘The Heart Truths’

This is not true.

Your CPF money is your nest egg upon retirement. The uniqueness of our system is that you can also use your CPF monies to pay for housing. Many Singaporeans have indeed done so and some have fully paid for their homes by the time they retire. The homes that we own are part of our retirement assets too, allowing us to save on rent while providing us with the option to sell our homes when we need to.

When international studies on pension systems make comparisons across countries, they often ignore this fact. They paint an incomplete picture of what members have in their accounts. They do not take into account the fact that Singaporeans also have used their CPF monies to pay for their homes. 

For a more complete picture about our retirement funds adequacy, read our Factually article on this here. In fact, more recent studies published by OECD and Mercer in 2013 reflect higher income replacement rates and adequacy levels, even without considering property ownership.”

Statistics please, not rhetoric?

– Since we estimate that only about 1 in 8 Singaporeans are able to meet the CPF minimum sum at age 55 – Why not give us the statistics as to how many Singaporeans had to downgrade their HDB flats, in order to have funds for retirement? And for those who had to retain part of their sales proceeds to meet the CPF and Medisave minimum sums (currently a combined total of $198,500) – how much cash were they able to derive for their retirement needs?

“Myth 3: Singaporeans get very low interest rates for our CPF savings. Moreover, we are paying an “implicit tax” as the returns on CPF monies invested by Temasek Holdings and GIC are not given back to Singaporeans. 

Our CPF funds are invested in risk-free Special Singapore Government Securities (SSGSs). The returns on SSGSs are pegged to the returns of other bonds in the market with similar risks. There is no connection between GIC’s rate of return and the interest paid on our CPF accounts. GIC invests our foreign reserves in stocks, bonds, real estate and other assets that carry higher risks that SSGSs. The value of SSGS is assured, as they are guranteed by one of the few remaining triple-A credit-rated governments in the world. With our CPF funds being invested in SSGSs, we can be absolutely certain our funds will be there when we need them.

CPF interest rates are guaranteed and risk-free. The interest is paid whether or not the Government’s investments backing its liabilities to CPF, including investments managed by GIC, do well or not. So if GIC’s investments actually lose money, as they did during the Global Financial Crisis of 2008-09, CPF members will still get the 2.5% interest on our funds in the Ordinary Account.

Finally, apart from the CPF system, it should be remembered that we Singaporeans benefit from GIC’s and Temasek’s returns though these are not linked to the returns we get on our CPF funds. GIC’s and Temasek’s returns supplement the annual Budget through their  Net Investment Returns Contribution (NIRC), which amounted to $8.1 billion this fiscal year. This money allows our Government to make further investments for our future, such as in education, R&D, healthcare and improving our physical environment.

Aside from the return on our Ordinary Account, Singaporeans enjoy higher interest rates on their other CPF accounts-

 4% on our Special, Medisave and Retirement Accounts, and an additional 1% on their first $60,000 in all our accounts:

Source: CPFB’s website“

“CPF funds are invested”? 

– We beg to differ with the statement “Our CPF funds are invested in risk-free Special Singapore Government Securities (SSGSs)” – As it is our understanding that the Government issues non-marketable Government Securities (which are not the same as the normal Singapore Government Securities that can be traded in the market) at the same rates of interest for the respective CPF accounts. So, how can we say that ‘CPF funds are invested”?

Excess returns (implicit tax)?

These CPF funds have been available to the Government to utilise for decades. Therefore, some of these funds may have contributed either directly to or indirectly through the build-up of assets which may be eventually realised – to the historical returns of Temasek (16% per annum for 39 years)  and GIC (6.5% per annum for 20 years in US$ terms).

Lowest real pension returns in the world?

In return, studies indicate that our CPF’s real returns to members after inflation has been one of, if not the lowest in the world. (“CPF returns are the lowest in the world?“, Apr 12)

NIRC is peanuts?

As to “GIC’s and Temasek’s returns supplement the annual Budget through their  Net Investment Returns Contribution (NIRC), which amounted to $8.1 billion this fiscal year” – this may arguably be a “paltry” amount that only began in recent years, relative to the excess returns (implicit tax) on our CPF funds all these years.

Uniquely Singapore?

Are there any countries in the world that keep the excess returns on the citizens’ pension funds, and pay such low interest rates?

Overall average interest rate on all CPF accounts?

Instead of saying “Aside from the return on our Ordinary Account, Singaporeans enjoy higher interest rates on their other CPF accounts-

 4% on our Special, Medisave and Retirement Accounts, and an additional 1% on their first $60,000 in all our accounts” – Why not disclose the overall average rate of interest on all CPF accounts? – Is it only just over 3% and is it a real return after historical inflation of less than 1%?

“Talking about losing money”?

In respect of “So if GIC’s investments actually lose money, as they did during the Global Financial Crisis of 2008-09, CPF members will still get the 2.5% interest on our funds in the Ordinary Account” – Since we are talking about losing money – can we be told how much money did Temasek and GIC lose during the financial crisis, as we believe even questions in Parliament in this regard have yet to be answered until today?

“Myth 4: The Minimum Sum prevents us from using our CPF money.

This is not true. The Minimum Sum(MS) is adjusted for inflation on an annual basis for each cohort. This is necessary because the retirement income needed in real terms for someone who turns 55 in 2014 will not be the same as what would be needed for someone who turns 55 in 2024.  $100 today would be worth less than $100 in 10 years’ time.

Considering that a price of your favourite kopi or kaya toast would keep increasing due to inflation, it helps to set aside a sustainable nest egg.

The Minimum Sum exists to ensure that our nest egg is spread out comfortably to last us not just for one or two years after retirement, but throughout our golden years.

The adjustment for inflation will not affect the Minimum Sum of people who have already turned 55. Here is a table of the changes:

Source: CPFB’s website on Minimum Sum

In fact, according to MOM, the percentage of active CPF members who are able to meet their Cohort Minimum Sum has been improving over the years. For the cohort who turned 55 in 2011, 45% of active members attained their applicable Minimum Sum (in cash or cash plus property). In 2012, this statistic increased to 48.7%.”

1 in 8 met minimum sum in cash (CPF)?

– As we understand that there may be about 1 inactive CPF member for every active CPF member at age 55, and we would like to ask what percentage of the 48.7% of active members who attained their Minimum Sum were able to do so entirely with cash (not cash plus property) in 2012? Is it still about 1 in 8 as we had estimated using the 2011 data? And since its already May 2014, why are we still using the 2012 statistics? How about giving us the 2013 statistics?

With the relentless rise in the CPF and Medisave minimum sums every year (an increase of $10,000 this 1 July to $198,500) – What percentage of Singaporeans are expected to be able to meet their minimum sums entirely in cash (not cash plus property) in the future?

In summary, what we need and are asking for is transparency and accountability for our CPF.

SY Lee and Leong Sze Hian