Pension funds: Where's My Nest Egg?
-
Far Eastern Economic Review . May 25, 2000
Pension funds: Where's My Nest Egg?
By Ben Dolven/SINGAPORE
A CITIBANK SURVEY in 1998 found that more than 50 percent of Singaporeans believed that their stakes in the government's huge mandatory savings scheme would provide them with enough money to live on in their retirement. They were mistaken--badly mistaken.
The 45-year-old Central Provident Fund is Asia's most extensive, and many observers say most successful, social-security scheme. But in many cases, it's not going to be enough to provide more than a subsistence living standard for retirees. Strip out Singapore inflation, and CPF savings grew hardly at all between 1987 and 1998--0.07 percent annually to be precise--according to a recent report by Tom Snyder and Mukul Asher, economists at the National University of Singapore. The CPF's basic structure, which pays members low, short-term interest rates for most of their long-term savings, will make it very hard to boost returns.
Even government leaders warn that Singaporeans will need to look beyond the fund to finance their retirement. "The CPF is not sufficient," National Development Minister Mah Bow Tan said in November. "It should be supplemented. We should try as much as possible to make it sufficient, but it needs to be added to by other CPF-type schemes, preferably by the private sector."
The CPF has one fundamental problem: Essentially, it isn't a pension scheme at all. The logic of a pension scheme is that if you put away savings for the long-term, you get paid a higher rate of interest. Compound those high long-term returns over two or three decades and members build a nest egg. But that's not how the CPF works. It pegs returns on cash balances to short-term bank deposit rates--an average of interest rates on time deposits and 12-month fixed accounts. These are lower than interest rates on long-term deposits, reducing the benefit of compounding.
The trade-off for Singaporeans is that they can use their CPF accounts for major expenses such as housing and medical treatment. In fact, the CPF works more like a mortgage-finance scheme than a retirement plan. The vast majority of Singaporeans finance purchases of public housing flats from their accounts, and these come at prices well below private housing units. Many people later elect to upgrade--selling a flat on the secondary market and using the higher price to buy a bigger public flat or a private one.
But you can't eat bricks and mortar, and the CPF's negligible returns mean many Singaporeans will hit retirement with an apartment but little cash to draw on. A government-led committee on ageing noted last year that 24 percent of the CPF members who reached age 55 in 1998 had less than S$16,000 (US$9,250) in their CPF accounts--an amount that will run out quickly if the retirees lack family support. -
While many Singaporeans recognize that they're getting poor returns on their CPF deposits, few truly think the scheme is a bad idea. Arthur Yeo, a 37-year-old engineer with around S$50,000 in his CPF account, says he knows he's getting little for his money, but figures that without the CPF he might have squandered it. "It's a forced saving," he says. "If we didn't have this I believe it would have gone somewhere, and I don't know where."
Singaporean citizens and permanent residents must contribute 20 percent of their wages to their CPF accounts. Their employers have to kick in 12 percent, down from 20 percent in 1998, when the government slashed employers' contributions to boost competitiveness. The bulk of the contributions go into a low-yielding ordinary account, with just 4 percent going into a higher-yielding special retirement account, and 6 percent - 8 percent into a medical account. At age 55, members can move the money into investment annuity accounts that pay monthly sums.
Looking ahead at a retirement crunch, the authorities realize they will need to allow depositors to do more with their money. In the past six years, they have allowed members to invest in a limited but growing range of unit trusts and shares. But the minimum cash balance needed to take advantage of this greater freedom is S$60,000. The minimum will gradually rise to S$80,000 in 2003. (Members can use housing assets to account for part of the sum.) The CPF's board won't say how many people qualify, but at the end of 1998, just 16.5 percent of members had moved any money out of the low-return part of their accounts.
That won't do, says Lim Hwee Hua, a ruling-party member of parliament who heads a financial subcommittee for the government's ageing panel. Lim, a strategic planner for Jardine Fleming, recognizes that short-term interest rates are no way to build a retirement kitty, but even so, her committee didn't recommend raising returns on basic CPF savings, or pegging them to fluctuating market rates. She figures Singaporeans wouldn't take the risk, even though CPF rates have consistently been below what people could get on other investments. "The risk aversion is so high here," she says.
With a little savvy, Singaporeans could do much better than the CPF. Ten-year US Treasury bonds currently yield an annual 6.47 percent while 10-year corporate bonds issued by DBS Bank yield 8.84 percent. Equities are riskier, but since January 1995 the S&P 500 Index has had annual returns of 38 percent; the Straits Times Index has recorded annual returns of 3percent. -
Investment managers in Singapore figure an average retiree will need a nest egg of S$2.2 million to generate an income stream of S$3000 a month for the rest of his life. That presents plenty of opportunities for private financial planners. The favourite instruments now are life-insurance products that many use to top up their monthly post-retirement incomes. The big player is American International Assurance, which controls more than half the local market. But others are on the way: Citibank, for instance, plans to start offering insurance products in June, and hopes to win 20 - 25 percent of the local market within three to five years, says Eddie Khoo, a vice-president at the bank's local office.
The paltry returns offered by the CPF don't mean that the money is poorly invested. In fact, the returns members receive have nothing to do with the way their funds are ultimately invested. The bulk of CPF deposits are held in nonmarket government bonds that yield a weighted average of the interest rates at the four big local banks: 80 percent weighted to 12-month deposits and 20 percent weighted to demand deposits. They are placed with the Monetary Authority of Singapore, which lends to government statutory boards for investment in infrastructure.
At the end of 1998, CPF members' accounts had a combined balance of S$85 billion, though that figure includes amounts deducted for housing purchases. Singapore has recorded big fiscal surpluses for decades and the fact that it can use CPF balances to fund infrastructure projects frees other funds for more profitable investment elsewhere. Many of the country's reserves are invested overseas by nontransparent, publicity-shy investment vehicles like the Government of Singapore Investment Corp. There's no way to accurately say what return authorities actually get on CPF funds. The only thing that's clear is that there's no link between their returns and what members get. The Review's questions to the CPF board on the subject went unanswered.
The government's ageing committee recommended several tweaks to the system. It urged that people be required to put more money--6 percent of contributions, or even 8 percent -into the higher-yielding CPF accounts. It talked about ways to bring self-employed people into the plan and urged that people be allowed more options for investing in insurance annuity plans. Still, these remain just tweaks. Lim says other ways to make the CPF more market-oriented are being discussed, but she says it's unlikely that members would be offered a choice between fluctuating or fixed rates of return.
Still, Lim says she knows something has to change, recalling that many of her panel's sessions were packed with people who said they expected income from the CPF to take full care of them in their retirement. "It's sufficient for very basic, minimal needs," says Lim. "What we are concerned about is that it may not be enough to meet their expectations." -
Eight years and they have not solved the problem of insufficient retirement funds. The solution? Retirement is your own responsibility
-
Great figures you have posted there.
They take our money for investments yet expect us to fund our own retirement.
HDB prices have long eaten into a Singaporean's retirement fund and now when statistics have shown that fewer citizens are able to meet the minimum sum, they propose the longevity scheme to cover up their mistakes.
Then they proclaim themselves as a responsible and on-the-ball govt who plan for the people. Shrewd, isn't it?
How much longer can Singaporeans stomach all this? -
PAP full of sh*t.
"No handout", "not welfare state"
All this our money being invested and we don't get back.
CPF return delay longer and longer. Now find way not to give back even.
They themself take so much money each month, then get pension FOR LIFE from 55 years onwards. That not handout yah? Not welfare???
Out CPF return to us push further and further, their own pension from our money stay at 55 ? -
Singaporeans were only allowed invest in unit trusts under CPFIS scheme in 1999, thus Ong Kian min's CPF members have 'no choice' but to lend their CPF savings to the Government is some what valid if his statement was made in 1999. The other choice was of course over invest in properties to avoid getting paltry returns. Shares weren't a good way to save for retirement as its not easy to diversify the risk in terms of both sectors and countries.
MP clarifies remarks in CPF debate
DURING the recent parliamentary debate on CPF reforms, I spoke about higher returns for CPF savings. My speech on Sept 19 was subsequently reproduced in parts in The Straits Times and by the various mass media.
I would like to put on record the following clarifications:
# My assertion that CPF members have 'no choice' but to lend their CPF savings to the Government is too sweeping and factually incorrect as individual members do have the choice, if they so wish, to invest their CPF savings under the CPF Investment Scheme in a wide range of investment products to enhance their retirement nest egg.
# To achieve higher returns on any investment, we must subject the investment to more risk, including the risk of loss of capital, and there is no certainty that any particular rate of return can be achieved in the future. Therefore, the illustration I used in my Parliament speech comparing a fixed interest of 4 per cent per year and an annual return of 10 per cent over 40 years was simply to demonstrate mathematically the theoretical difference between the aforesaid rates of return compounded over time.
It does not in any way suggest that the higher rate of return will be achievable over the next 40 years.
Ong Kian Min
MP for Tampines GRC
They have bought enough time to pass the responsibilities to Singaporeans
The CPF board also failed to rein the excessive fees of the unit trusts bought by CPF members. Theses unit trust bought in 1999 has high bid spread of 5-7%, i.e. the members start off with only 93%-95% of their money in investments. My speculation is the poor returns of members under CPFIS investment scheme could partly due to failure of the CPF board to rein in fees. It seems the govt believes the only reason for the poor returns is Singaporeans cannot manage their money. -
The lack of choices to save for retirement in the pre 1999 years has certainly contributed to the escalating HDB prices. Singaporeans have to over invest in properties to avoid getting paltry returns. This ironically eat up the retirement savings of Singaporeans as they have to fork out more and more for a 99 lease flat.Originally posted by Rock^Star:HDB prices have long eaten into a Singaporean's retirement fund and now when statistics have shown that fewer citizens are able to meet the minimum sum, they propose the longevity scheme to cover up their mistakes.
Also with the increase lifespan span of Singaporeans, investing in HDB leases becomes a depreciating asset. If a Singaporean bought a 80 year lease flat from the open resale market, there is a chance that he gets nothing back from his "property" if he lives a long life. -
its true.
the high hdb prices is making most singaporeans poor. -
[quote]Originally posted by Rock^Star:
Great figures you have posted there.
Agreed, putting up third party write-ups and a more balanced perspective.
They take our money for investments yet expect us to fund our own retirement.
Don't quite agree. If CPF was strictly just savings for retirement only, there will be enough for retirement - in fact more than enough. Why? If you work starting at 20 or 25yrs old and having worked for 25 - 30 years (assuming retirement at 55), and saved 20% of your salary consistently, there will be more aires than hairs by the time of retirement. The problem is, CPF can be used to buy property, shares, gold, education, insurance and for paying medical/hospitalisation expenses for themselves and immediate relatives.
Most CPF members have actually ALREADY withdrew their fund for any of these purposes!
This is a fact that you and the many political vibers cannot SEE, pretend not to KNOW, hide the TRUTH, try to BLUFF and go around using this for SELFISH political agenda.
HDB prices have long eaten into a Singaporean's retirement fund and now when statistics have shown that fewer citizens are able to meet the minimum sum, they propose the longevity scheme to cover up their mistakes.
Would you want the prices of your property to drop? Can you sell me your flat at the original HDB price? Please let me know, I want to buy.
Then they proclaim themselves as a responsible and on-the-ball govt who plan for the people. Shrewd, isn't it?
Aren't you shrewder trying to hookwink us?
How much longer can Singaporeans stomach all this?
As long as I am not HUNGRY. -
Originally posted by TheGoodEarth:
It really speaks volumes about your intelligence when you think SGforums can be used as as a tool for political agenda. Speaker corner has neither wide readership and nor can reach millions of Singaporeans like Straits Times. Speaker's Corner can at best reach 500 people?
This is a fact that you and the many political vibers cannot SEE, pretend not to KNOW, hide the TRUTH, try to BLUFF and go around using this for SELFISH political agenda.[/color] -
hahahha, that high and mighty attitude .... so your intelligence is very high? Your gripe is with ST? It speaks a higher volume about your intelligence when you think that everyone reads the Straits Times.Originally posted by kilua:It really speaks volumes about your intelligence when you think SGforums can be used as as a tool for political agenda. Speaker corner has neither wide readership and nor can reach millions of Singaporeans like Straits Times. Speaker's Corner can at best reach 500 people? -
I thought you were the high and mighty one claiming NUS professors to be wrong ?Originally posted by TheGoodEarth:hahahha, that high and mighty attitude .... so your intelligence is very high? Your gripe is with ST? It speaks a higher volume about your intelligence when you think that everyone reads the Straits Times.Originally posted by TheGoodEarth:
By the way, ST has 1.35m readership.
Maybe you should go to NUS where the professors canÂ’t tell it right. -
and you couple in the other tools such as media cork...Originally posted by kilua:By the way, ST has 1.35m readership.
-
Well, tell me if you agree with what this idiotic professor said: "Chinese who cannot speak Mandarin are not Chinese."?Originally posted by kilua:I thought you were the high and mighty one claiming NUS professors to be wrong ? -
Originally posted by TheGoodEarth:[quote]Originally posted by Rock^Star:
The problem is, CPF can be used to buy property, shares, gold, education, insurance and for paying medical/hospitalisation expenses for themselves and immediate relatives.
Most CPF members have actually ALREADY withdrew their fund for any of these purposes!
Wake up lah. Do you know how much CPF money Temasek holds despite the wide uses of CPF? Come on, I'm waiting.
This is a fact that you and the many political vibers cannot SEE, pretend not to KNOW, hide the TRUTH, try to BLUFF and go around using this for SELFISH political agenda.
Let forumites judge.
Would you want the prices of your property to drop? Can you sell me your flat at the original HDB price? Please let me know, I want to buy.
This is an irreversible scenario. Once the road to high prices (which has been a wrong decision right from the start) has been embarked on, there's no looking back. But it seems that HDB prices just get higher and higher. Look at the new flats in Fernvale as one example. The prices of four-room flats in the HDBÂ’s latest build-to-order project (Coral Spring) in Fernvale are between $188,000 and $252,000, compared to Fernvale Vista Phase 2 ($145,000 to $200,000) in May, and Fernvale Court ($138,000 to $177,000) two years ago.
PS: Don't forget to quote me the figure of CPF money that Temasek holds yes, otherwise you have no right to comment on this issue whatsoever. -
This kind of a quote is rather subjective. To each his own opinion.Originally posted by TheGoodEarth:Well, tell me if you agree with what this idiotic professor said: "Chinese who cannot speak Mandarin are not Chinese."? -
Like saying a deaf mute is not a human being.Originally posted by TheGoodEarth:Well, tell me if you agree with what this idiotic professor said: "Chinese who cannot speak Mandarin are not Chinese."? -
Since when did the government says that CPF monies ALONE is enough to satisfy every singaporeans retirement needs especially when the CPF monies are allowed to use for buy house/ ie. pay interest for your mortgage, investment in securities and education etc.
Plus, if Singaporeans are aware how much CPF money they have in their account, they should know very well if they are sufficient money for retirement. -
Dear Gazelle,Originally posted by Gazelle:Since when did the government says that CPF monies ALONE is enough to satisfy every singaporeans retirement needs especially when the CPF monies are allowed to use for buy house/ ie. pay interest for your mortgage, investment in securities and education etc.
Plus, if Singaporeans are aware how much CPF money they have in their account, they should know very well if they are sufficient money for retirement.
I forwarding a stranger's dilama to you, the wise one:
"when you die b4 85, Y your cpf money go to the Pool and not your Children".
not you as in gazelle you lah. 'You' means the 'you' of the stranger. -
thats because you have already collected all the money you have in your CPF plus interest at the age of 82 and there is nothing left for your children.Originally posted by reddressman:Dear Gazelle,
I forwarding a stranger's dilama to you, the wise one:
"when you die b4 85, Y your cpf money go to the Pool and not your Children".
not you as in gazelle you lah. 'You' means the 'you' of the stranger. -
Originally posted by Rock^Star:
The problem is, CPF can be used to buy property, shares, gold, education, insurance and for paying medical/hospitalisation expenses for themselves and immediate relatives.
Most CPF members have actually ALREADY withdrew their fund for any of these purposes!
Wake up lah. Do you know how much CPF money Temasek holds despite the wide uses of CPF? Come on, I'm waiting. [Are you sleeping? I thought you are so highly intelligent that you don't have any intelligence on Temasek?]
This is a fact that you and the many political vibers cannot SEE, pretend not to KNOW, hide the TRUTH, try to BLUFF and go around using this for SELFISH political agenda.
Let forumites judge. [I have.]
Would you want the prices of your property to drop? Can you sell me your flat at the original HDB price? Please let me know, I want to buy.
This is an irreversible scenario. Once the road to high prices (which has been a wrong decision right from the start) has been embarked on, there's no looking back. But it seems that HDB prices just get higher and higher. Look at the new flats in Fernvale as one example. The prices of four-room flats in the HDBÂ’s latest build-to-order project (Coral Spring) in Fernvale are between $188,000 and $252,000, compared to Fernvale Vista Phase 2 ($145,000 to $200,000) in May, and Fernvale Court ($138,000 to $177,000) two years ago.
[hmmm..... little bit of intelligence here but didn't answer my question - wud you sell me your flat at original HDB price?] -
If for the good of this country and fellow Singaporeans, I would rather the HDB not be resold for profit.Originally posted by TheGoodEarth:
There are many other ways to make a profit such as through investment in private property, land banking etc.
Another thing is....if you know nuts about what you're talking regarding CPF funds, just seal it.....I mean don't talk through your arse.
I am fully aware of Temasek's financial statements for the preceding year, are you?
So before you try to debunk my statement that "the govt uses our money for investments but expect us to fund our own retirement", kindly understand the workings of the CPF first. Much appreciated. -
Originally posted by Rock^Star:If for the good of this country and fellow Singaporeans, I would rather the HDB not be resold for profit.
This sounds very NOBLE but you are downright INSINCERE - you will not sell your flat to me at original price!
There are many other ways to make a profit such as through investment in private property, land banking etc.
Indeed, even at the IRs. But one sure way to make profit from property is HDB flats. To me it is a private property. I am not sure whether your HDB flat is a public one. If so, can I squat there?
Another thing is....if you know nuts about what you're talking regarding CPF funds, just seal it.....I mean don't talk through your arse.
hahaha, the self-proclaimed know-all. I have contribute more to CPF than you have eaten rice! I am not sure what you are eating all this while but I am sure that what comes out of your arse is awfully painful!
I am fully aware of Temasek's financial statements for the preceding year, are you?
Hmmm ..... so? And what's your purpose?
So before you try to debunk my statement that "the govt uses our money for investments but expect us to fund our own retirement", kindly understand the workings of the CPF first. Much appreciated.
Your statement is already bunk.... and you are expected to fund your retirement unless you want free lunch. Come with me to the old folks home and you will know how tired they get with their lunches there.
So please, you must work ... otherwise you don't have CPF. Knowing the workings of CPF won't do you much good unless you planned to work for CPF.
But if you are so hung up with the gahmen over CPF you can avoid this 'problem'. Do you know that?
