By: Phillip Ang
The PAP has been tweaking the CPF system for decades without addressing the underlying causes of our huge retirement shortfall.
The objective of every review and tweak is to channel and retain more CPF funds in GIC.
For decades, PAP has been channeling a disproportionate amount of retirement funds to support exorbitant housing prices. This is one of the causes which has never been addressed.
CPF allocation rates:
a 23% for housing (62% contribution)
b 8% for medical (22% contribution)
c 6% for retirement (16% contribution)
Common sense dictates a huge reduction from 62% allocated to housing and a corresponding increase for retirement. But after decades of artificially boosting property prices using CPF funds, a necessary change in allocation rates will cause housing prices, together with GDP, to collapse.
It appears our Malaysian neighbour has more common sense: their EPF is separated into 2 accounts where 70% of contribution is used for retirement and only 30% for housing. link
Instead of heeding common sense, members have been forced to set aside an additional average of $4678 annually/$390 monthly in CPF contributions for the past 28 years.
So much CPF has been sucked into housing that there would be NO money for baby boomers’ withdrawal at 55. To prevent redemption, the PAP not only increased the MS for 28 years:
– it also delayed the drawdown age by 10 years
– further withhold our CPF by paying us in installments until we are dead.
– Would there have been sufficient funds to pay all CPF members at age 55 without delaying the drawdown age by 10 years?
– Is the CPF Board delaying full payment at age 65 because there is insufficient funds?
– Can GIC assure Parliament by providing a FULL SET OF ACCOUNTS of all its investments?
As if money really no enough at GIC, the CPF Board further attempts to entice members to delay withdrawal:
– In 2015, the Enhanced Retirement Sum was introduced to allow CPF members with at least $241,000 ($80,000 more than the Minimum Sum) to maintain their savings with the Board. The Basic and Full Retirement Sum are just cosmetic changes, a play with word (“Minimum” changed to “Retirement”).
– In the latest CPF review, members are given the option to accept lower initial payments of about 20% and receive a higher payment years down the road (delayed withdrawal). Advisory Panel chairman Tan Chor Chuan said the panel is “constrained by simple mathematics” but how does this resolve the issue of retirement shortfall? How does the postponement of consumption help members who need their money andhave little or no other means to survive?
As can be seen, PAP has always been preoccupied with increasing CPF balances at GIC! Why?
Every 10 years, GIC will have an additional $70 billion from CPF members aged 55 and above.
GIC’s billion-dollar bets, uncommon only last decade, appear to be the norm. Is GIC in desperate need to generate returns to make up for past losses?.
In fact, GIC has recently suffered billion-dollar losses in its UK investments: It had failed to anticipate Brexit. (GIC’s UK property exposure faces test after Brexit shock)
In 2014, GIC acknowledged a challenging investment environment with ultra low interest rates creating inflated asset prices. However, flushed with CPF funds, GIC has been investing as if there’s no tomorrow. GIC
The arbitrarily postponement of CPF withdrawal age, payment in installments and enticing members to delay withdrawal of even more retirement savings suggest all may not be well with the management of our CPF funds. I am just wondering if there’s an issue with CPF’s solvency.