Parliament 2007: GIC does not invest CPF funds?

Very interesting Parliamentary debate on CPF in 2007

19 September, 2007


Mr Low Thia Khiang: Sir, I would like to seek clarifications from the Minister.  Does the Government Investment Corporation (GIC) use money derived from CPF to invest? If the answer is yes, then the next question — 

     Dr Ng Eng Hen: The answer is no. 

     Mr Low Thia Khiang: Then no question

Our comments: But it has just been revealed that our CPF funds were managed by GIC?

Mr Ong Kian Min:

I cannot understand how the Government can say it will not be responsible for providing for my retirement but I must lend the Government my retirement savings for investments and any gains earned on my money is not my money.  It is not the Government’s as well, but it is up to the Government to decide how best to use it because the Government knows best.

Sir, in calling for higher CPF returns, what I am basically asking is whether the Government would share a portion of the returns it makes with the individual CPF members from whose money the Government has invested and made money.

Ms Sylvia Lim:

Getting funds on the cheap from CPF and investing these funds wisely to get better returns to supplement our national budget has helped Singapore to build up its infrastructure, fund different social programmes and build up a fairly substantial amount of reserves over the years since independence.

The question that we should ask is whether the time has now come when we should wean the Government of cheap funds and to rely on careful management and harvesting of investment income of our present reserves to meet the future budgetary requirements. Can and should the Government do more than just to peg the returns on our CPF accounts to just long-term bond yields?

18 September, 2007


Mdm Cynthia Phua: Mr Speaker, Sir, although the Minister has said that the improved returns on the new CPF interest rate will help the people to purchase the annuity, we have just heard from the Minister that 78% of our CPF members could not meet the Minimum Sum requirement in their CPF accounts.  In fact, many Singaporeans, particularly housewives and those who are in the low-income group, do not even have the Minimum Sum in their CPF account. How are they going to purchase the annuity?

Dr Lily Neo: CPF interest rates have been nil in real terms in past years.  How viable is it for CPF investments in Government bonds to be hedged with other investment vehicles which yield higher returns and 100% capital preservation?  GIC, for example, achieved an average 8.2% per annum (in S$ terms) or 9.5% per annum (in US$ terms) returns on its reserves over the last 25 years.  In this regard, could the CPF Board consider working with GIC and perhaps peg the interest rates at 2 percentage points below GIC’s returns?

Mr Siew Kum Hong: The 2002 paper (Asian Development bank) I referred to said:

“This arrangement has not provided members with high enough real returns to capture the power of compound interest.  To the extent the Government earns a higher rate of return on the CPF funds than what it pays to members, there is an implicit tax on CPF wealth.  This tax is likely to be fairly large and regressive, as low-income members are likely to have most of their non-housing wealth in the form of CPF balances.”

That paper went on to state:

“To the extent that the [GIC‘s] return on investments has been higher than the return actually credited to CPF members, a recurrent, highly regressive, large implicit tax on the CPF wealth has been borne by CPF members.”

Madam, how much has this contributed to the situation in which we now find ourselves, with an ageing population with insufficient retirement savings?  And if we do not rectify this, are we not perpetuating this undesirable state of affairs?

S Y Lee and Leong Sze Hian

P.S. Come with your family and friends to the 3rd Return Our CPF – HDB protest on 23 August 4 pm to 6.30 pm at Speakers’ Corner



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.