How Much CPF Are Singaporeans Losing To The Government?

How much CPF are Singaporeans losing to the government?

For a long time, the government has denied that they have taken our CPF to invest in the GIC (Lee Kuan Yew denied this in 2001 and 2006, and Ng Eng Hen in 2007).

But in June this year, the government admitted for the first time ever that they take our CPF to invest in the CPF. They have long denied this and never wanted to admit the truth for the past 15 years (at least).

The Government Takes Our CPF to Invest in GIC but Does Not Return the Earnings Back to Singaporeans

Now, the GIC earns an estimated average annual returns of 6% since it was formed in 1981 but Singaporeans only earn between 2.5% to 4% on our CPF, or an estimated average of 3%.

If so, how much money are Singaporeans losing from the returns the GIC earns on our CPF, but does not returned?

The Government Forces Singaporeans to Pay 60% of Flat Prices to Land Which Singaporeans Do Not Own

Next, National Development Minister Khaw Boon Wah has admitted that, “Firstly, we control the construction programmes. Secondly, we set the price (for the flats).”

Earlier this year, the government also finally admits that Singaporeans do not own our homes, we are only paying for leases on the flats which would have zero value at the end of their leases. The flats will then be returned to HDB and the land returned to the government.

As such, Singaporeans are not “buying” the flats. We are only renting on a long term basis.

Since 2008 “land costs have grown at an average compound rate of 18.2 per cent a year, compared with 9.1 per cent for HDB resale prices” while “incomes rose at a compound annual rate of 5.3 per cent for the average household”. This means that land costs and flat prices have been rising much faster than our incomes, and Singaporeans have to pay more and more of our wages into paying for the flats.

But if we do not own the land (nor even the flats) and are only renting our homes, then why are we paying so much for the flats and why are we even paying for the land?

It was also reported that, “Land now makes up about three-fifths of development cost on average, up from two-fifths in 2008″.”

Leong Sze Hian also estimates that of the flat prices we are made to pay, 60% of the prices actually go into land costs.

If so, how much are Singaporeans losing from having to pay the government for the land which we do not own?

A Singaporean Earning $1,000 who Works from 25 to 55 Will Lose Nearly $300,000 to the Government

So, how much are Singaporeans losing from our CPF to the government?

Let’s first look at someone who starts work at age 25 today and who earns $1,000. If his/her salary increases by 4% every year and he/she continues to earn only 3% on the CPF every year, by the time he/she is 55 in 30 years time, he/she would have only saved $374,893 inside the CPF.

But as stated, our CPF is actually earning 6%. If so, if a person earns this 6% interest on our CPF, then we would have saved $583,217 at 55.

This is a difference of $208,324 that a person would lose!

On top of that, a person might pay for a smaller flat at $200,000 today. If he/she buys it with a partner and both pays for the housing mortgage (which can amount to about $270,000) in equal proportions, then each person might pay $135,000 in housing mortgage.

Now, if land costs make up 60%, then a person would be throwing $81,000 down the drain to pay for land which one does not own.

If so, for a Singaporean who earns $1,000, he/she might be losing at least $289,324.

And this is assuming that a person gets a constant 4% increment on his/her salary and continues being employed for 30 years. However, as it is, for low-income Singaporeans, from age 40, our wages will start declining and there will be negative real wage growth. This would mean that a person would lose even more of his/her money.

A Singaporean Earning $3,000 who Works from 25 to 55 Will Lose Nearly $750,000 to the Government

If we look at the average Singaporean who earns about $3,000 and who also sees a salary increase of 4% and a CPF interest rate of 3% every year, he/she is expected to save $1.12 million inside the CPF by age 55.

However, if we should earn the 6% that we should rightfully earn on our CPF, then we should rightfully have accumulated $1.75 inside our CPF.

This means that we are losing $624,972 on our CPF!

Not only that, if a person pays for a flat for an average of $300,000 (with a housing mortgage of $400,000), he/she and the partner would have to pay another $200,000 each into housing loans.

Land costs would take up $120,000.

If so, a person is potentially losing $744,972 on our CPF!

Again, this is assuming that we see a constant wage increase of 4% every year, but most of us don’t, and not only that, our wages will start declining or stagnating from age 40 – which explains why most of us would never see even $1 million inside our CPF.

A Singaporean Earning $1,500 who Works from 21 to 65 Will Lose More than $1.5 Million to the Government

But what if we look at a person who starts working at a younger age for a longer period of time?

Leong Sze Hian had showed that “If you start work at say 21 years old with a salary of $1,500 – increasing at 4% per annum until age 65 – at 3% interest, you would have accumulated $1,491,087 at age 65.”

And if “If the nominal rate of return (on the CPF) is say 6% (the historical average real rate of return after adjusting for inflation of national pension schemes in the world is we believe about 4%) – you would have accumulated $2,953,777.”

He calculated that for a Singaporean earning $1,500 and who starts work at 21, he/she would ” have been short-changed by $1,462,690″ by age 65!

And if you include the $81,000 that a Singaporean has to pay for housing into land costs, a person would be losing more than $1.5 million!

A Singaporean Earning $3,000 who Works from 21 to 65 Will Lose More than $3 Million to the Government

And for the average Singaporean who earns $3,000, this would mean losing as much as $3 million!

A Singaporean Earning an Average Wage from 1980 to 2011 Has Lost More than $260,000 to the Government

Prof Christopher Balding also calculated that for “a Singaporean worker started earning an average Singaporean wage in 1980 and earned an average wage every year through 2011 according to IMF and Singapore Ministry of Finance data”, ” an average worker would have earned a total of $898,227 SGD in wages over that period and contributed $318,871 SGD between employee and employer contributions to a CPF account.  Interest growth would total $218,241 bringing the accumulated savings of the average employee to $537,112 SGD, assuming that the money has not been withdrawn for something such as the purchase of a flat.”

He also calculated that if “instead of receiving the “guaranteed” CPF rate of return that savers instead earned the GIC long term average of 7% (in 2013)”, “The “average” Singaporean would now have saved $798,806 SGD.  In other words, if CPF savers only earned the GIC rate of 7% rather than the CPF rate, the “average” Singaporean would be $261,694 wealthier.”

A Singaporean Earning an Average Wage from 1980 to 2011 Would Have Lost Nearly $4 Million to the Government (on Temasek Holdings Returns)

Leong Sze Hian and I have also traced how our CPF was indeed transferred to Temasek Holdings to manage. Prof Christopher Balding has also calculated, in the same trend, that if “Singaporean earned a Temasek rate of return, they would be sitting on $4.5 million SGD a difference of $3,984,258 SGD from the current balance.”

The Average Singaporean Will Lose $700,000 to $3 Million to the Singapore Government

So, depending on how you look at it, the average Singaporean is losing between $700,000 to $3 million to the Singapore government, or as much as more than 50% of what we should rightfully earn!

In effect, what the government is doing is to say – let us take your CPF and what it earns, then we take half, you take half. OK? And they do this without asking you for your agreement. Are you OK with it?

This $700,000 to $3 million is a lot of money which would have enabled all Singaporeans to live very comfortably.

But why is this not happening?

Why are 90% of Singaporeans today not even able to meet the CPF Minimum Sum of $155,000 and are not able to retire? Meanwhile, the government and ministers earn extravagant salaries in the millions and the highest in the world, which would give them no problem at all to live a very luxurious lifestyle. But this at the expense of Singaporeans  – are they still worthy of being in government?

What exactly is wrong with the system?