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Questions that citizens should ask about their CPF investments

By Philip Ang

The Ministry of Finance had said that the Government of Singapore Investment Corporation (GIC) cannot disclose the exact amount of assets it manages and its annual profit and loss because doing so would open Singapore to speculative attacks on Singapore currency.

GIC is a sovereign wealth fund established by the Government of Singapore in 1981 to manage Singapore's foreign reserves with oversight from the Ministry of Finance and a committee of government leaders, such as the Prime Minister, Mr Lee Hsien Loong.

Sounds reasonable till it became an entirely different issue in 2014 when Deputy Prime Minister and Finance Minister, Tharman Shanmugaratnam revealed that the Central Provident Fund (CPF) monies are not managed as a separate entity by the GIC but pooled and invested with the rest of the Government's funds.

Merging a pension fund with national reserves?

So with the CPF monies being mixed with the reserves, CPF members are unable to get public information about how their money is used and where the money is invested. When material information about our CPF investments is privy only to an inner circle of politicians, logically, something is amiss. Not to mention almost all the representatives of the people, i.e., Members of Parliament do not know where exactly the CPF investments managed by GIC are invested.

By classifying our CPF as government reserves, the government then uses our CPF according to its whims. No other country confiscates the retirement savings of citizens to be invested with the nation’s reserves in such a manner.

There is no way for a fundamentally weak currency to stay strong for long. If the Singapore dollar is fundamentally strong, why would speculators even attempt to short it?

Was the People's Action Party (PAP) government given the mandate to use our CPF to merge with the total reserves? Or did CPF members allow the use of our retirement savings to prevent the Singapore dollar from being attacked by speculators?

From its original mission of providing adequately for retirement, most of our CPF has been channeled into housing and subsequently for healthcare needs. Now, it is also needed to help prevent speculators from attacking our currency?

Therefore, The government's justification for non-disclosure of material information is … nonsense.

CPF - A fair deal offered by the government?

Using Goh Chok Tong’s state-to-citizen and parent-to-children analogy so as to put the CPF issue into perspective, we can see how this arrangement might just be questionable.

  • It is mandatory that all CPF member entrusts retirement savings to GIC = Parent makes it a rule that the child must entrust a portion of Chinese New year and birthday red packets to parent for the growth of the money and the future of the child.
  • GIC makes 6% but returns only 2.5% to 4% to members = parent invests in Singapore government bonds with higher interest rates but gives child lower savings rate.
  • The government says GIC under no obligation to disclose investments to citizen = Parent states that the child has no need to know where money is invested, just accept lower interest rates.
  • The government creams off excess returns for assuming investment ‘risks’ = parent creams off excess returns for protecting the capital while guaranteeing the lower interest rate to the child.
  • CPF member promised to have all the money returned to them at the age of 55 but subsequently extended to 65 and beyond = Parent say that the money will be returned at the age of 18 but kept beyond 18 because living expenses are getting higher in the future and extend the age of withdrawal.

When a pension fund fails to meet its intended purpose

According to ICA statistics (below), the number of Singaporeans dying between 50 and 59 years old more than doubled the citizens in the preceding age bracket. Since even more will die every year before smelling their CPF at the age of 65, why does the government sees it fit to prevent citizens from enjoying the fruits of their labour?

The 37% CPF monthly contribution has little to do with planning for our retirement, but a more likely possibility is for the government to micromanage our housing, healthcare and retirement.

Today, housing remains unaffordable, health care is a constant worry and retirement, a pipe dream for the majority of CPF members. Things are made worse by allowing CPF members to pay off the bills via their CPF savings.

When the PAP government raised total CPF contributions from 10% in 1967 to 50% in 1984, it was not bothered about the increase in business costs nor less take-home pay for Singaporeans. It just needed more money to finance infrastructure construction and GLCs and what better way than increasing CPF contribution at the stroke of a pen?

After 50 years in power, CPF has yet to accomplish its mission. Singaporeans should not be silly and continue to believe the CPF scheme exists to serve us as a pension scheme. It did but no longer does.

Most of our CPF goes into housing that is touted as a sure-win investment but is, in fact, a necessary consumption and basic need, given that all humans need a shelter.

Assuming one uses $300k CPF for housing, retires in 20 years time and sells the unit at $400k, the ‘profit’ of $100k can’t even cover the mortgage interest or inflation. The government therefore, is risking the people's pension by allowing 60% of the CPF monthly contribution to fund consumption.

How does GIC meet CPF obligations when it invest heavily in foreign assets?

Questions linger in the minds of many, whether if there is any intention of returning the citizens' CPF in full and if the government have money to pay up for the increasing monthly withdrawal by CPF members.

In order to discharge its obligations, GIC would need a constant income stream, probably from dividends, which it doesn’t have as it invested 100% of our retirement savings in foreign assets which pay low/no dividends. Therefore, GIC relies on capital appreciation in order to discharge its obligations. However, during periods of extreme market volatility, asset prices are depressed and obviously, GIC does not want to sell assets at lelong prices. So how were CPF members paid in the years when GIC was not able to make CPF interest rate returns? How many times did the government dip into our reserves to pay CPF members? How many GIC assets were sold at pasar malam prices?

CPF savings belong to individual members and CPF cannot invest OUR money as if it belonged to the government because we have different investment horizons. No one plans for retirement decades ahead by investing 100% of his savings in foreign assets.

What then is the ulterior motive of the PAP run-government? If its CPF investments are really as profitable as claimed, why the need to conceal material information pertaining to the management of our CPF? It is logical to suspect we have been told abundant CPF half-truths.

Why can't CPF be separated from the reserves?

Workers' Party Secretary General, Low Thia Khiang had asked DPM Tharman in July 2014 if the CPF money could be invested or managed separately. “He (DPM Tharman) say that the CPF money managed and invested as an independent pool, it will not be able to enjoy the same investment returns as GIC...I would like to know why is it so.” said Mr Low at the parliament.

Mr Low pointed that there is about $300 billion in the CPF funds and asked why this sum of money is not sufficient to be invested separately to provide the same or better returns.

In reply, Mr Tharman indicated that CPF money had to be pooled with the money from the government surplus as well as incumbent assets from the Singapore’s reserves to invest long term so as to achieve the high returns to CPF members. However, he never replied straight to Mr Low's question of whether $300 billion was indeed sufficient to be invested independently.

The government should be upfront on CPF issues and be transparent about the details. They should also not threaten citizens with lawsuits for stating the obvious.

Every intelligent citizen should question a government that selectively discloses information and especially on CPF. With so much secrecy over an institutionalised pension fund, Singaporeans ought to demand transparency and accountability for their CPF monies and investments.