20160914 Tweaks to CPFIS a distraction, mother of all Ponzi schemes profited billions from CPF members

DPM Tharman has again proven he’s the only minister capable of taking over PM Lee with his upfront admittance that the CPF Investment Scheme (CPFIS) has been an abject failure. Tharman should have been totally upfront by acknowledging that the entire CPF scheme is “not fit for purpose” as its original mission became mission impossible, quietly amended by PAP in 2011 to mask its failure.

Tharman said that during the last 10 years, more than 80% of CPF members had made returns lower than the CPF OA rate of 2.5% (why not give actual figure?) and 45% of CPF members made losses. A CPFIS review is now in order.

But why did Tharman announce this at the Economic Society of Singapore’s dinner? Wouldn’t such an important issue be raised and debated in Parliament in any democratic country? It appears the PAP has already made the decision, never mind what the people think.

The figures quoted by Tharman were never publicly disclosed. Why only disclose 2 figures and not all relevant data to justify a review?

Tharman: “You’ve got to lock your money in for some defined period, and there has to be (an) incentive to not switch from one investment to another. There has to be that incentive to keep your money locked up in one account for the long term, because that is how superior long-term returns are earned.”

Ok, let’s scrutinise Tharman’s statement. Balances in our SA is certainly money locked for “some defined period” and is invested by GIC for decades but where is the incentive?

Was the 4% return considered an ‘incentive’ when short term fixed deposit rates exceeded the CPF SA rate (pg 5) from 1995 to 1998? What about savings rates exceeding our CPF OA 2.5% rate from 1995 to 1998?

CPF members have been severely shortchanged by PAP for many years. Low CPF rates is one of the reasons why members have been forced to seek higher returns, resulting in losses.

The solution is therefore to pay real long-term rates and one likely consequence would have been less use of CPF for speculation.

CPF members have lost big time but still haven’t realised just how much of our savings has been retained by GIC. I will highlight this with a couple of examples.

In 1995, I had about $31000 in my SA. After earning a 4% return over 20 years, my balance increased to about only $68000 in 2015 despite not switching from one investment to another, ie funds managed by only GIC. The reason for such low returns was GIC had been creaming off 2% from my SA over 20 years!

GIC’s average 20-year return is about 6% and if it had not retained the 2% return made with my CPF, I would have about $99,000 in 2015.

. Special A/C Balance
Year 4% 6%
1995 S$31000 S$31000
2015 S$67924 S$99421

$31000 ($99000 – $68000) went into GIC’s pocket from my CPF invested in GIC.

Worse off are CPF members who have paid off their mortgages (flats were really affordable before Lau Goh became PM) and left their OA balances to be managed by GIC, earning a miserable 2.5% return. Many members’ OA balances have been earning zero real return for decades and this is one of the reasons for our retirement shortfall.

. Ordinary A/C Balance
Year 2.5% 6%
1995 S$50000 S$50000
2015 S$81930 S$160356

A CPF member who had $50000 in 1995 would have been able to receive about $1250 in monthly payout under CPF Life. But after being shortchanged of 3.5% over 20 years, he will be getting only half of what he deserved because $78000 had been retained by GIC. Over a longer period, the member would have lost an unbelievably large amount.

Retirees in other countries do not KPKB at their government because what they have received is a fair deal and of course no constant shifting of goal posts. Even retirees next door don’t hold protest rallies because the Malaysian government paid out the long-term 6% returns earned by its fund manager to all EPF members.

Tharman has confirmed the government will “tighten up on the CPFIS, which is not fit for purpose..”. Read between Tharman’s lines and PAP’s objective is crystal clear: more funds for GIC. In fact, the ultimate aim of every CPF tweak is to channel more funds into GIC.

An example would be the introduction of the Retirement Sum Scheme to allow GIC to manage more CPF funds of wealthy Singaporeans. But this issue had not been even raised. Instead of resolving the issue of retirement shortfall, more funds have been channeled into GIC by PAP.

Funds managed by GIC has kept increasing and this has nothing to do with its superior performance: its funds were heaven sent from taxpayers and CPF members, courtesy of PAP.

A number of funds have been created by PAP without any accountability to Parliament although it involved tens of billions of dollars. Despite Kenneth J having raised this issue here, PAP has continued to channel even more money into GIC.

Source: sonofadud.com

To me, our CPF scheme resembles the mother of all Ponzi schemes: money constantly flows from CPF accounts into a GIC black hole. In 1995, GIC was managing only $45 billion in CPF monies. By 2015, only 20 years later, this had ballooned to $286 billion.  A 600% increase doesn’t resemble a Ponzi scheme?

And no money ever comes out from GIC. Not even with baby boomers hitting retirement age.

PAP has made every effort to channel as much money as possible into GIC and the real reasons are not known because all elected MPs have been irresponsibly silent and refused to hold the government accountable.

All roads lead to … GIC

The CPFIS review is certain to channel even more money into GIC. But is GIC fit to manage increasing amounts of our CPF savings? The answer is an obvious ‘no’ because GIC’s real performance is an unknown without the disclosure of a proper set of accounts. In 8 out of 20 years prior to 2014, GIC could not even make CPF interest rates. In the private sector, such a fund manager would have been hit by redemptions and gone bust years ago.

I strongly suspect GIC has suffered investment losses far more than anyone can imagine and it now requires a constant stream of CPF /tax dollars just to stay afloat. The GIC black hole should be clear to CPF members: PAP conceals only embarrassing information.

CPF members have collectively lost billions to the mother of all Ponzi schemes. CPFIS tweaks are just another distraction, more CPF tweaks akan datang.

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2 Responses to 20160914 Tweaks to CPFIS a distraction, mother of all Ponzi schemes profited billions from CPF members

  1. Xmen says:

    “Tharman said that during the last 10 years, more than 80% of CPF members had made returns lower than the CPF OA rate of 2.5% (why not give actual figure?) and 45% of CPF members made losses. A CPFIS review is now in order.”

    But the big elephant in the room in the poor CPF/GIC returns. CPF members are receiving significantly lower return in their accounts compared to their peers in developed countries. GIC performs far worse than just about every major pension/endowment fund over 10- and 20-year period. Shouldn’t the priority be on revamping CPF/GIC?

  2. sinkie says:

    But 69.9% of Sinkies say PAP, CPF and GIC doing a good job leh…

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