We refer to “Realistic ways to raise CPF returns” by Benedict Koh (Straits Times, May 30).
CPFIS: 82% did not make profits in excess of the OA interest rate?
It states that “So far, those CPF members who have risked their savings have not done very well. Almost half of CPFIS-OA investors (47 per cent) incurred losses on their investments between 2004 and 2013, while 35 per cent obtained net profits equal to or less than the default OA rate of 2.5 per cent. Only 18 per cent made net profits in excess of the OA interest rate.
Only 12 and 20% invested their OA and SA?
While the CPFIS is open to all members, the 2008 study found that only 12 per cent of Ordinary Account (OA) savings and 20 per cent of Special Account (SA) savings were committed to investment. These statistics indicate that the participation rate in CPFIS is low.”
The CPF system is a failure?
– What do the above statistics mean for Singaporeans? That our CPF system is a failure because most of those who followed the CPF approved investment schemes as well as those who left their CPF in their accounts, received what is probably the lowest real rate of return amongst national pension funds in the world, historically?
Only 1 in 8 met Minimum Sum?
As to “There have been gripes in social media recently about the inadequacy of CPF’s compulsory savings scheme. From 2005 to 2012, the percentage of CPF members attaining the required minimum sum for old age ranged from 33.8 per cent to 48.7 per cent. In other words, less than half of CPF members have the minimum sum
– the 48.7% refers to only active CPF members who met the Minimum Sum including the property pledge. It has been estimated that only about 1 in 8 who reached age 55 were able to meet the combined CPF and Medisave Minimum Sums (currently $198,500) entirely in cash from their CPF accounts.
“Constructive politics” vs “constructive outcomes”?
When the outcomes of our CPF system is so pathetic from the perspective of returns as well as the percentage who are able to meet the Minimum Sums – the irrefutable conclusion may only be that our so called “constructive politics” have not given Singaporeans “constructive outcomes” that matter to our lives.
So enlightening!
The following extract from the above article may arguably be the most illuminating enlightenment published by the Straits Times so far this year:
“Irrational to expect both low risk and high returns –
As the Government has been generating budget surpluses over the years, it is assumed by detractors that CPF funds end up with GIC and Temasek which then “exploit” Singaporeans by paying them meagre interest while earning higher returns.
Those who espouse such views clearly do not understand the basics of finance and how financial intermediation works.
CPF members’ savings in the Ordinary Account (OA) and Special Account (SA) are akin to deposits in banks.
Depositors who leave their savings in banks do not demand high returns. Instead, they are willing to settle for very low interest in exchange for security.
They cannot demand the returns earned by banks because they are not the ones putting capital at risk.”
Note: The writer (Benedict Koh) is professor of finance at the Singapore Management University.
SY Lee and Leong Sze Hian
