20160830 CPF members pay up to more than $1 million for PAP’s ‘guarantee’, a form of taxation

Singaporeans have been taken for a very long CPF ‘guarantee’ ride by PAP.

As has been highlighted in a previous post, the government, as a trustee, was never in a position to guarantee our CPF. This is just another way of scamming money from trusting citizens who could lose as much as more than $1 million over a 40-year period.

Despite GIC making average long-term returns of about 6%, CPF members are paid an average of only 3.5%. The balance 2.5% is retained by GIC for reinvestment or used to supplement the budget. While the 2.5% may appear insignificant, it adds up to a mind boggling amount over the long term.

This 2.5% is in fact a form of tax and an unnecessary burden on Singaporeans. If CPF members need to pay the government almost half of our CPF returns every year to guarantee GIC’s investment, it would imply the possibility of GIC going bust at some point in future.

If not, why should we pay for such a costly ‘guarantee’?

Like insurance premiums, people pay for a guarantee to have peace of mind. If GIC is not a reckless fund manager and doesn’t take unnecessary risks on behalf of CPF members, why can’t CPF members have peace of mind without paying 2.5% of our returns to GIC?

In a normal situation, one wouldn’t mind paying a fee to be guaranteed high interest rates. Under the PAP, CPF members are guaranteed the lowest possible return, eg CPF OA rates were even lower than fixed deposit rates and 10-year government bond yields in the late 1990s.

CPF members should take note: the 2.5% creamed off annually could add up to many trips around the world or a very comfortable retirement. Still don’t believe?

Scenario A

Ah Soh became a housewife after working for only 2 years and had a CPF balance of $20,000 two decades ago. At a compounded 3.5% return, she has $39795 in her CPF today.
Ah Soh’s neighbour, Ah Kim, also became a housewife at a later age and managed to accumulate $50000 in her CPF 20 years ago. Today, she has $99489 in her CPF.

How much CPF would they have accumulated if they were earning a 6% return and not forced to pay for the CPF ‘guarantee’? The figures in the table below should shock everyone.

. Guarantee No Guarantee Cost of 20-year
CPF balance 3.50% 6% ‘guarantee’
$20,000 $39795 $64142 $24347
$50,000 $99489 $160356 $60867

Although unemployed, Ah Soh had unknowingly paid a tax of about $24,000 or $1200/year and Ah Kim $60000 or $3000/year!

Scenario B

The above amounts are really small beer to PAP relative to what it makes from the 1.96 million* active CPF members. Active (working) CPF members continue to build up their CPF accounts and the higher the balances, the more money PAP makes.

For illustration, we shall assume:
– ‘A’ had $20000 in his CPF
– ‘B’ had $50000 in his CPF
– a very conservative annual CPF addition of only $10,000 (monthly wage of $2079) for ‘A’ and ‘B’
– a constant wage of $2079 for 20 years for both

From the table below, the cost of ‘guarantee’ for ‘A’ and ‘B’ was about $121000 and $158000 respectively over a 20-year period.

CPF . Guarantee No Guarantee Cost of 20-year
Member CPF balance 3.50% 6% ‘guarantee’
A $20,000 $332490 $454069 $121579
B $50,000 $392184 $550284 $158100

Singaporeans of course don’t work only 20 years. If ‘A’ and ‘B’ were to work for 35 years, the government would have confiscated between $578000 and $708000 from their CPF.

Did the PAP not contribute to Singaporeans’ retirement shortfall by confiscating a huge part of our CPF returns?

Scenario C

This scenario assumes CPF member ‘C’:
– works for 40 years
– starting salary of $2079
– salary constant for 40 years
– no housing commitment
– CPF balance zero at the start

Over a 40-year period, ‘C’ has more than $ 3/4 million in his CPF confiscated by PAP.

CPF CPF Annual Guarantee No Guarantee Cost of 40-year
Member balance Addition 3.50% 6% guarantee
C 0 $10000 $875095 $1640476 $765381

In reality, ‘C’s’ wages would have been increasing throughout his career and the cost of his CPF ‘guarantee’ would have exceeded $1 million!

On average, each CPF member has lost hundreds of thousand$ from our CPF. Incredible as it may seem, PAP has the ability to determine how much it wants to profit from our CPF, eg using a flawed CPF formula to pay lower CPF rates for more than 2 decades.

Regardless of which scenario CPF members may not fall into, everyone has lost huge sums of money to PAP under the guise of ‘guaranteeing’ our CPF investments. You can figure out for yourself how much you would have been/will be fleeced over your entire career with the help of this calculator.


The higher our CPF balances, the more we pay to ‘guarantee’ our investments in GIC.

Hardest hit would be members with no housing commitment.

PAP invented the CPF ‘guarantee’ to fleece members of our rightful returns. The ‘guarantee’ is effectively a form of taxation.

Paying 2.5% of CPF returns every year to guarantee our CPF investments will result in, on average, hundreds of thousand$ confiscated from individual CPF members over a 40-year period.

Credit should be given to Roy for his persistence on the CPF issue which, unfortunately, made PM Lee sit up to watch his blog and got him into trouble.

It’s time CPF members understand the issue is not merely about the return of our CPF at 55, but putting a stop to daylight robbery.

Will we collectively put a stop to this despite the failure of all elected MPs? What do you think?

  • edited to include “million”
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3 Responses to 20160830 CPF members pay up to more than $1 million for PAP’s ‘guarantee’, a form of taxation

  1. Confused says:

    LHL as a mathematic graduate knows very well the power of compounding and what every additional % can make. What you have explained on the huge loss of cpf members is exactly the huge gain to the reserves. It is why they think they should be paid millions for this “hardwork ” of his.

    Very few people realised this huge difference made by 3.5% and 6% compounded over 20 to 40 years.

  2. Lim says:

    You spent so much time calculating, while not bothering to understand what’s being guaranteed ! CPF contributions guarantee is not just on the capital but also on a minimum return. So the comparison is not the GIC returns but the Singapore Govt Bond. So will you still losing money??

    Let me ask you this. If you had 1000 dollars and could put it in your Singapore CPF vs the Malaysian EPF, where would you go ? The answer will explain to you everything you need to know re country and credibility risk

    Learn to appreciate what you have. It’s good to question. But ask the smarter questions !!

    • Phillip Ang says:

      Thank you for your comment.
      You asked a rhetorical question: one cannot decide to invest in either EPF or CPF. Based on past returns, Malaysians are the winners. You should be looking at the issue from the pensioner’s perspective, not a foreign investor. Exchange rates are therefore not pertinent in this case.
      Malaysians have been able to withdraw their retirement savings without tweaks every other year to delay withdrawal. Country risk?
      Why do you use only recent low yields instead of data since the 1980s when global bonds’ yields exceeded 10 %? I would suggest you research more on this and do a comparison between CFP and long term yields.
      Guaranteeing CPF returns is effectively guaranteeing our CPF. In the event that GIC is unable to pay guaranteed CPF rates, it would also something has happened to our CPF investments. Should GIC be unable to pay CPF members, we will be paid from 2 sources: tax dollars or past reserves.
      Past reserves belong to us collectively and either way, we will be paying ourselves. Own self guarantee own self? It’s akin to a bank telling its customer that his investment with the bank is guaranteed by money in his own savings/FD account.
      Perhaps we need to have a prolonged downturn when more GIC’s investments go belly and experience the adverse measures taken by PAP to better understand there’s no such a thing as a trustee’s guarantee.

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