By: Leong Sze Hian
I refer to the article “‘Singaporeans don’t realise what a good deal the CPF is’” (Sunday Times, Aug 29). It states: “The Central Provident Fund (CPF) system has its share of detractors among Singaporeans but, overseas, it attracts a lot of positive attention. CPF savings currently accumulate interest of between 2.5 and 6 per cent, including additional interest on lower balances as well as for older members. There is a legislated minimum interest of 2.5 per cent per year on Ordinary Account savings”.
On the day before (Aug 27) – according to the article “Chile’s pensions – The perils of not saving – A pioneering system, now in need of reform” (The Economist) – “PALLBEARERS bearing coffins scrawled with the legend “No+AFP” joined tens of thousands of Chileans in Santiago on August 21st to protest against the country’s privatised pension system. Organisers—a mix of unions, pensioners’ associations and consumer-advocacy groups—say that a million demonstrated nationwide (perhaps an exaggeration).
The scheme they revile, launched by the dictatorship of Augusto Pinochet 35 years ago, was a model for other developing countries such as Peru and Colombia. Rather than saddle the government with an unaffordable pay-as-you-go system, in which today’s taxpayers support today’s pensioners even as the population ages, Chile created one in which workers save for their own retirement by paying 10% of their earnings into individual accounts. These are managed by private administrators (AFPs).
The system has generated high returns for pensioners, averaging 8.6% a year between 1981 and 2013. But the AFPs’ high fees have bitten a huge chunk out of those returns, reducing them to 3-5.4%.
A new state-owned AFP will provide more competition to private ones. Hidden charges will be eliminated.”
In the Singapore context – what is the difference between the CPF’s historical interest rates and the returns derived from CPF funds?Follow us on Social Media
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