Eureka! The returns on our CPF was … ?

CPF funds managed by GIC?

For the first time in our history, we recently disclosed that CPF funds were managed by GIC.

9.5% return for 25 years?

This is arguably the second major disclosure in history, after the first revelation in 2006, that the GIC had annualised returns of 9 5% in the 25 years to 2006.

GIC not sure whether it managed CPF funds?

In this connection, Leong Sze Hian wrote an article on 27 December 2013, about even the GIC saying that it did not know whether it was managing CPF funds.

– “According to the GIC’s web site:

FAQ Popular

5. Does GIC invest CPF monies?

The short answer is that GIC manages the Government’s reserves, but as to how the funds from CPF monies flow into reserves which could then be managed by either MAS, GIC or Temasek, this is not made explicit to us. What we do know from public sources: Singaporeans’ CPF funds are invested in bonds called Special Singapore Government Securities (SSGS) which are fully guaranteed by the Government. These are non-marketable floating rate bonds issued specifically to the CPF Board. These bonds earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive. Under the Protection of Reserves Framework in the Singapore Constitution of the Republic of Singapore, the Singapore Government cannot spend any monies raised from Government borrowings. All the proceeds from the Government’s borrowing are therefore invested.”

Even GIC doesn’t know?

So, what does the above mean?

That the GIC itself does not even know whether it has gotten CPF funds?”

Temasek 16%, GIC?

So, since we know that Temasek had annualised returns from inception of 16% for the last 39 years – why is it that we still do not have any transparency as to what was the GIC’s returns in S$?

Well, let’s try to estimate the returns from the information that is publicly available.

6.5% for 20 years in US$

According to GIC’s annual report, its annualised returns for the past 20 years was 6.5% in US$ terms.

In S$, we estimate the returns to be about 5%.

Historical returns over 6%?

As it was 9.5% for the past 25 years until 2006 – we estimate the returns from inception to be about over 6%.

Similar to other national pension funds?

Co incidentally enough, this seems to be quite close to the average annual returns of most national pension funds in the world in history – about 6% nominal or 4% real returns (after adjusting for inflation).

The fundamental difference between our CPF and other national pension schemes may be that whilst others get the full returns – Singaporeans only get an estimated average overall rate of about 3+ % on all the CPF accounts.

Lowest pension fund return in the world?

Since inflation for the last decade, from 2003 to 2013 was about 2.7% per annum – we estimate the real return on our CPF to be less than 1% based on the interest rates paid in the CPF accounts.
This makes our returns, to be possibly the lowest of all national pension schemes in the world.

Each Singaporean may lose $1.5m?

The bottom line – each Singaporean may have lost more than $1.5 million in their CPF throughout their working lives and retirement years till death.

S Y Lee and 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.