Sunday, 15 June 2014

Design flaws of the Central Provident Fund

The recent increase in the attacks on the CPF policies have shaken up many Singaporeans from their slumber but what really cements the increasingly negative perceptions on the CPF policies is the PAP government's inability to fend themselves. Historically, the typical PAP's 3Cs response to any criticism - Conversation, Counter-information and Charading, used to work on Singaporeans, but not in this case when real stories of retirees struggling for a living are seen everyday happening on the streets. As such, Singaporeans are more likely to believe the inadequacies of the CPF than the rookie Minister who makes blanket statements.

However, the CPF may not be a failed scheme by itself have it being supplemented and coordinated with other policies especially in the area of manpower, housing and immigration. The current CPF system is unsuitable for the environment it is in, even though we all agree that the fund should be self-sustaining and not cause a deficit in every year's Budget.

Here are some of the design flaws of the CPF:

1) Minimum Sum without Minimum Wage
The CPF Minimum Sum was set upon and increased by an incorrect barometer - inflation rate. This has caused much grievances especially when salaries have not kept paced with inflation. How should we determine the Minimum Sum when we do not have a Minimum Wage? The PAP worry that businesses may be unsustainable because of a Minimum Wage, but they do not worry if Singaporeans' lives would be sustainable with such a high Minimum Sum. Singapore should set a Minimum Sum which is based on a Minimum Wage that it should have implemented since ages ago. The right idea of a Minimum Sum of $155,000, is that the PAP government tops up whatever MS shortfall for those who do not meet the MS, say, by the age of 50 (or a few years before retirement), and not expecting people to face the inhumane choice of meeting the MS or continue working.

2) CPF interest rates pegged to market interest rate
The CPF Ordinary Account interest rate is pegged to the 12 month fixed deposit and savings rate of the local banks. This is a recipe for disaster because if not for the legislated minimum amount of 2.5%, our CPF OA rate will be 0.21% per annum. Interest rate is vital because it not only helps to grow the CPF fund so we could depend less on wage growth, it preserves the fund value so it will not leak out to yearly inflation. The purpose of the CPF is to provide a retirement for account holders, and not to become a market-based saving account which pegs itself to the market interest rate and 12 month fixed deposit interest. Based on this mission, the CPF interest rate should rightfully peg to, arbitrarily and modestly speaking, 1% higher than that of the yearly announced inflation rate.

3) Retirement/Withdrawal Age pegged to average longevity
It is a fallacy to believe when people are living longer, their employment age and economic-viable period magically lengthens. Raising the Retirement/Withdrawal Age must be justified with relevant facts that can prove Singaporeans elderly are getting healthier, lesser Singaporean elderly need more healthcare, the job markets are paying better and hiring old people etc. The longevity or median deceased age is not relevant and doesn't justify why should the average Singaporean be working longer.

4) Allowing CPF OA to purchase Housing
When this rule was first introduced in 1989, HDB prices shot up and never came down since. The other unreported news was that the retirement fund of Singaporeans went down and never came up too. It is a zero sum game - the amount of wealth did not change. The resulting inflation of the HDB prices was marketed as "Capital Appreciation" of which homeowners will get to downgrade and earn a tidy sum for retirement, this however is what I would liken to a Ponzi fairy tale, where the later generations or later buyers will eventually find themselves in a position where no new buyers could afford their exorbitant HDB flats without destroying their retirement needs. Some would question if I would promote the other extreme, that to make people pay for their housing through cash and not by CPF, I would say yes because that was how our parents' generations bought their first HDB flats for two decades before 1989.

5) Separation of OA, SA and MA when you actually have so little
The idea of fund segregation works if you have at least half a million sitting in your CPF after paying off the house, but to the average Singaporean who could only have barely up to $250K in CPF after working up to 67 years old, it is unlikely that you will be able to satisfy any single purpose of your needs in housing, retirement or medical. You will find that you are stuck in nowhere - too little in OA to buy a flat, too little in SA to retire and too little in MA to financially survive a major operation. For those with low CPF funds, they are often barely surviving with take-home cash i.e. a cleaner taking home $800 for a $1000 salary, which leaves you really stuck in the daily cost of living too. We should consider a CPF-lite version for the low income earners, where at least 2 out of 4 needs could be sufficiently met while the other 2 aspects will have to rely on social benefits.

Cheated Singaporean
Alex Tan

Tuesday, 10 June 2014

Reply to Cass Owary's reply to Roy's reply to CPF's reply to Singaporeans

Cass Owary's is your typical Internet Brigade, or more infamously known as the PAP troll. They are not interested in a sound debate, they are there to defame your character so whatever reasoned arguments you make will be invalid. Ad hominem attacks like this is a very common strategy used by the PAP troll. They make big claims about others' credibility using names like Warren Crass, Bryan Ti or in this case, Cass Owary(name of a bird, google it up). What caught my attention this time is Cass Owary's attempt to be logical, and he could have passed this off easily to the untrained eye.

Below is my reply to "Cass Owary"'s reply on Roy:

Thank you for starting off the your first paragraph calling Roy's speech "full of emotions but short on facts". It actually attracted my attention and made me read more what you have written. However, I will not make any snide remarks like you did and simply leave the judgment to readers. To better size up the fallacies in your reply, I have numbered them as follow:

1) Government's cash inflow does not come from CPF funds, it comes from the profits made from CPF funds. This in essential is taxation because rightfully, whatever amount in excess made from CPF funds should be returned to the rightful CPF account holders who lent them the seed capital.

2) Budget surplus is not given away to TH, GIC or MAS to invest. They are tucked away in the Reserves. The Government does not invest, it issues bonds called SGS.

3) CPF funds are lent to TH and GIC through the CPF Board. How could PM Lee, as the Government, not know the amount of funds CPF Board loaned out, and at the same time, as the Chairman of GIC, not know the amount of funds GIC borrowed from CPF Board? If he doesn't even know the basic of how much is loaned or borrowed on the two organizations on the same transaction, how much further clueless is he? Money is fungible indeed, but there must be accountability and transparency from the CPF Board, because the CPF is the people's hard-earned money and not yours for the PAP to keep.

4) Roy Ngerng is making something out of nothing, probably out of ignorance." - snide remark yet again

5) Transparency or Accountability? Let me quote you quoting Roy:

“So I ask again, did the GIC and Temasek Holdings use our CPF money?How long have they been using our money to earn for themselves?How much money have they earned with our CPF?We want full reports. Not just from today. But for all the years since 1974, when Temasek Holdings was first started.What have they done with our money?”

The question Roy asked is about accountability. What have they done with our money, and more explicitly, the excess profits made from the CPF seed capital? Telling me TH scoring 10/10 on Transparency sheds no light about Accountability and where that excess profits have gone to. You don't get all sorts of information from TH and GIC as Cass Owary claimed.

6) Roy did not say Temasek makes 16% profit every year, he said Temasek Holdings earned a 16% return for the past few decades since inception and the fact is that Singaporeans did not get 16% interests in their CPF since Temasek Holding's inception. CPF's interests is made from Temasek Holdings' returns, but not every cents of Temasek Holdings' returns goes back into CPF's interest. Cass Owary have simply capitalized on the semantics to make Roy look bad.

7) Rate of return is not guaranteed, so are interests rates. When a bank goes bust like the recent Lehman Brothers (a listed bank since 1887), or when governments like Iceland and Spain went bankrupt in 2008, no capital were guaranteed let alone interests. It is a fallacy to assume the Singapore government, CPF Board, Temasek Holdings and GIC are safe. Nobody is safe. Over leverage and you risk default, but we don't know how leveraged TH and GIC is. One thing we know the Singapore government has one of the highest debts in the world and we can safely call the Singapore government "over-leveraged".

8) For a fair comparison, we should compare CPF returns to a 30 year bond like the Korea's 30 year bond which yields a 4.14%. Cass Owary compared it to a 1 year bond, but we all know we can't even touch our CPF in 30 year's time for most of us, let alone 1 year.

9) High income per capita coupled with high inequality simply means the rich are getting richer and the poor are getting worse. 26% of Singapore's population are below the unofficial poverty line (PAP denies the need for a poverty line but we set it to UN's standard of less than half of the median salary's at $3500). If Singaporeans are so rich, why do we rank so poorly on the domestic purchasing power index?

10) Singapore's unemployment rate for Singaporeans is 3.1%. This figure has been massaged by the PAP government because about 40,000 of the NSFs are included in as "employed". So are retirees, while unemployed retirees are not part of the unemployment stats because they are, well, retirees. So are unemployed mothers, well, they are "housewives". The real unemployment rate is actually a lot higher when you factor these people in. I'm not saying MOM is lying, but I seriously doubt their methodology.

11) Home ownership is third highest in the world, so are debts. Singapore's debt to income ratio is at a dangerous 2.1 times, and at least 20% of us are in 40-60% debt. This is a prelude to a credit crisis, again, overleveraged.

12) When an old man squandered away his CPF savings in a year, does it mean everyone is doing it too? We get idiots all the time, but fortunately they are a minority. This is just another flimsy lame story cooked up to lock up your CPF. I could turn the argument: if all the money are kept by CPF, wouldn't Temasek Holdings and GIC squandered them away in a short time like this $58 Billion loss?

Alex Tan