20160901 How CPF members own self guarantee own self

There appears to be some confusion in a previous post “CPF members pay up to more than $1 million for PAP’s ‘guarantee’, a form of taxation”.

The confusion stems from the use of ‘2.5%’ of CPF returns confiscated by PAP because this happens to be the same 2.5% legislated minimum interest rate paid to CPF members. In this post, I will change this to 3% with the following assumptions:
– GIC still makes 6% returns
– an average of 3% returns paid to CPF members
– balance 3% retained by GIC for reinvestment or to supplement budget

I am only referring to the portion of CPF funds managed by GIC. So, if GIC manages $300 billion of our CPF, $18 billion (6%) should accrue to CPF members. What happens is CPF members receive only 3% or $9 billion (for illustration only) and the balance of 3% / $9 billion is reinvested or goes to supplement the budget. This is a form of taxation and is a burden on ordinary citizens. I hope this clarifies.

Since we are still on the CPF topic, more questions have cropped up.

According to DPM Tharman, “the five years following the 2008 global financial crisis, GIC earned just a 2.5% return per year in US dollar terms, which translates to 0.6 per cent in Singapore dollar terms”. How was the government able to pay CPF members the legislated CPF interest rate? Without transparency, there is a possibility that past reserves were used. This can be confirmed by second-key-holder Tony Tan who should disclose the number of times and how past reserves been used.

We are talking about humongous amounts of money and Parliament shouldn’t act dumb.

Whatever the case, citizens end up paying the price while GIC’s directors continue to make millions despite underperformance.

In the 5 years following the 2008 global financial crisis, our CPF invested in Government Securities increased by a whopping $100 billion, from $141 billion to $241 billion. Not a feature of a Ponzi scheme meh?

And how come Singaporean CPF members and businesses could do very well but GIC was making only 0.6% returns?

GIC was managing an average of $198 billion for 5 years but had a shortfall of $4.75 billion every year. It would be interesting to know how PAP managed to cover this gigantic $23.75 billion hole it had dug for 5 years.

GIC To pay 3% 0.60% Shortfall 5 years
$198 billion $5.94 bil $1.18 bil $4.75 bil $23.75 bil

The money used to cover up GIC’s shortfall also belongs to Singaporean CPF members.

Somehow, most CPF members are still unaware they have been guaranteeing their own low returns and still happily thinking otherwise. Maybe we’ll start to demand for transparency when our retirement savings are gone?

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