20141222 Why was our CPF not invested in Singapore government securities?

CPF members have been told our CPF has been invested in Special Singapore Government Securities (SSGS).

In July, DPM Tharman confirmed this and said: “Before we amended the Constitution in 1992, CPF monies, which were invested in Special Singapore Government Securities (SSGS), could be used by the Government to finance infrastructure – such as road infrastructure, Singapore’s economic infrastructure and social infrastructure”.

But according to the MAS, there were a number of years which our CPF was not invested in SSGS. Since 1981, CPF net contributions were positive every year except in 1993, 2000 and 2001. With reference to the table (below):

1. Holdings of government bonds (SSGS) fell by $422 million in 1984 despite the positive net contributions.
2. SSGS holdings fell a further $817 million the following year in 1985 despite an increase in net CPF contributions.
3. SSGS holdings remained unchanged in 1986 despite an increase in net CPF contributions.
4. SSGS holdings was unchanged in 1990 and 1991 despite an increase in net CPF contributions.

Table 4 of MAS Occasional Paper No. 11, March 1999 (page 18)

There are contradictions and I hope the government could clarify the following:

1 Why was our CPF not invested in SSGS as claimed?
2 Why was our CPF left idle as advanced deposit with the MAS for a number of years?

Perhaps the PAP has not been able to pay CPF members higher returns because not all our CPF was not invested?

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2 Responses to 20141222 Why was our CPF not invested in Singapore government securities?

  1. CK says:

    Hey Phillip, me again. Best is to check out the S$ yield curve in those years you questioned. For sure, in the 1st half of the 1980s, we had what was known as curve inversion where deposit rates were higher than bond yields. So it did made sense to leave the monies as advanced deposits at the MAS in order to earn a higher rate than bond yields. Do not recall there was curve inversion in 1990-91 though. The government likely out of inertial just kept doing the same thing.

    • phillip ang says:

      Hi : )
      Don’t think can find data for S$ but US$ (10 yr and 1 yr yield) available @ http://pensionpartners.com/blog/?p=684.
      Yield inversion is temporary. 10-year US bond yielded almost 16% in 1981 and if GIC MAS had made more money due to a yield inversion, then all the more it should not have paid CPF members only 6.5%.
      GIC PAP may appear to have made better returns by leaving our CPF as advanced deposits with the MAS but it is more likely to have lost out on the opportunity to make consistently higher long term returns.
      If GIC had consistently invested in US bonds between 1981 to 1991, it would have generated a return of 10% net of exchange rate loss in its bond portfolio.
      In 1981, the S n P was about 120 and by 1998, it had gained about 1000%. The $15 billion that was suddenly dumped into SSGS in 1987 would have probably made more money by being regularly invested.
      It doesn’t make any sense for SSGS holdings to jump more than 50%, from $13 billion to $28 billion. Only the PAP can confirm why it had withheld $15 billion from being invested in long term assets. But of course it wouldn’t.
      The game plan was for our CPF to be invested in SSGS and PAP is obligated to inform parliament of any deviation. CPF is not a blank cheque for the PAP. My fund manager needs to consult me on a change of plans.
      If PAP has acted in our interest and provided higher returns to CPF members, then of course this issue would not have been raised. 😦

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