20140623 CPF members shortchanged by government, misled by mainstream media

I refer to ST article “Can’t please all Fund members” and TRS article by Jeremy Chen. There are obvious half-truths in the ST article which Jeremy did not question. I will highlight ST’s half truths and Jeremy would do well not to simply regurgitate everything that he reads in future.

DPM Tharman says “The government doesn’t need to borrow from the CPF…borrow..at lower rates than from the CPF. If we had issued one-year treasury bills, the rate we would have paid over the last 10 years would have been 1.7 per cent on average”.

The government has said GIC invests for the long term and therefore requires long term funding. It is not prudent to borrow at short term rates and hope rates will stay low throughout, say, 10 years. The government did not know the rate would have been 1.7%, below the CPF rate, 10 years ago! When one requires long term funding for 30 years, say to buy a property, one does not borrow at 3 year intervals from to buy a financial institution.

The above is an example of a half truth.

Tharman then says “If we wanted to borrow through longer-term bonds, we could issue 10-year bonds and pay the market rate, without the plus one percentage point. CPF is actually expensive money for the government, not cheap money”.

Since July 1999, 15 years ago, CPF contribution rate for the Ordinary Account (OA) has remained at 2.5%. The 10 year Singapore government bond (SGS) rate was 4.56% in 1999. From 1999 to 2013, SGS rate fell below the CPF rate of 2.5% in only 3 out of 15 years! (see table below) At 2.5%, CPF IS cheap money.

To claim that CPF is “not cheap money” is not a half truth; it is non factual.

CPF members have been misled into thinking the government has been taking care of us with the “plus one percentage point”. From the above table, it should be clear we have been shortchanged.

How the government pulled this


(We have to be clear our CPF stays in our account for 3 to 4 decades and a long term rate is the appropriate rate.)

First, the government arbitrarily pegged the interest of the OA to the “12 month fixed deposit and month-end savings rates of the major local banks”. This is unethical and I feel I have been cheated but there’s nothing I can do.

CPF Board subsequently tells you that according to the arbitrary CPF formula, the interest rate we are supposed to be getting is a miserable “0.21% per annum”.

Question: Does any CPF member really believe “0.21% per annum” to be the appropriate rate for long term CPF monies? The government would do well not to insult CPF members with this derisory long term rate!

The government then ‘comes to the rescue’ with the “legislated minimum (rate) of 2.5%”. So by paying CPF members the 2.5% rate instead of the derisory 0.21%, we are expected to be grateful to a government which has been overly generous in paying us an additional 2.29% (2.5% minus 0.21%)! There appears to be an assumption that CPF members posses low intelligence.

CPF Board has been using wrong interest rates to pay members

SGS 10 year bond rate was 2.4% and US 10 year bond rate was 2.62 on 20 June. Our interest rates move in tandem, and are close, to US rates.

CPF monies are invested for the long term and rightly deserve to be paid long term rates. An appropriate rate would be the 30 year bond rate. Since SGS does not have sufficient data for at least 15 years, let’s take a look at US rates.

Chart below shows US bond rates since 1999

CPF accounts besides the OA pays a higher rate. Since July 1999, the Medisave*, Special and Retirement Accounts have been paying an interest rate of only 4%. (*MA was 2.5% from July 1999 to Sep 2001)

Even if SGS rate is slightly below US 30 year bond rate, the average MA, SA and RA rates should have been way above CPF’s 4% the last 15 years!

Again, the government tries to convince ‘stupid’ CPF members we have been getting a good deal when it’s actually a rotten deal. No wonder our retirement plans are screwed!

Bonds have maturity dates, CPF none

Tharman claims the government could issue bonds as if they do not have maturity dates. At maturity, the total sum has to be repaid to the lender and investments have to be liquidated to raise the borrowed funds. The ‘advantage’ of using CPF is obvious – the ‘maturity date’ can be anyhow shifted through legislation! If an investment is ‘underwater’, all the government has to do is make some tweaks to the CPF to prevent the liquidation of the investment. CPF members are frustrated and fed up with the shifting of goal posts.

There are also periodic interest payments to the bondholder. Compared to using CPF monies, any interest payment to CPF members stays within CPF which could be reinvested.

There is a world of difference between issuing bonds and using CPF monies for investments.

But would any financial institution lend GIC for risky investments?

CPF monies are invested in GIC. GIC uses the monies to invest in real estate, natural resources companies, stocks, futures and options, fixed income, foreign exchange, etc. During the 2007/2008 global financial crisis, GIC’s portfolio suffered a loss of about $59 billion. GIC’s investments carry very high risks.

Question: Since CPF monies invested in GIC are for investments which carry high risks, is there any financial institution in the world willing to lend to GIC at CPF rate of 2.5% or lower?
The answer is clearly ‘no’.

To claim it is able to raise money cheaper than CPF for risky investments is another half truth.

Government cannot guarantee itself!

ST says “..CPF …yields higher risk-free returns..”. The MOF also claims “all CPF monies are invested in securities (SSSG) that are issued and gurranteed by the Singapore Government”. Point to note:
– The government is funded by taxpayers.
– CPF members are also taxpayers.

The government is effectively saying we (taxpayers) are guaranteeing ourselves! “Risk-free returns” is a myth because the government is not a separate entity.

In the event of huge losses at the GIC, any action (such as government printing more money) taken to ‘guarantee’ CPF members will have repercussions on CPF members and Singapore.


CPF members have been shortchanged for more than a decade because the government has been using an unethical formula in the computation of CPF interest rates.

Tharman has no proof that the Singapore government is able to raise funds with interest rates lower than CPF’s for risky investments. As has been shown, CPF is really “cheap money” and his claim to the contrary is totally misleading.

Throughout the ST article and other CPF ‘clarifications’ by politicians, there has been no mention of addressing the issue of transparency. The government simply wants to push ahead with its “all is fine at the CPF/GIC, trust us and maintain the CPF status quo” narrative.

The fact that the government has continued to mislead and refused to practice good corporate governance is clear indication that all is not well with our CPF monies.

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2 Responses to 20140623 CPF members shortchanged by government, misled by mainstream media

  1. Mikez says:

    Also, the reason for MS at age 55 is to allow for the MS to pay for those at 65 and to give the gahmen a buffer of 10 years to carry through its gambling on the investments.

  2. Sgcynic says:

    Don’t forget we’ve been enjoying HDB’s concessionary loan for over a decade.Singaporeans having it good – government pays guaranteed interest on our CPF and charges us concessionary loan rate vis-a-vis bank interest rate. I regret not switching to bank loan earlier.

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