Our CPF system is a social security net. It is a system of forced saving. The history of such systems is simple and understandable. With a largely uneducated population, it was wise to organize some form of of forced saving to make sure that all citizens had some savings when they are too old to work anymore- something which (the then)common folk might not be able to adequately plan for. After all. It was a social service.
I am smart enough to Save/ Invest myself
There always are some ‘really smart’ people who probably would have done more productive things if they were given fluid access to their CPF (like investing for higher returns, successful start-ups ect.). However, the problem has been (and still is) that how are we going to determine who we should trust to plan their savings by themselves? Should we use education level? Should we administer a nationwide IQ test?
What happens if we lose our CPF monies?
Okay, let’s say the government allows us to access our CPF monies fluidly. Then some Singaporeans gamble all their money away, or lose ll their money in investments. Or he just doesn’t save enough. What happens to this Singaporean when he is old and has no savings? Since he chose to spend all his money without saving, does this mean he now deserves to be old and poor with absolutely no money? Do you think as society, we will accept it? The liberals obviously won’t, and thy’d still expect the rest of the responsible tax payers to ‘pay for their upkeep’. This is just going to cost the rest of us more money/ higher taxes,
Why the 4% interest?
This is probably the most iffy part of our CPF system. First, we must understand that the CPF is probably the most safe you can keep your money as it is guaranteed by the state. Banks can go bankrupt. It is much harder for a state to ‘go bankrupt’. So on that note, if we view the CPF from this angle, then the interest rates we should expect (from a service point of view) would be lower than a banks interest rate a fixed deposit for about 40 years (Retirement account). This would probably turn out to be lower than 1%.
But of course we know banks use our savings to invest and make good money from it. That’s how they pay rental for all their outlets and pay their staff well ect. The global average return for hedge funds last year was 6.2%. We also know that our government is very good at investing, we get returns that rival the world’s leading hedge funds. In 2012, Temasek reported an return of 11%. (S&P 500 returned 13%). Do take note that hedge funds can actually lose money. You have to spend a lot of money hiring really good and smart investment bankers to ‘ensure success’.
Now if our government were to truly be altruistic, after paying the investment bankers (which is about 2% out of the 11%, the rest of the profit would be returned to us. However, this rate would fluctuate year on year.
But our government does not do this for a number of reasons. But mainly, it’s because of insurance Remember that our CPF monies are gurarenteed by the state. As such, the state needs to take protective measures to ‘guarentee’ our money. As such it needs to save some of the profits for a rainy day. What ifi invesments(overall) make a loss next year?
Anyway, I think the lower interest rates helps in ‘returning wealth to the poor’. Think about it, the rich who have a lot of money in their CPF will not get the much higher returns. Instead the money earned from investing will go to the governments central fund which will be used on social assistance ect.
Conclusion
CPF is a neccesary evil to make sure even the ‘dumbest Singaporean’ has some savings. The only way to safely do away with such a compulsory system is if we agree as a society to 1. Set up a metric/ exam to judge whether someone is smart enough to handle his own money and 2. We accept that if individuals choose to opt out of the CPF system, and waste their money, they deserve to end up as beggars on the streets with absolutely no money at all.
As for the interest rates, I personally do want them to be higher, and I guess it’s something we can lobby for. But we must also be willing to accept more risks as with higher interest rates, comes less ‘emergency monies’.
SG Bangla
TRS Contributor
Editor's Note: Or we can just have a good and feasible pension scheme that give the retirees a small sum of money every month for them to survive. What do you think?