CPF: How it ‘really’ works?


June 10, 2014

CPF: How it ‘really’ works?

ST infograph on CPF

By SY Lee and Leong Sze Hian

We refer to the infographics (above) on “CPF: How it works” published in Business Times.

More questions?

This latest information may raise some more questions about our Central Provident Funds (CPF).

Why did it take so long to tell us?

Since we now know that CPF is managed by the Singapore sovereign wealth fund, GIC – Why did it take so many decades to disclose this, despite questions over the years, including in Parliament?

What was the annualised return?

So, what was the GIC’s annualised returns in S$ terms, since its inception?

Who is “really” bearing the risk?

As to the Government bearing all the investment risk – are there any national pension funds that operate on such a rationale – not returning the actual excess returns to its citizens?

IE. even if for a particular year where the investment returns are above projected figures at 6%, citizens will still receive 2.5% for that year. Even after deduction of the expenses of managing the funds, the loading expenses should not have come to such an amount.

Linking pension rates to bank deposits?

Are there any countries which peg or link their long term pension interest rates to short term bank deposit rates?

Average overall rate of return on CPF accounts?

Instead of telling us that the Ordinary Account (OA) pays 2.5%, the Special Account (SA), Retirement Account (RA) and Medisave pays 4%, plus an extra 1% on the first $60,000 – Why not give the average overall rate of interest paid in a year on all the types of CPF accounts totalling $260 billion? Is it about 3%?

For the confused, say there are 5 account holders. Each with different amount of CPF funds in their account after 20 years of employment. The below table shows the interest rate earned by them in the respective accounts in their CPF.

interest rate for CPF

The extra 1% on the first $60,000 is credited to the MA, SA and the interest of the first $20,000 of the OA credited to SA. Above figures assume that the individual do not draw funds out for housing or medical fees. Update – Correction to the figures to the table

What was the average overall rate of interest on a year-to-year basis, for the last 25 years or so?

How much has Singaporeans been short-changed?

How much in total has Singaporeans lost, in a sense, if we had received the actual historical returns of the GIC, instead of what is probably the lowest real rate of return of all national pension funds in the world, over the last 25 years or so? (“Leong Sze Hian’s speech at CPF protest: Loss of $1 million by CPF account holders“, theonlinecitizen , Jun 9)

How many inactive CPF members at age 55?

With 1.88 million out of 3.53 million CPF members being active members – How many inactive CPF members were there who turned age 55 last year.

How many met the Minimum Sums in cash?

In this connection, with close to half of the active CPF members meeting the Minimum Sum including the property pledge – Is the number of all Singaporeans at age 55 who were able to meet the CPF Minimum Sum of $155,000 and the Medisave Minimum Sum of $43,500 – a combined total of $198,500, entirely in cash from their CPF, in 2013, only about 1 in 8?


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.