CPF LIFE: Everyone shall wear the same size of shoes by law
This has led Singaporeans to question the real motive for the CPF and its latest policy changes
We view CPF LIFE – the mandatory annuity scheme of the CPF – and the government’s justification for it with great bewilderment. Why should the state mandate annuities for Singaporeans? Isn’t it already quite adequate to mandate CPF contribution rates for the employee?
The government’s policy of relinquishing the rights of its citizens in deciding how best to plan for retirement beggars belief. It has argued that mandatory annuities promotes social security. This argument does not hold water.
Neither does their argument that a mandatory annuity saving plan will mitigate the problems of an ageing population. A high savings rate and annuities, by themselves, will not provide enough if the returns from CPF savings do not beat inflation.
It is akin to saying that in order to ensure everyone is able to own shoes, the government will legislate that all citizens shall wear the same state-produced shoes, which only comes in one size.
The potential, perverse effect of the new CPF policies
With the increasing CPF minimum sum, Singaporeans are also trying to use their funds in their CPF accounts faster than before, in a bid to exhaust their CPF funds for investments before they hit the age of 55. Often, they do so by investing in bigger homes.
Are we not afraid of a debt and housing bubble under mandatory savings and – worse still – mandatory annuities?
We should not underestimate the ability of individuals to plan for retirement. We should not direct how individuals live their lives. Choices are important. For the state to intervene so directly could result in distortions in the economy too, as manifested in a potential housing bubble cited above.
If we have to create a state-directed social safety net, the government can create a comprehensive, opt-in social safety net scheme. They can let Singaporeans decide for themselves if they want to be a member of such a scheme.
Real reasons for CPF? What Singaporeans think
By making Singaporeans save so much and yet provide low return rates of 2.5%, we are literally robbing Singaporeans. Even after our high savings rate, Singaporeans fail to mitigate high inflation rate.
There are Singaporeans who suspect the government’s intention of having mandatory retirement savings to benefit itself. In this line of thought, a greater amount of funds in the CPF would help the government grow the sovereign wealth funds further.
Firstly, the government would enjoy access to cheap funds domestically. Secondly, the government would get to place their retired generals and administrative officers in plum jobs connected to the sovereign wealth funds and the firms linked to it. This only creates a system beholden to the existing government. For these critics of the CPF, this explains very well the rationale behind the following aspects of the CPF:
1. Mandatory savings
2. High rate of savings
3. Low rate of returns
4. Conversion of lump sum payout into annuities.
Can we blame them for casting such aspersions on the real intent of the CPF and its latest policy changes?
Co-authored by:
Loke Hoe Yeong, Head, SG New Policy Thinking (Twitter:@lokehoeyeong)
Han Solo
http://sgnewpolicythinking.tumblr.com/
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