This is a follow-up to my previous article in regards to the comparison between EPF and CPF. Here, we look at what the Singapore Government should have paid into our CPF accounts to equalize the effect of inflation.
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Total Balance | 151,307 | 166,804 | 185,888 | 207,546 | 230,158 | 252,969 |
| Ordinary Account | 65,341 | 70,594 | 77,940 | 85,085 | 91,862 | 98,336 |
| Special Account | 30,547 | 35,389 | 40,393 | 46,534 | 53,192 | 60,143 |
| Medisave Account | 42,928 | 46,238 | 50,671 | 55,329 | 60,024 | 65,576 |
| Retirement Account | 12,491 | 14,583 | 16,885 | 20,598 | 25,079 | 28,914 |
As the Ordinary Account pays 2.5% through this period, let us look at what we received in our Ordinary Account against what we should have received if our Ordinary Account balance is equalized to inflation. Using Singapore inflation date from the IMF.
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Ordinary Account Rate | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% |
| Inflation Rate | 6.6% | 6.2% | 2.8% | 5.2% | 4.6% | 2.4% |
| Total Interest Paid | 1,634 | 1,765 | 1,948 | 2,127 | 2,297 | 2,458 |
| If Inflation equalised | 4,313 | 4,377 | 2,182 | 4,458 | 4,180 | 2,331 |
The government has paid $12.2b over 6 years but they should have paid $21.8b to equalize the effect of inflation and protect CPF members. Now consider that any person in the world who make an investment for healthcare or retirement , would expect that such an investment has to grow at a real inflation-adjusted rate, then it is not enough that CPF balances grow at the inflation rate. So let us use inflation index bond yields to gauge what the Government should have paid to ensure a minimum real growth in CPF balances. Using the average inflation index bond (e.g. UK, US, France) real yield of 1% over the past 6 years, we add this yield to the Singapore inflation rate to find out what the government should have paid into CPF to ensure Ordinary Account balances grow at a real rate of 1% pa.
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Inflation Adjusted Rate | 7.6% | 7.2% | 3.8% | 6.2% | 5.6% | 3.4% |
| 1% Growth Pay-out | 4,966 | 5,082 | 2,962 | 5,309 | 5,098 | 3,314 |
To ensure that the OA balance grow at 1% inflation-adjusted rate, the government should have paid out $26.7b. From the above numbers, the government should have paid out $9.6b more if the OA balances are equalized to inflation, meaning Account holders do not suffer from loss of purchasing value. Taking it further, the government should have paid out $14.5b more if the OA balance should grow at an inflation adjusted rate of 1% pa, taking into consideration that the average lock-up period of CPF monies is in excess of 15 years (assuming paying first CPF at age 22 and taking out Minimum Sum at age 62).
Can the government afford this? Let’s look at the budget surplus using the following 2009-2011 data from the World Bank and 2012-2013 from MOF estimates
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Surplus Amount | 20,900 | 4,400 | 24,400 | 31,900 | 2,500 | 3,900 |
The government has generated a total budget surplus of $88b. If CPF Ordinary Account balances were equalized to the inflation rate, the extra pay-out amounts to just 11% of the surplus. If the balances grew at a 1% real rate, then the extra pay-out amounts to 16% of the surplus. These numbers are well within the ability of the government to meet, even more so if the government spends less on fancy jetfighters and vanity infrastructure projects. But do remember, by not paying what is due to CPF members, the government adds to its own surpluses. Therefore, when one consider the $8b Pioneer Generation Package (in reality, it is approximately $6.4b if one assumes equal annual disbursement of $8b over the next 20 years and then discount the future cashflow to present value), one should also consider that it has already been paid for by CPF members.
Armchair Anarchist