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CPF changes methodology to measure CPF investment made by members but how transparent is the measurement?

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The CPF board has just changed the methodology it uses to measure performance of members’ investments made through Ordinary Account savings so as to have a more rounded view of how they are performing.

Besides excluding members with no investments in CPFIS, the new formula assesses not only the realised profits and losses of investments that were sold, but also the unrealised profits and losses that members held during the reporting period.

In the Straits Times report on this matter, it wrote,

“To reflect longer-term performance, the board is providing the cumulative profits or losses over time.

Previously, the annual report on the performance of the CPFIS-Ordinary Account captured only realised profits or losses and included all members with a CPF investment account, even if they had no investments.

Over the two financial years from Oct 1, 2014, to Sept 30 last year, about 293,000 members made cumulative total profits in excess of the CPF-Ordinary Account interest rate of 2.5 per cent per annum.

About 128,000 members made cumulative total profits equal to or less than the CPF-Ordinary Account interest rate. The remaining 172,000 members made cumulative total losses.”


It is interesting to see ST reporting that “about 128,000 members made cumulative total profits equal to or less than the CPF-Ordinary Account interest rate. The remaining 172,000 members made cumulative total losses.” because this figure is based merely on two years of statistics and not over a longer span of time. While ST cannot be faulted for the figures because it is what CPF released, but it should have known better to painting a narrative that is tainted by the lack of figures.

In response to ST report, Leong Sze Hian wrote,

Since the return from 30 September 2014 to 30 September 2016 for the MSCI ACWI Index (All Countries World Index) (equities) and the Citi World Government Bond Index (WGBI) (bonds) was about 1.5 and 4.7 per cent, respectively – a typical globally diversified portfolio of 60% equities and 40% bonds may have returned about 2.8 per cent or about 1.4 per cent per annum in the two years.

So, why is it that 29 per cent or 172,000 members who invested their CPF had losses?

Similarly, since the return from 30 September 2015 to 30 September 2016 for the MSCI ACWI Index and the Citi WGBI was about 9.6 and 12.6 per cent, respectively – a typical globally diversified portfolio of 60% equities and 40% bonds may have returned about 10.8 per cent (per annum) in the one year.

So, why is it that 12 per cent or 66,000 members who invested their CPF had losses, and 10% or 20,000 had profits less than or equal to the CPF benchmark interest (Ordinary Account) of 2.5 per cent?

Chris Kuan, a regular commentator on finance, wrote on his Facebook page,

“Statistics, damned lies and statistics. But in this case, the damned lies were about Singaporeans being lousy in investing their allowable CPF and this was due to cock-up, non-standard reporting by CPF in regards to performance of members who invested under CPFIS. I mean who the fark measures investment performance on realized profit and loss alone.

By moving to the standard, sensible measurement of realized and unrealized profit and loss cumulative over time and over changes in net asset value which accounts for movements of funds in and out of CPFIS, the stats shows 78% of members beat the Ordinary Account rate of 2.5%. Definitely, not so damned investment illiterate as the old CPF stats imply. Is there an ulterior motive? The former non-standard stats do have the effect of discouraging members from using the CPFIS by showing poor performance – less funds moving out of the Ordinary Account into CPFIS means more CPF funds available for the CPFB to buy government bonds which in turn means an increase in financial assets invested by the government (through GIC). Sneaky!”

Under industry standards, no one reports simply realised profit because with human nature, people sell when they start losing money because they are scared, while those who are making money will keep their funds in the account and sit on the accumulated value.

ST’s report stating, “To reflect longer-term performance, the board is providing the cumulative profits or losses over time” is misrepresenting the story. If CPF is providing cumulative profits, then it should have provided years before 2015 and not just 2015 and 2016, which Mr Leong have stated to be low in returns.

When CPFIS started in 1994, it announced realised profits for accumulative 5 years and 10 years but at the 11th year, CPF stopped reporting the figures. According to industry watchers, the profits by the individual were said to be better than the CPF returns which would make CPF’s 2.5% returns look really bad.

The same methodology used to calculate for 2015 and 2016, can be used to calculate the returns by CPF members over the past 22 years of CPFIS with a press of a button. So if CPF board wants to give a transparent view on how well its returns are better than those by individuals, it should show the accumulative figures over 1,3,5,10,15 years and onwards for realised and unrealised profits by individuals who choose to invest using the CPFIS.

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