The PAP has been offering unbelievable justifications to pay CPF members below-inflation rates for decades. GIC, which manages our CPF, has been underperforming for decades, leading to our huge retirement shortfall.
GIC has stubbornly refused to be transparent because public scrutiny will confirm its subpar performance. The transparency of EPF really puts GIC and the PAP to shame.The PAP has been disclosing meaningless statistics to the public on GIC’s performance – CPF members are only concerned with our returns. No point to keep repeating how well GIC has been managing our CPF when returns cannot even beat inflation for the last 2 decades.
A pension system which cannot provide adequately for our retirement is obviously flawed. The PAP must not be allowed to continue paying CPF members such unbelievable low rate of returns after shortchanging us for decades.
Just what is wrong with our model becomes obvious when we compare to our neighbour’s EPF system.
1 – The PAP has erred by taking excessive risks and allowed ALL CPF monies to be invested overseas although they are eventually converted into local currency. Under Malaysia’s EPF, only 23% is invested outside the country. 77% of the fund is invested inprofitable Malaysian companies and prime properties yielding good returns.
The PAP could have done likewise by investing CPF monies in the stable of Temasek-linked companies which have become very profitable after using CPF monies to set updecades ago.
But the PAP prefers to keep all these profitable companies to itself, redistribute cash to itself and wealthy shareholders but takes excessive risks for CPF members and continue paying a miserable average return of 3.5%.
Some years back, there was a huge cash distribution and unlocking of capital from non-core assets and billions of dollars were returned to shareholders and the government eg.Singapore Airlines, Natsteel, SPH, etc. Do we need a CPF Pioneer Package to recognise our contributions?
2 – In the ‘EPF Boleh’ system, the target return is 2% above the inflation rate. For our ‘jiak liao bee’ CPF system, the PAP targets our returns at peanuts bank interest rates and ignores inflation!
The EPF is an apple to apple comparison. Now when we take a look at the 20 year difference, we can see clearly the fund managers at at GIC has been overpaid.
The table below shows the actual EPF rate. CPF rate is the estimated average of the OA, MA and SA after taking into account their different weightage.
Let’s look at the returns of an initial balance of $10,000 in the EPF and CPF.
| YEAR | EPF % | $ | CPF % | $ |
| 1994 | 8 | 10800 | 2.5 | 10250 |
| 1995 | 7.5 | 11610 | 3.7 | 10629 |
| 1996 | 7.7 | 12503 | 4 | 11054 |
| 1997 | 6.7 | 13341 | 4 | 11496 |
| 1998 | 6.7 | 14235 | 4.5 | 12013 |
| 1999 | 6.84 | 15208 | 4.5 | 12554 |
| 2000 | 6 | 16121 | 3 | 12931 |
| 2001 | 5 | 16927 | 3 | 13319 |
| 2002 | 4.25 | 17646 | 3.5 | 13785 |
| 2003 | 4.5 | 18440 | 3.5 | 14267 |
| 2004 | 4.75 | 19316 | 3.5 | 14767 |
| 2005 | 5 | 20282 | 3.5 | 15284 |
| 2006 | 5.15 | 21326 | 3.5 | 15818 |
| 2007 | 5.8 | 22563 | 3.5 | 16372 |
| 2008 | 4.5 | 23579 | 3.5 | 16945 |
| 2009 | 5.65 | 24911 | 3.5 | 17538 |
| 2010 | 5.8 | 26356 | 3.5 | 18152 |
| 2011 | 6 | 27937 | 3.5 | 18787 |
| 2012 | 6.15 | 29655 | 3.5 | 19445 |
| 2013 | 6.35 | 31538 | 3.5 | 20126 |
The annualised compounded interest is 5.91% for the EPF and 3.56% for CPF. Over a period of 20 years, the EPF made a profit of $21,538 while CPF only $10,126. The difference is $11412. For those with $100,000, the difference under the 2 systems would be a staggering $114,120!
Some may argue against comparing CPF with EPF but why not? Aren’t GIC fund managers, who are paid humongous salaries and bonuses, supposed to deliver superior returns?
Anyway one looks at our CPF system, the conclusion is we have not been paying peanuts but still got monkeys who are not accountable for our retirement shortfall.
Conclusion
The CPF model is seriously flawed and perhaps we should model our fund management on Malaysia’s superior EPF system.
The PAP has kept all the profitable GLCs, many built from scratch with CPF monies, to itself in Temasek Holdings but takes excessive risks with CPF members’ savings by investing them overseas.
Compared with EPF, GIC’s underperformance is glaring and given the opportunity, its fund managers should be sacked.
The cause of our retirement shortfall is directly related to PAP’s flawed pension model. The PAP must return whatever amount it has shortchanged CPF members and not deprive us of our retirement.
Phillip Ang
*The author blogs at http://likedatosocanmeh.wordpress.com