The CPF Mystery that has befuddled the Nation

[scroobal]

1) So what has been the actual historical returns over the years for the CPF sums invested.
2) What is the % of the actual returns kept by the Govt or the investment vehicles (lets call it management fees and expenses)
3) Why the lack of transparency in showing these to the general public.

The 2.5% is not the actual return but the outcome of a formula and forms part of the actual return. How small or big is the 2.5% of the actual return.

Background.
The CPF Board is only allowed to buy government non-marketable bonds called "Special Singapore Government Securities" to meet their investment needs. Note the interesting phrasing - "The investment of CPF funds by the Government relieves the CPF Board from taking on the investment risk of a fund manager to concentrate on its primary role as a national social security institute".

MAS handles the bonds and parcels the proceeds into its own investment vehicle, GIC and Temasek. The proportion and actuals sums invested in these vehicles have never been disclosed. Typically it will have to be a mix based on risk appetite. The actual returns from these investments have also not been disclosed.

The Government does provide a guarantee and for that a guarantee fee out of the returns would be acceptable even if most Govt would take it part of their fiduciary duty and part of their social responsibility to its people.

The Govt needs to disclose the historical returns in order to ensure that CPF account holders are actually getting the bulk of the returns and that wanton profiteering is not happening.

And why the secrecy on the actual returns.

 

[virus]

狗急跳墙。。。kena cornered

 

[JHolmesJr]

If u buy an iphone try asking apple how much it actually costs them to make it. .

 

[laksaboy]

If u buy an iphone try asking apple how much it actually costs them to make it. .

The cost to manufacture an iPhone is already known.

http://www.cnbc.com/id/101058725

 

[Leongsam]

If u buy an iphone try asking apple how much it actually costs them to make it. .

Having worked in manufacturing for many years, I can tell you that there is no simple answer to this question. The cost all depends on the formula used by the cost accountant.

The cost of a smart phone has many components. The cost of the materials is only one of them.

There are many products which never make profit despite the fact that the material costs add up to less than $100 and it's sold for $900.

 

[sleaguepunter]

If u buy an iphone try asking apple how much it actually costs them to make it. .

cost of iphone are ard US$160-US$200 depending on model.

 

[Leongsam]

The cost to manufacture an iPhone is already known.

http://www.cnbc.com/id/101058725

That's not the "cost to manufacture". That's the "total material cost" only.

 

[kukubird58]

hahaha...u all lidat hijack my master's thread good meh???
maybe i should marched to my bank manager and asked them to show me how much they made from our deposits and why they are paying us so little interest...
in fact they even collect admin charges from you if your average balance is less than $x per month.....wtf???

 

[Agoraphobic]

To be more realistic, the cost of sales should be used instead of cost to manufacture. Advertising, promotion, storage, distributions, transport and packaging are "costs" as well.

Cheers!

Having worked in manufacturing for many years, I can tell you that there is no simple answer to this question. The cost all depends on the formula used by the cost accountant.

The cost of a smart phone has many components. ....................

 

[scroobal]

Actually no.

Fund Managers are required to disclose fees and they are audited by various authorities. There is transparency. This is a public role and for the public. These things must be transparent.

The actual returns coming out of the 3 investment arms does comes out as a notational value (nothing hazy). This is net of the charges that Temasek, GIC and MAS apply which is quite all right. Not interested in anything else.

So if the return from all 3 for argument sake is 5% each, the average return is then 5%. All the govt has to state are the historical average returns. Anyone who has held a job in business or senior civil service or i the professions or had a savings account will know that it is easy as pie.

I am aware CPF only gets the bond yield but this too me is unnecessary and form of round-tripping.

If u buy an iphone try asking apple how much it actually costs them to make it. .

 

[neddy]

The Government does provide a guarantee and for that a guarantee fee out of the returns would be acceptable even if most Govt would take it part of their fiduciary duty and part of their social responsibility to its people.

The Govt needs to disclose the historical returns in order to ensure that CPF account holders are actually getting the bulk of the returns and that wanton profiteering is not happening.

And why the secrecy on the actual returns.

Political reasons.

Remember moral hazard and conflict of interest?

 

[scroobal]

Here is an analogy.

I asked my neighbour to buy a packet of kway teow. He did and he told me that I have to share transport cost which I agreed. He then provided me with the breakdown

Kway Teow - $3.50
Transport - .50cts
Total - $4.

For the CPF, I want to know the transport cost equivalent. Not interested in how much the raw noodles cost, labour costs, kichup costs etc.

I want to see if my neighbour is conning me or not.

 

[neddy]

Here is an analogy.

I asked my neighbour to buy a packet of kway teow. He did and told him that I have to share transport cost which I agreed. He then provided me with the breakdown

Kway Teow - $3.50
Transport - .50cts
Total - $4.

For the CPF, I want to know the transport cost equivalent. Not interested in how much the raw noodles cost, labour costs, kichup costs etc.

I want to see if my neighbour is conning me or not.

Your neighbour uses LEE Transports $1 and not Woodlands Transports 35cts. That's why.

I forgot to add, LEE Transports give neighbour points towards a Free Massage from a female pinky LEE family member

 

[kukubird58]

Here is an analogy.

I asked my neighbour to buy a packet of kway teow. He did and told him that I have to share transport cost which I agreed. He then provided me with the breakdown

Kway Teow - $3.50
Transport - .50cts
Total - $4.

For the CPF, I want to know the transport cost equivalent. Not interested in how much the raw noodles cost, labour costs, kichup costs etc.

I want to see if my neighbour is conning me or not.

hahaha....sure sign of clutching at straws....
better to act dunm and let this pass lah....

 

[scroobal]

In the past, people accepted the lack of transparency as the country was booming and everyone had a fair chance of success. Not anymore. Transparency is now material.

In this day and age, any government which struggles to even publish data, information etc which is readily available becomes a concern. This is not in the realm where you need 50 man years to come out with the figure. These figures are readily available.

Or at the very least explain it is so hard or difficult as the Accountant General did on the market value computation of physical assets.

 

[Leongsam]

To be more realistic, the cost of sales should be used instead of cost to manufacture. Advertising, promotion, storage, distributions, transport and packaging are "costs" as well.

Cheers!

The biggest costs are incurred long before mass production starts. These costs ie R&D, tooling etc are then amortised over X number of units. X is determined by the accounting department.

A stamping die for just one $5 part can easily cost $300,000 dollars.

Then there's overhead absorption of the cost of running the whole factory which is always a lot more than just the material costs.

All of the above costs are based upon an assumed yield. If the product line is running below the expected yield, the product is usually losing big money.

 

[Leongsam]

In the past, people accepted the lack of transparency as the country was booming and everyone had a fair chance of success. Not anymore. Transparency is now material.

In this day and age, any government which struggles to even publish data, information etc which is readily available becomes a concern. This is not in the realm where you need 50 man years to come out with the figure. These figures are readily available.

Or at the very least explain it is so hard or difficult as the Accountant General did on the market value computation of physical assets.

If these costs are disclosed, "competitors" will learn Singapore Inc's trade secrets and the country will lose its competitive edge.

 

[Agoraphobic]

Mass production is what brings the costs down. For those who prefer "custom" made, they have to pay more, that's basic. You are right, the recovery cost for R&D and setup are a major factor, but after that "hurdle" most consumer items can be made quite cheaply via automation and assembly lines. Bulk procurement of raw materials also contributes to it. Just wondering in future when our species has learned how to harness fusion energy and energy costs become cheap cheap, how much will they have to charge to recover the development costs to break even? It won't be that cheap anymore.

Cheers!

The biggest costs are incurred long before mass production starts. These costs ie R&D, tooling etc are then amortised over X number of units. X is determined by the accounting department.

A stamping die for just one $5 part can easily cost $300,000 dollars.

Then there's overhead absorption of the cost of running the whole factory which is always a lot more than just the material costs.

All of the above costs are based upon an assumed yield. If the product line is running below the expected yield, the product is usually losing big money.

 

[Leongsam]

Mass production is what brings the costs down. For those who prefer "custom" made, they have to pay more, that's basic. You are right, the recovery cost for R&D and setup are a major factor, but after that "hurdle" most consumer items can be made quite cheaply via automation and assembly lines. Bulk procurement of raw materials also contributes to it. Just wondering in future when our species has learned how to harness fusion energy and energy costs become cheap cheap, how much will they have to charge to recover the development costs to break even? It won't be that cheap anymore.

Cheers!

My experience with automated lines was that direct labour costs were simply replaced by the costs associated with running an automated line.

For example if a portion of the assembly performed by 5 production operators was automated, then the costs associated with maintaining an automated piece of machinary would replace the wages of 5 production operators.

It often ended up costing even more as 3 highly paid techs were required to perform calibration and preventive maintenance of the automated machine on a regular basis.

Automation brings about savings only because the yields and quality levels are usually a lot better as human error is eliminated. Machines are a lot more consistent provided they're well maintained and calibrated.

 

[krafty]

http://www.drwealth.com/2014/05/21/3-truths-cpf/

1) Truth 1 – CPF money is forced saving for your retirement and medical needs.

Many Singaporeans are very unhappy with being forced to save for retirement. They believe everyone should have a choice and that CPF forces the choice on them. While it is true that more choice is usually better in a democratic society like ours, it depends on whether having that freedom causes much more problems for society as a whole.
Singapore has a rapidly aging population. Within 20-30 years, we will have a clear inverted population pyramid where a smaller base of workers have to support a larger top of retirees. If we have no CPF scheme or equivalent, what will happen is that future government will need to either let the elderly who fail to save enough live in poverty or use government funds to provide housing, food and medical care. And if government money will come from higher taxes or investment returns.
So it is wise to start forced saving for everyone so that at least there is a minimum standard or base of savings to leverage off. Even with current numbers, it is clear we will need to spend more and more on elder care and subsidies on healthcare. There is nothing wrong with this. In fact, we must do this as a caring and ethical society.



2) Truth 2 – CPF is still your money ….. with some restrictions

Think of CPF as a long term structured note that is principal guaranteed but which you cannot withdraw. The only way a citizen can withdraw CPF is for mandated purposes like housing and education or when you change citizenship. However, this principal guaranteed note does offer a 2.6% to 4% risk free interest rate. This is equivalent to a 20 year USA treasury note return. So we are not being shortchanged.
Now, some of us will argue that since the government takes this money and invests via MAS, GIC and Temasek to get better returns, we should partake in those returns directly. However, we need to realize that if we want to participate in those returns directly, we must also accept the risk if those returns turn out to be negative. There is no such thing as a risk free, high return instrument. That is what we call a scam.
Anyway, there is a way for us to get higher returns. We can always invest our CPF money in approved mutual funds over the long term to get equity like returns if we really know what we are doing when it comes to DIY investing via funds.



3) Truth 3 – CPF is not a perfect system

Of course, CPF is not a perfect system. Can the CPF board pay us more interest? Of course it can. The government can decide to pay 3.5% interest rate to CPF board if it wants to. But is this good? It is highly debatable. Paying more interest will only benefit those wealthier Singaporeans who have loads of cash in CPF. Also, paying more will mean that we add less to our reserves since I do not think Temasek and GIC should take even higher investment risks to maintain same extra returns. But perhaps small tweaks upwards to help Singaporeans save for retirement via CPF is practicable. To set the right tone that the government is in it with the people on this topic of retirement savings.
Another idea is that we can we give citizens a well run fund that thinks over a 15 to 30 year time horizon to help invest their CPF money? I think this is quite doable? If GIC can give 5-7% returns over such a time horizon, I can imagine them setting up a mirror fund where citizens can invest directly to do the same? The logic behind this is that the current approved mutual funds are too short term and profit driven in their approach and the average Singaporean does not buy them with the right mentality.
About the Author
Lim Dershing is the Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is an online financial planning platform. Dershing is also an active angel investor in other digital media startups. His goal is to help via experience sharing, these businesses to grow to their full potential. His experience covers all the topics required to startup, build and scale an internet business in South East Asia.