by Philip Ang
Have members of Singapore's Central Provident Fund (CPF) scheme been fleeced by the People's Action Party (PAP) government for decades?
A comparison between Malaysia’s Employees' Provident Fund (EPF) scheme, which closely resembles our CPF, shows some glaring differences.
– not a loan to the Malaysian government at low rates of return.
– managed by professional fund managers, not mostly former civil servants appointed by the government.
– Employers pay a higher percentage contribution than employees.
– No need to pay interest on/or return any amount used, (no penalty for usage)
– Only 30% could be used for housing, healthcare, etc.
– not used to supplement government revenue.
– not converted to government reserves.
– managed separately from real government reserves.
If CPF members have been earning similar EPF rates and a similar lower percentage allowed for housing, healthcare, etc, rest assured there would have been no CPF picnics at Hong Lim Park.
When asset prices headed for the stratosphere from 2010 to 2016, EPF members were paid commensurate higher returns ranging from 5.7% to 6.75%.
As for CPF members, rates for CPF's Ordinary Account, Special Account and Medical Account rates had remained unchanged at 2.5%, 4% and 4% respectively over the same period. In fact, it has been such since June 2001. (source)
It is insulting to be paid such low rates when senior management of CPF Board (CPFB) are paid obscene amounts in tax dollars. As if to further insult CPF members, EPF declared its highest payout of 6.9% since 1997 yesterday.
The New Straits Times writes,
"The Employees Provident Fund (EPF) today declared a dividend rate of 6.90 per cent for Simpanan Konvensional (conventional savings) 2017, with payout amounting to RM44.15 billion. The payout for conventional savings is the highest since 1997. The fund also declared a 6.40 per cent dividend for Simpanan Syariah (Syariah savings) 2017, with payout amounting to RM3.98 billion. In total, the payout for 2017 amounts to RM48.13 billion, an increase of 29.8 per cent from 2016."
While EPF members are being served – portions of EPF investment returns are not creamed off by the government – CPF members prefer to be served by allowing daylight robbery to continue.
Based on the difference of rates over the years, CPF members have lost a lot of money via their "long-term low-fixed-rate loan" to GIC for its own investments.
As an example: A CPF member with $100,000 balance would have earned $6900 (EPF rate)instead of $3500 (estimated average rate of OA, SA and MA). Over a 20 year period, the same CPF member’s balance would have increased by an additional more than $100000 (EPF rate), including interest, compared with CPF average rate of 3.5%.
Likely, majority of CPF members will regurgitate PAP propaganda on learning about EPF’s 6.9% return: CPF members are protected from global market risks. But given that any investment fund manager worth their salt, would diverse their funds into various portfolios, such risks ought not to be present. While returns might be lesser than one would expect but one will not make a loss (before accounting for inflation). EPF members did not need the Malaysian government to offer a ridiculously low rate of return to protect them from market risks.
If Malaysia – of all countries – could deliver double the pension returns of CPFB last year and consistently higher for more than 4 decades, what does it tell us about our CPF scheme?