The CPF is a multi purpose tool used for economic shortcuts by the PAP for decades.
CPF is used for “HDB concessionary” loans for the purchase of HDB flats. CPF funds are first ‘converted’ into Special Singapore Government Securities and then transferred to the HDB. It appears the money comes from the HDB when in fact, the origin of the funds is from another CPF member.
Source: Singapore Housing Policies: 1960 – 2013 (pg 130)
A better illustration for readers who may not be familiar with how our CPF has been abused:
Assuming there are only 2 buyers, the transaction is as follows:
From the above, we can see loan did not come from the HDB/government but from a fellow CPF member.
The transaction is effected at no cost to the HDB because the borrower pays 2.6% (always 0.1% above the prevailing CPF rate) while the CPF member with the positive balance will receive only 2.5%. The 0.1% covers HDB’s administrative costs, a convenient arrangement for the government.
This is one of the reasons our pension fund returns cannot be higher because our CPF return has already been fixed at 2.5%.
HDB’s only source of funds for its concessionary loan is our CPF. Since our CPF has already been used, there is obviously no money left for the GIC to invest. CPF members therefore cannot expect any higher returns.
The PAP government has to address the issue of CPF abuse. Public housing purchase is not the responsibility of CPF members! It is wrong to use our retirement savings to fund others public housing purchases and provide crap excuses for our miserable returns.
Some of the low CPF returns are paid by other CPF members who take up the ‘HDB’ concessionary loans. The government tries to cover up the source of this loan but it can be traced to other CPF members.
CPF members have never agreed to allow our retirement savings to be used for HDB concessionary loan. This arrangement causes a huge shortfall in our retirement funds. It’s about time the PAP addresses this serious issue.