I support the CPF scheme for the most part. Its principles are essentially sound, although there are many things about how CPF works that are just bewilderingly at odds to me.
This, of course is no grounds for me to march off to Hong Lim Park, but it does make me want to shrug my shoulders.
It seems rather strange that the Minimum Sum is pegged to inflation, but the CPF interest rate isn’t. Here you have a savings goal but the path chosen to get to it is… something else. Why?
I’m not saying that we’re being cheated of our money or that it’s lining the pockets of the GIC or anything. In fact, there have been one or two times when the CPF rate exceeded inflation, but it’s the principle that makes me go…
As this 2002 Asian Development Bank Institute paper by Mukul Asher had also asked, “How valuable is the guarantee of 2.5 percent nominal return? As the long-term annual inflation rate in Singapore is about 3.0 percent, the guarantee does not even preserve the principal in real terms.”
Never mind that CPF Life itself doesn’t even offer payouts that are pegged to inflation (yet – the G is looking into it, who knows how long it will take, good luck grandma).
Forced to invest like a retiree
What kind of fund buys the bonds of a single government exclusively as the be-all and end-all of its investment plan? Yay for mega-stability and reliability, but that sounds like a terrible investment strategy to me when you think of the bigger picture (caveat: I’m not an investment professional). Basic principles such as diversification and risk appetite and your age aren’t even taken into consideration. This flies against all the conventional wisdom I’ve read from Ryan Ong (of MoneySmart fame).
Isn’t the principle that each person pays for themselves? I agree with that principle, but CPF hasn’t stuck to it when it comes to investing “our money” – it’s not tailored to represent us as a whole, or as individuals, and the returns, as a result, often disappoint (emotionally).
When you’re young, you put your money down in housing; when you reach middle age, equities tend to be the way to go. Finally, when you’re all done earning, saving and profiting, the conventional wisdom is to keep your money in bonds, MMFs, and other low-risk-low-return instruments, so that the stash you’ve built up will last you for as long as you hoped it will.
The whole point of a fund like CPF is that a professional fund manager should be doing the investing and making well-educated decisions for us. Instead, we’ve got what looks like the laziest investment plan on the planet – handing cash to the G (to invest for its own, separate, purposes) for the promise of a safe but flaccid return. Great for retirees. Most of us aren’t retirees yet, and some may never be.
CPFIS: forced savings or playing around?
So, we’re saving for retirement – I get that. But what’s this CPFIS thing that allows folks to go play around with a small pool of not-too-efficient investments on their own? What happened here? Did people complain about not having control over their money so some halfway solution was built to let people feel like they can play with their money a little (and generally lose it, since only 40% of CPFIS investments outperform the CPF rate of returns)?
So, are we putting forced savings with Big Brother or investing our own money?
If you ask me, I’d rather have a proper fund manager for my CPF. That’s why we pool billions of dollars, isn’t it?
Static income cap, moving savings goal
The income cap of $4,500 has been around for a while. Why does it exist? Why does it exist at that level? Why hasn’t it changed after years and years?
The Minimum Sum savings goal moves. Wages increase (usually). Inflation. Shouldn’t the income contribution cap have gone up by now or is nobody keeping an eye on it?
So before anyone throws the accusation – I’m all for CPF. It’s helped poor, financially indisciplined me save enough to pay for a home and hopefully enough medical to keep me working to the end of my days. But some things just don’t click for me. Anyone got enlightenment?
NOTE: I stand corrected! The contribution cap is $5000, up from $4500 in 2011. Thanks “Daniel Tay”. Still don’t know if it is inflation-pegged.