By Leong Sze Hian
In my speech during the Central Provident Funds (CPF) Protest (Return My CPF) on 7 Jun at Speakers’ Corner,  I said that Singaporeans may be short-changed by about \$1 million because we probably pay the lowest real rate of return amongst national pension schemes in the world, historically in the last 25 years or so.
How to calculate the loss of \$1million?
Quite a number of people have asked me as to how the figures can be derived.
Difference between 3 and 6% from age 21 to 65?
So, here’s an example.
If you start work at say 21 years old with a salary of \$1,500 – increasing at 4% per annum in your salary until the age of 65 years old. At the interest rate of 3% per annum, you would have accumulated \$1,491,087 at age 65 in your CPF account.
Average overall interest rate on CPF accounts?
As there is no disclosure as to what is the average overall interest rate on all the different CPF accounts (Ordinary 2.5%, Special, Medisave and Retirement 4.0% plus an extra 1% on the first \$60,000) – we have assumed the average overall CPF interest rate of 3% in the above computation projection.
If the nominal rate of return is say 6% (the historical average real rate of return after adjusting for inflation of national pension schemes in the world is we believe about 4%) – you would have accumulated \$2,953,777.
Difference of \$1.5 million in 44 years?
So, you may in a sense, have been short-changed by \$1,462,690 (\$2,953,777 minus \$1,491,087)! And we have not even factored in the difference in the returns of 3% (6 minus 3%) from age 65 onwards until death under the CPF Life scheme which pays 4% on the Retirement Account balance plus an extra 1% interest on the first \$60,000 only (with any excess CPF that can be withdrawn but is left in the CPF earning 2.5% only).
Assumptions
Note: We have assumed a 4% increase annually in the salary because the annualised real total wage growth from 2003 to 2013 was 1.5% (MOM wage report 2013) and historical inflation in Singapore is about 2 plus % – and the Government’s target for real wage growth for the decade is 30% (2.7% per annum). Also, assuming that CPF contribution rates and ceilings may also increase in nominal terms in the future because of inflation, in line with the 4% salary increase.

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