MPs offer ideas to improve CPF

[Drizzt]

Should CPF policy be individualized? May be too difficult, if not impossible technically? How to access the able and unable? Hm...

Yes, it can be! With current IT systems, it should be a cinch. I can think of several ways, e.g.

1. Total balance > minimum sum in OA and MA.
2. At least minimum sum in SA.
3. Investment Returns > 100k
4. etc.

Do you realise that current CPF rules punish successful investors while rewarding poor investors?

I think the idea of letting one invest OA in stock for excesses of SA + OA > MS makes sense.

The current CPFIS rules is based on simple regross % maths, which is why it have such abnormality of "punishing" successful investors. Basing on nominal amount could be better way of managing it (include or exclude Housing amount?)

But like I posted earlier, track record of CPF investors in aggregate is not fantastic to be able to argue against a 2.5% fixed return.

the returns of the cpf oa is not low. its a risk free return that is as a short duration bond. if the government stick to that we should be getting less than 0.5%. but they were generous to stick with 2.5%

same as sa. they peg it to the 10 year sgs bond rate. we should be getting 2.9%

I wouldnt think its totally risk free return. The guarantor is the gov itself, but who guarantee the gov? Imagine u goto a bank and the banker tell u this investment product is guaranteed by the bank itself, and boast how big stable the bank is, u should not believe the marketing gimmick.

If this is a ponzi scheme, where every year money is input more than the output (small amount given to those >65yrs), it w "seem" that the cash flow is always positive. But nobody know wat is happening inside the black box, and its potential danger.

The bank doesn't print money. The government does. It is risk free if we do not include purchasing power considerations.

Thats why for every national policy implementation, as long as the majority benefit, we should proceed. Kudos to the government for having the guts to do that.

Unfortunately, not everyone think this way. Most of them will ask "Whats in store for me?" and "How does it benefit me?".

National policy cannot be customised to every whim and fancy. Monetary cost is too high and operationally its not feasible. Besides, this is not the direction we (SG nation) as a whole should take.

Can you imagine the government asking each and everyone what they want in every national policy?

Agree. People often confused between aggregate benefit and individual benefit

Republic means the people elect a representative to represent them in policy making. Hence even before going to policy making the representative also has to weigh the opinions in his own constituency and select which opinion makes most sense ie filter. Idea that every opinion/ voice will be addressed is impossible.

the treasury bill is considered a risk free rate, but its not essentially inflation protected

[Drizzt]

Just to share that the Singapore Ministry of Defence did at one point try to introduce a scheme more akin to Malaysia's EPF then to Singapore CPF. As to be expected, when the market went down, complaints went up. An extract from the Statement By Minister For Defence At 2004 Budget Debate (see http://www.defense-aerospace.com/article...16%29.html) is as follows:

"Retirement and SAVER Scheme

Sir,

Dr Ong Chit Chung has asked about the SAVER scheme. . .

In 1998, MINDEF implemented a 23-year career for our officers. . .

To support this new career structure, MINDEF introduced the SAVER scheme. This scheme offers our officers accelerated career advancement and a very good salary and benefits package. A key feature of SAVER is a generous superannuation scheme to support their transition to a civilian career when they leave the SAF. This is designed such that an SAF officer in his 23-year career would earn close to 75% of what his private sector counterpart would earn in a 40-year career. Since its inception, the SAVER scheme has met its objectives of improved recruitment and retention of officers and timely leadership renewal.

. . .

Dr Ong has also referred to some complaints by retired officers that they did not get good returns from the SAVER scheme. Now, let me explain. The SAVER fund is no different from other pension funds, it's invested and we have explained to our officers that they should take the long-term view. In fact the returns are slightly higher than the benchmark which the fund compares itself to. SAVER benefits are invested with a view to giving good returns over the long term, based on a strategy of balanced asset allocation. There may however be a few years when the performance of the fund is negative, and there may be a small minority who leave the SAF at that point where the returns are negative. The performance of the fund as I've said so far, have been better than our benchmark, and better than numerous established pension funds in the market. Our officers also have the option. They can move their retirement benefits into a more conservative portfolio two years before their retirement, depending on their risk appetite. But of course if they do that and if the investment makes exceptional gains in those two years, then they will not benefit from those exceptional gains. But those are the risk-return benefits. However, having now run the fund for about six years, MINDEF is reviewing the fund structure to fine-tune it to see whether there are better options, more options, that can be developed to meet the needs of the fund members at the various points of their careers."

So my take is that no system is perfect.

Cheers!

thanks for sharing.

[cywong76]

the returns of the cpf oa is not low. its a risk free return that is as a short duration bond. if the government stick to that we should be getting less than 0.5%. but they were generous to stick with 2.5%

same as sa. they peg it to the 10 year sgs bond rate. we should be getting 2.9%

Why should it be pegged to a short duration bond? CPF OA money will stay inside there for decades.

The duration for the SA is even longer as most of the money will be transferred to RA upon 55 years old. Shouldn't it be pegged against 30 years bond rate?

[Drizzt]

the returns of the cpf oa is not low. its a risk free return that is as a short duration bond. if the government stick to that we should be getting less than 0.5%. but they were generous to stick with 2.5%

same as sa. they peg it to the 10 year sgs bond rate. we should be getting 2.9%

Why should it be pegged to a short duration bond? CPF OA money will stay inside there for decades.

The duration for the SA is even longer as most of the money will be transferred to RA upon 55 years old. Shouldn't it be pegged against 30 years bond rate?

wrong in my description. but if you view the benchmark, they meant it to be savings rather than something that grows

From 1 Mar 1986 to 30 June 1999, the formula to compute the calculated rate is 50% fixed deposit rate and 50% savings rate of the average of the big 4 local banks over the preceding relevant 6 months.

From 1 July 1999 to present, the formula to compute the calculated rate is 80% fixed deposit rate and 20% savings rate of the average of the major local banks over the preceding relevant 3 months.

From 1 Jan 2008, savings in the Special, Medisave and Retirement Accounts is pegged to the 12-month average yield of the 10-year Singapore Government Securities (10YSGS) plus 1%

http://mycpf.cpf.gov.sg/NR/rdonlyres/5C7...stRate.pdf

[HitandRun]

One thing that prevents the Govt from increasing return on CPF might be this data point:

1. Total return required on CPF Funds, estimated to be 250 billion or more, @3% is 7.5 billion.
2. According the latest budget, Net Investment Returns contribution to budget is 8.0 billion.

Where else can the Govt get more money to pay CPF holders?

[cywong76]

One thing that prevents the Govt from increasing return on CPF might be this data point:

1. Total return required on CPF Funds, estimated to be 250 billion or more, @3% is 7.5 billion.
2. According the latest budget, Net Investment Returns contribution to budget is 8.0 billion.

Where else can the Govt get more money to pay CPF holders?

$250 billion? Where did you get that information?

[Temperament]

All along we know CPF is a scheme that "you look after yourself".
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.
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Uncle temperament

Actually, I cannot understand the reason for all your angst. To me as a bystander, it appears to me that you are already a big beneficiary of the current system, just like my parents' generation were.

Please lah, not everyone in my age know or learn to invest by hook or by crook. And is blessed.

[yeokiwi]

the returns of the cpf oa is not low. its a risk free return that is as a short duration bond. if the government stick to that we should be getting less than 0.5%. but they were generous to stick with 2.5%

same as sa. they peg it to the 10 year sgs bond rate. we should be getting 2.9%

Why should it be pegged to a short duration bond? CPF OA money will stay inside there for decades.

The duration for the SA is even longer as most of the money will be transferred to RA upon 55 years old. Shouldn't it be pegged against 30 years bond rate?

CPF OA can be used for buying house, investing in approved financial products and children education. So, it does not sit inside for decades.

[HitandRun]

$250 billion? Where did you get that information?

CPF Stats

[tanjm]

the returns of the cpf oa is not low. its a risk free return that is as a short duration bond. if the government stick to that we should be getting less than 0.5%. but they were generous to stick with 2.5%

same as sa. they peg it to the 10 year sgs bond rate. we should be getting 2.9%

Why should it be pegged to a short duration bond? CPF OA money will stay inside there for decades.

The duration for the SA is even longer as most of the money will be transferred to RA upon 55 years old. Shouldn't it be pegged against 30 years bond rate?

All these arguments about whether CPF money should attract short term rates or long term rates ignore the fact that you can use CPF money to buy 30Y bonds (if that is what you wish). Or you can use the CPF money to buy housing. Or you can use the CPF money to buy Unit trust. Or you can use CPF money to buy STI ETF. Or you can use CPF money to buy gold. Or you can use CPF money to fund your children's education. Or you can use CPF money to buy medical insurance.

What you can't use CPF money for is to pay for holidays, or buy that fancy bag or watch. Or restaurant dining. Or buy a boat. Or buy a car.

No siree, CPF money is not our money! Selfish and crafty and corrupt government with a AAA credit rating. DARN IT!