[h=2]ST: CPF can’t please everyone[/h]
June 8th, 2014 |
Author: Editorial
In a Sunday Times’ article today (‘Can’t Please all Fund members’, 8 Jun), it was reported that there are currently 2 main public unhappiness over CPF:
The people want more flexibility to withdraw their funds should they find themselves, say, jobless.
The second concern arises from the point that CPF returns have not kept pace with inflation in recent years.
The article also highlighted that there is suspicions and conspiracy theories that allege the Govt is changing the rules on the CPF Minimum Sum and withdrawal age because it relies on CPF monies as a cheap source of funds to either enrich itself or to cover up losses by its sovereign wealth fund GIC and investment company Temasek Holdings.
The article then quoted an MOF’s official reply last month [Link], saying that no CPF monies go towards government borrowing as that is prohibited by law.
That is to say, the government does not borrow CPF monies for its budgetary spending. There is no need to anyway, given that Singaporeans have been over-taxed directly and indirectly year-in and year-out, generating government budgetary surplus in almost every year.
The article also echoed MOF’s reply that Temasek does not manage any CPF monies and that there is no link between CPF interest rates and the returns earned by GIC, as the CPF monies are invested entirely in risk-free assets, namely, Special Singapore Government Securities (SSGS).
According to MOF’s website [Link]:
The MOF’s website also said that the borrowed monies are invested via MAS and GIC but ultimately, it would be managed by GIC. The website said:
In the official MOF’s reply, it emphasized that Temasek does not manage CPF monies:
It’s about the perceived injustice when Singaporeans are compelled by force to lend their monies to the government at a nominal rate of 2.5% (CPF OA rate), when the government is using these monies to help generate a real rate of 4% return for itself (See GIC’s long-term real rate of return). Real rate of return means returns over and above the inflation rate.
It is with this perception that the people are “charging” the government for “using CPF as a cheap source of funds”.
- CPF members having no say in how much of their income goes into the compulsory savings scheme
- Rate of CPF return
The people want more flexibility to withdraw their funds should they find themselves, say, jobless.
The second concern arises from the point that CPF returns have not kept pace with inflation in recent years.
The article also highlighted that there is suspicions and conspiracy theories that allege the Govt is changing the rules on the CPF Minimum Sum and withdrawal age because it relies on CPF monies as a cheap source of funds to either enrich itself or to cover up losses by its sovereign wealth fund GIC and investment company Temasek Holdings.
The article then quoted an MOF’s official reply last month [Link], saying that no CPF monies go towards government borrowing as that is prohibited by law.
That is to say, the government does not borrow CPF monies for its budgetary spending. There is no need to anyway, given that Singaporeans have been over-taxed directly and indirectly year-in and year-out, generating government budgetary surplus in almost every year.
The article also echoed MOF’s reply that Temasek does not manage any CPF monies and that there is no link between CPF interest rates and the returns earned by GIC, as the CPF monies are invested entirely in risk-free assets, namely, Special Singapore Government Securities (SSGS).
According to MOF’s website [Link]:
“CPF monies are invested by the CPF Board in Special Singapore Government Securities (SSGS*) that are issued and guaranteed by the Singapore Government. This assures that the CPF Board will be able to pay its members all their monies when due, and the interest that it commits to pay on CPF accounts.”
* Special Singapore Government Securities (SSGS) are non-tradeable Government bonds issued to the CPF Board. The securities earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
In effect, as CPF monies keep rolling into CPF Board every month, the Singapore government keeps borrowing from CPF Board via issuance of bonds.* Special Singapore Government Securities (SSGS) are non-tradeable Government bonds issued to the CPF Board. The securities earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
The MOF’s website also said that the borrowed monies are invested via MAS and GIC but ultimately, it would be managed by GIC. The website said:
“However, as a major portion of these assets are of a long-term nature, such as those that provide backing for long-term Government liabilities like SSGS, such assets are transferred to GIC to be managed over a long investment horizon.”
MOF also added that GIC manages not only funds from SSGS (i.e, our monies through CPF Board), but also government budgetary surpluses and monies from other government bonds like SGS (market-based Singapore Government Securities).
In the official MOF’s reply, it emphasized that Temasek does not manage CPF monies:
“The SSGS proceeds are not passed to Temasek for management. Temasek hence does not manage any CPF monies. Temasek manages its own assets, which have accrued mainly from divestment proceeds from sale of its investments and reinvestments of dividends and other cash distributions it receives from its portfolio companies and other investments. Temasek also has its own borrowings and debt financing sources. The Government’s relationship with Temasek is that of its sole equity shareholder.”
To “confuse” the issue further, the article quoted an ST interview with DPM Tharman in 2007:
He (DPM Tharman) said in an interview with this newspaper that the charge of the Government using CPF as a cheap source of funds was “wrong and plainly misleading”.
“The Government doesn’t need to borrow from the CPF. If we needed to borrow, we can borrow from the market at lower rates than from the CPF. Every finance professional knows that.”
“If we had issued one-year treasury bills, the rate we would have paid over the last 10 years would have been 1.7 per cent on average.”
“If we wanted to borrow through longer-term bonds, we could issue 10-year bonds and pay the market rate, without the plus one percentage point. So if the Government needed to borrow money, it can do so at lower cost.”
“CPF money is actually expensive money for the Government, not cheap money,” he added.
It is a pity that such allegations continue to fly about for they cast government and people as enemies when they are not.
The issue isn’t about how the government is able to find cheaper funds to borrow from.“The Government doesn’t need to borrow from the CPF. If we needed to borrow, we can borrow from the market at lower rates than from the CPF. Every finance professional knows that.”
“If we had issued one-year treasury bills, the rate we would have paid over the last 10 years would have been 1.7 per cent on average.”
“If we wanted to borrow through longer-term bonds, we could issue 10-year bonds and pay the market rate, without the plus one percentage point. So if the Government needed to borrow money, it can do so at lower cost.”
“CPF money is actually expensive money for the Government, not cheap money,” he added.
It is a pity that such allegations continue to fly about for they cast government and people as enemies when they are not.
It’s about the perceived injustice when Singaporeans are compelled by force to lend their monies to the government at a nominal rate of 2.5% (CPF OA rate), when the government is using these monies to help generate a real rate of 4% return for itself (See GIC’s long-term real rate of return). Real rate of return means returns over and above the inflation rate.
It is with this perception that the people are “charging” the government for “using CPF as a cheap source of funds”.
not everyone is still working at 55 years...spare a thought for them.
