Politics & Society
What is CPF really for?
Sometimes I wonder… why don’t our nanny government trust its citizens to save for old age and illnesses themselves? Afterall, in today’s world, many Singaporeans are well-educated and smart enough to understand the need to save for a rainy day. Of course, there are exceptions, but I am certain they form a minority of the population.
I agree with a comment one of my readers left in my earlier post - that the CPF is a very old fashioned and “kiasu” way of doing things. Perhaps it is suitable for the less educated Singaporean of yesteryear, who may not fully understand the importance of saving for medical or old age use. However, as the CPF scheme evolved over the years - it has become less straightforward as simply saving for old age.
What do I mean? If it is for old age, why does the government disallow people to take out ALL their CPF money at a certain age? Instead, it chooses to force old people to spend less by rationing out their old age savings. And the ration is really small, somewhere around $300 - $400 a month I think. What is the rationale behind this? Afraid that old people will squander their savings? In fact, the minimum requirement for retirement savings in CPF is going up.
Another rationale for CPF is for payment of property. This I can understand. However, this is still not a reason for not returning the money upon retirement.
The monthly ration is so little that it is barely enough to make ends meet. It’s not like the old folks are taking handouts from the government and squandering it… it’s all their own hard-earned money over decades of contribution to nation-building!
Is this what our government deem as welfare? To force people to save and rely on their own hard-earned CPF money in old age? And only when they don’t even have CPF money, they get $290 a month… barely enough to survive on.
The only rational reason I can think of, is to prevent old folks from leeching from the government coffers by forcing them to survive on their CPF savings. Another probable theory is that CPF money goes into government investments (perhaps GIC and others)… which the government generates its surplus on and pays interest of 3.X% back to our CPF accounts.
Well, it should be generating high surpluses since any reasonable investment will probably reap at least a high single digit % of profit… all these with our money, and paying just 3.X% for the use of the funds. If Singaporeans are allowed to take out all their CPF savings in old age, then CPF’s funds will decrease by 20% (assuming there are 20% of old folks eligible to take out their CPF monies). I believe this is a major reason why we are not allowed to take out everything at retirement even though retirement savings is the so-called rationale for CPF that the government wants us to believe in. If the government really intends for CPF to be a retirement savings scheme where it helps us to save and invest our monies, then it should return the full amount of capital gain that it earns with our funds, not just a measly 3.X%.
With this in mind, so how much money are we actually paying to the government each year? Just the ~20% income tax plus 7% GST? Nay. If we include CPF money that are locked up on our behalf (and then used to fund government investments), it would be another 20%. Of course, end of the day we can get it back… when we die it goes to our dependants (so why the empathsis on retirement savings, when many people can’t even finish using their own CPF monies at the rate of a few hundred dollars a month at their deathbed?). And oh, by the way, if we have no dependants, the money would go to the government. I wonder how much CPF savings of deceased people with no dependants goes to the government each year.
Another popular reason for CPF is for medical protection. It’s a rather weak argument, I think. In today’s world where we have medical insurance (both government and private ones), people who plan properly don’t really need to use their CPF savings to pay hospital bills anymore, since a good bulk will be paid for by insurance. It is perhaps more adequate for older folks of today and uninsured people, but that would not form a majority of the population either. Whatever the case, there can be a more flexible scheme put in place whereby Singaporeans with no form of medical and retirement protection planning will need to put more money into CPF than those who already have taken steps to care for their own future.
So it would seem like Singaporeans are paying for most of life’s necessities out of their own pockets - healthcare, housing, retirement, education. Is there any welfare at all for the average man on the street? Some countries have subsidy schemes for housing, free education and healthcare… what welfare does Singapore provide for its people in return for their serving and building the nation? Only occasional little things like, $XX “subsidy” on S&CC charges.
I wonder if there are any statistics on how many percent of the government budget goes to welfare payments… and if it is available, it will be interesting to see how we compare with other countries.
Discussion
23 comments for “What is CPF really for?”
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CPF is an instrument for the Gov’t to hold you down from leaving S’pore. You will be drawn to buy a HDB lodging and Bingo! u r committed to slave your way to pay off your lodging for the many a years.
Also, I believe it could be channel to GIC and will be foolishly invested in by our Temasek CEO. Wonder, Temasek
is dealing with the Shin Corp subsidiary ITV. Understood that ITV owes the Thai Gov’t billions of baht in back taxes.
In short, our nanny is in absolute power to dictate what we do, how we do and when we do.
As for, why we do, don’t bother!!
IMO, the CPF is a 32% tax rather than 20% since the employer’s contribution should logically be paid to you as part of your salary should the CPF ever be abolished.
Quite true, I am sure employers take CPF into account when they budget for manpower. If the money doesn’t go to CPF, then it would go to the employees’ pockets and we will all get higher take home pay.
Biao
To those who think that the employer will pay you 32% if CPF is abolished, dream on, as there is no economic incentive for them to do so.
Well, agree with your proposal that they should be allowed to withdraw all, however, the quid pro quid, only subsistence welfare if they blow it all away. Is that acceptable?
I do not see any rationale for anyone’s hard earned money to go to other people’s welfare except via charitable organisations donations decided by the individuals themselves.
Regards
Perhaps it is more of an issue about balance.
While European countries are on one extreme side of the welfare scale (they tax citizens a lot to pay for welfare programs), Singapore is near the other extreme end, where our taxes are relatively low, but public welfare is seriously lacking in comparison.
Somewhere in the middle would be nice, where a balance is made between the amount of welfare (and criteria on who it goes to), and the amount of taxes… after all, if we factor in GST, and the high prices we are paying for some other things in life (such as HDB flats), the revenue that government generates out of each of us is not exactly very low.
I also think that with the strong & growing emphasis on proper financial planning by the government, it should soon be time to really phase out the CPF scheme. But of course being the Singapore government it will make no sense at all to do that.
I can understand using the CPF reserves to do investment, but only well-thouught out and well-researched investments, not like the not-too-long-ago Suzhou investment which flopped big time and was very cleverly covered up. It’s like banks. They take our savings, “save” it for us but in actual fact, they use it as capital flow that they can use to invest in other more diverse business, support new ventures in hope that they prosper and make them more money etc.
That said, what I feel is that the floor for the CPF to start should be higher. Currently, if you earn less than S$500 you will not have to pay CPF at all. However, between S$500 & S$750, the employee has to pay 0.6 of the difference between his actual pay & S$500. Meaning, if you get S$750, you will have to pay $150 to CPF.
Holey baloney!!! Tell me that is plain ridiculous. $750 is already very difficult to live by, with all the expensive necessities like renting a room (because they will be unable to afford getting a HDB), F&B, transport etc etc. It is so much worse if they have to say, take care of wife & kids, or elderly parents etc etc. And the government wants to take a very much needed $150 from them.
That. Is. Extortion.
The rationale for using one flat rate (of 20% + 1X%) for CPF was perhaps due to less powerful computing facilities of many years ago. Maybe it was difficult to implement staggered rates at that time…
But in today’s world when technology is so advanced and information systems are more flexible than before, a staggered system based on individual income will not be difficult to implement.
Actually, many people had already brought up this issue in the past, but the government is not doing anything to move towards such a system.
As Renee mentioned, money is taken from us to fund various private sector investments. Look at those EDB funds for start up companies for example… where does EDB get all those money to fund startups? At the end of the day it’s all our money those lads are using to start their business. So it may seem the government is very generous, but it’s all public funds.
CPF is there to prevent Singaporeans from leaving the country. Since they lock up 20% of your salary, it becomes difficult to migrate. And if you do migrate, it becomes frustrating because you can’t get your money back unless you renounce your citizenship.
It’s not ONLY about our CPF; we are over-controlled. And it does not matter that the government believes it is doing so for our good.
We are no longer a baby of a nation, we are adults now every which way you look at it. Surely we should be treated as adults - from my day to day interaction with people around me I havwe come to the conclusion that Singaporeans would be able to handle their own lives.
Maybe I believe people are basically good.
Anyway, it’s about time our government did not treat us as if we were mentally or physically challenged infants.
gooogooogaagaa…
I remember doing a paper on this in University many many years ago - comparing welfare/high tax versus CPF.
MM Lee has said that economic devt was the way out of Singapore’s doldrums when we became independent. when we were a young nation, it was to instill an important habit of savings. we, as a nation, also needed the funds to build our country. CPF was a good way to access funds.
I believe the CPF is good - getting each citizen to support himself in their golden years - rather than turning to welfare and a high tax rate (as applied in many Western countries).
however, I feel that the objectives of the CPF has not changed with the times, the current objectives needs to be relooked and re-stated. the govt need to revamp and relook at the CPF scheme - as its applied today.
Foreign newspapers have reported that since the 80s, returns for the individual citizen have been close to ZERO, taking into account inflation. the money the govt gets to use (invest, build infrastructure etc) for free, has been at our expense.
the govt’s response was to allow the Investment Scheme - buying “approved” stocks, insurance and unit trusts. which i would suggest all CPF members to do.
We are also not informed about HOW MUCH does the CPF Board itself incur in managing all these funds. There were rumours that the CPF Board has used the money to make investments that didn’t yield good returns.
What would help is transparency. Its our money that the CPF Board is playing around with - thus it should only be fair if we request that they tell us what they doing with our money.
Singapore can learn from the Hong Kong model. They only started their equivalent of Singapore’s CPF about 7-8 years ago - and i think HK’s model closely matches today’s needs.
The objective of MPF in HK is simply to build a nest egg for retirement - and nothing else - no other agenda. The HK govt turns to fiscal policies for income, not the MPF.
1. Employee and employer need to contribute 5% of salary or, for non-citizens, a minimum of HK$1000 from each side.
this does not stress out the employer, as well as giving extra disposable income to the employee. HK citizens preferred that they manage their own money than allowing the govt to manage it for them, and the HK govt listened to this.
Is the amount enough for retirement? it all depends on individuals and its left to financial institutions to convince HK citizens to save more - not the govt. the HK govt just provides guidelines.
2. the HK govt doesn’t manage the money. Each company can turn to professional fund managers to manage the money.
this is good in many ways - the govt doesnt incur costs in managing money and is not exposed to any risks involved with investing the money.
Professional fund managers can be fired - they have to report their success bi-annually. if company A doesn’t like the performance given by fund manager B, they can fire and turn to another. This provides incentives for the fund managers to do well. it also provides dynamism into the asset management sector.
i can go on and argue many other points - but the main takeaway is that:
- what is the REAL objective of CPF and its time we all clarify this again.
- transparency helps, with checks and balances coming from third-parties to make sure the funds are well-invested for returns to the individual, rather than to the govt.
- a savings rate returns is no longer acceptable in today’s highly informed society.
Firstly, Thank you Mr Biao for addressing this issue on CPF.
Because it’s really a topic that I’ve been waiting for a long time, for a more influential blogger to touch on, so that more people in the community can come together to discuss about it.
I’ve a total disbeliever of CPF, because I’m sure that I know how to control my own savings. Not only that, if the rationale behind CPF is as the government states:
- for retirement
- for medical funds
- to pay for housing
- to pay for education
Then why is it that,
“chooses to force old people to spend less by rationing out their old age savings”
Why is it that,
Only 4 major illness are covered under Medisave?
(correct me if i’m wrong)
My boyfriend was admitted to A&E for Epilepsy and we were told to our surprise that he didn’t qualify as one of the 4 major illnesses.
Also, why is it that,
You have to take a loan from your own locked savings to pay for a roof over your head, and then work like hell for a decade or so to pay back what you owe to yourself?
This makes singaporeans forever in debt (whats more ridiculous is that they owe themselves money)
And finally,
Education. The govt always emphasizes on the importance of this. A child uses his parent’s money for education. Just that in this case, it is called a loan because it comes from the parent’s CPF.
I’ve got a friend, who has worked for a year (but changed jobs in between) and still earns quite little. But his family is badly in debt (even unable to fork out $2000 to file for bankruptcy).
Now, the CPF board sends him a letter to inform him that he has to pay out $100 a month to return his dad’s CPF for what he used in his tertiary education.
$100 may not seem a lot to some people, and not a lot especially to the million-dollar ministers, but it helps to pay for family bills.
Sorry for this outpouring in the comment section.
But this whole CPF scheme is definitely past its time.
Either it goes, or we demand a revision.
During financial crisis, one is allowed to withdraw his own CPF money to feed his cihildren.
That, is a clear sign that the CPF is not what the gov want you to think it is.
Their investment is more important, starving kids can wait.
Correction - One is NOT allowed to withdraw.
There is a big conspiracy to the CPF ever since Goh Chok Tong made the announcement to open it up for alternative investments and usage in the mid 90’s.
The conspiracy derives from 1 simple motivation:
- There are insufficient monies to fund a complete CPF withdrawal by retiring citizens in an aging population
All schemes derived thereafter are but just tactics to prevent massive withdrawal.
As to why there is not enough money, just look at the blunders of GIC and Temasek and military spending. The greed of the present cadre is insignificant ocmpare to the mistakes made.
mrbiao,
why see one side ?
Singapore tax is low ? How’s about everything else where Singapore is running as Incorporated entity where the gahmen are lusting way to get your money without accountability and transparency ?
everytime, Singapore want to compare, they only compare one side. That’s just one feature of Singapore Incorporated.
Long time ago, CPF meant Coffin Paid For.
Now, CPF evolves to mean….Cannot Pay Finished.
i agree that the lack of transparency surrounding cpf is extremely disconcerting. looking at the various constraints governing cpf withdrawal, i would agree with OrnateGhost.
in fact, my pessimism extends to the whole of sillipore. i’ll give her 10 years before she really goes downhill… in the meantime, i’m planning for my pr and renunciation of citizenship.
of course, i just might decide to stay on after 2011 if silliporeans cld wake up their ideas, vote in significant oppo and change the system. but then again, some pple never learn…
This is probably another hidden reason for the GST increase. Singaporeans will have to foot the bills for the mistakes made by their naive majority who voted in the PAP government. Most unfair to those who opposed and worst, for those with no chance to vote.
Temasek set up $500 million ‘charitable’ fund to invest in other countries. Singaporean’s money is used to ‘help others’ in order to repair Temasek’s international image after the many fiasco.
Please enlighten me on these questions:
1. How many of these directors and office holders at Temasek and GIC are qualified/formally trained to handle investments? Many millions of dollars in payroll could have been saved or channelled for other usage if GIC places its fund with reputable fund managers for returns. With so many acclaimed fund managers in the world, is there a need for Temasek and worst, inept/unqualified people there to invest Singaporeans’ money?
2. Why is it that Ho Ching can still sit tight despite all the fiasco at Temasek? With her dubious track record, she can still head Temasek. Will the same opportunity be given to a non Lee-clan member with Ho Ching’s less than honourable achievements? Rated as among Asia’s most powerful women. Rated as among Asia’s most powerful women purely on Singaporean’s Temasek money. This company really needs foreign talents to generate good returns for Singaporeans and at a lower cost. This is assuming that we can’t find a much better Singaporean candidate than Ho Ching’s calibre. Oh dear! Forgotten that she’s indeed a foreign talent integrated into Lee family and therefore, enjoy much more priviledges than others.
3. Have any of our ministers ever take responsibilities for mistakes made? This is unheard of and yet Singaporeans have to work perpetually harder to contribute towards their ridiculously self-justifed ballooning payroll.
If PAP still garner the same level of support at the next election, Singaporeans will remain the modern slaves to their government. Ironically, this is their own decision, borne out of naivety and simple-mindedness despite being highly-educated. Laughable indeed.
Question: If I renounce my Singaporean citizenship, coz I want to stay where I now am, will I get all my CPF back….has anyone tried and suceeded doing this? Or does the Singaporean government think of some way of holding on to it….
I met a couple of ex-Singaporeans and thye all got their CPFs. I’m more concerned of it will be taxed… any ideas anyone?
to: now in canada,
since u met some of them who collected all their CPF monies, why dun u asked them?
very interesting, but I don’t agree with you
Idetrorce