PAP/Straits Times answers critics on CPF!
- From: fifo213@xxxxxxxxxxxxxx
- Date: Sun, 30 Sep 2007 10:26:31 -0700
PAP/Straits Times answers critics on CPF!
Today the govt responds to critics. Unlike amatuer bloggers who tried
to explain the CPF to the blogsphere and end up being called "PAP
apologists", today's Straits Times carried a thorough, complete and
indepth explanation of why 2.5/3.5% on minimum sum is as good as it
gets, why GIC returns is delinked from CPF, why Low Thia Khiang is an
opportunistic rebel rouser and why the GIC doesn't need or want your
money and why CPF changes are a fair deal.
Articles in the Straits Times 29 Sep 2007:
Forum : Govt Investments de-linked from CPF funds.
Insight Pg S10: CPF Returns : As good can get (1st para talks about
Low Thia Khiang)
Insight Pg S11: CPF as Cheap Funds:"Wrong & plainly misleading".
Insight Pg S12: CPF Changes a fair deal so why the hesitation.
Now that is a alot of good explanation from our world class govt. I
suggest you read, no study, each of these articles to get a good
understanding of our govt thinking on retirement and the wonderful
plan the PAP govt has for you for your retirement.
I've identified a number of important points in the articles for
discussion.
Point 1 : The rate of 2.5/3.5% is risk free and guaranteed.
Well at first sight nobody can disagree with this statement. But think
harder. ....
The govt has mandated that a large portion ($60K) of Singaporeans' CPF
funds be set aside to earn a "risk free return of 3.5%". We are
required by law to do this an have no choice....we are locked on to
this strategy of earning a return on the bulk of our CPF for a period
of 40 years ...now how is that for a strategy.
Such a strategy is sure to guarantee one thing for most people -
insufficiency. I haven't found a single qualified investment advisor
who will go tell a 25 year old to lock his savinsg up at a fixed
deposit type of rate of 3.5% for 40 years for the purpose of
retirement. In fact all other asset classes real estate, equities have
always out performed this 3.5% rate over any 40 year period. Also,
within a 40 year period we can expect periods of high inflation, the
so-called risk free rate only guarantees that the buying power of the
CPF money will be badly eroded.
So the basic strategy of locking up a minimum sum earning a rate
similar to treasury bonds for 40 years is a risky one - it is
vulnerable to inflation, guaranteed to underperform, guaranteed to be
insufficient ...as a result we will see our retirement shifting and
the quality of our retirement dropping under this strategy.
Simply google "retirement plan" to see what a plan should look like.
or what watch Ben Stein's video on retirement here. Or read about
Chile's pension plan for its citizens. ..or Calpers which hire
professional managers to handle public servants money and they don't
keep the returns for themselves but give it to the pensioners who need
it.
Why does the PAP mandate that we follow a plan that will not work
properly? I think they want us to work longer and harder so we don't
retire and become useless. It is for our own good to lead useful
productive lives.
Point 2: GIC deserves its return of 9.8% for making risky investments.
CPF minimum sum is only allowed to have low returns whereas GIC
deserves its higher return for making risky investments.
Again think hard.
GIC invest money of the citizens of Singapore, why is it allowed to
take the type of risk that CPF holders cannot take for their minimum
sum? You mean it is okay for GIC to lose citizens' money and but not
okay for citizens lose their own CPF money?
Point 3: GIC can raise more cheaply by issuing treasury bills and govt
securities...they don't need your money for "cheap" funds.
Singaporeans have their CPF locked up for about 40 yrs. Gee, I have
never seen a 40-yr treasury bill before, I don't think any govt has
issued one. Also, the withdrawal age can be changed, so its like a
treasury bill with a shifting maturity. So far the Singapore govt has
been able to issue small amounts of securities with 10 yr maturity at
a lower rate than 2.5% however try borrowing $50B, the borrowing cost
will go up. The articles actually suggest that CPF funds are
"expensive" for the GIC.
Yes, the GIC does not need the "expensive" funds from CPF it has other
cheap sources of funding. But somehow it doesn't tap the cheaper
source of funding much preferring use the more "expensive" funding -
you don't see the GIC rushing to the securities market for billions.
If you're a competent fund manager and have 2 sources of funding one
more expensive the other one cheaper - which would you choose?
Point 4 : 83% of CPF members who invested their OA savings in the
CPFIS from 2002 to 20006 realised less than the 2.5% returns -the base
rate of the OA. Half of all members who invested experienced
experienced negative returns.....(forum article "Govt investments de-
linked from CPF funds").
I was SHOCKED by this statement by the director from MoF....oh
Singaporeans are such INCOMPETENT investors they should not be allowed
to invest their own money!!!
Strangely, I was just sitting with a large group of people for lunch
on Friday and everyone was talking about how well their investments
which the made in the past few years did.
If you look at the STI Index, Global Indice, Regional Indices for
Europe/US/Asia.... you cannot find a single day in 2002-2006 that you
put can buy a unit trust linked to this hold it until today and not
perform better than the 2.5% that CPF OA gives out! For example, look
at the STI from 2002 until today:
....now tell me how can one return less than 2.5% when they invest
between 2002-2006. If you pull out every single major equity index,
they look similiar.
So how did Singaporeans become so incompetent. Well, look at that
statement again. ...it says "realised less than 2.5% returns", they
probably only computed investments that were sold off during that
period and does not included then majority of investments which are
held on until today! Even for myself I've sold off 1 or 2 loss making
investments during that period but those I've bought in 2002-2006 and
held until today have double and this is not counted. ...so I'm one of
the 83% of incompetent investors. This is a wonderful piece of data
mining, we all should be thankful for because it helps us to feel so
much better about the 2.5-3.5% we are getting on our CPF.
Conclusion
The 2.5/3.5% is a guarantee...a guarantee of insufficiency. This
insufficiency is showing up in withdrawal age being pushed, a
diminished quality of retirement ($200 per month) and extended working
life. It is also guarantees underperformance compared with other asset
diversified classes which outperform risk free assets with 100%
certainty. Risk free rate is meaningless because it does not guarantee
buying power - it is not peg to the rise in oil prices, rise in bus
fares, rise in milk....etc.
It is a challenge the PAP put before us to retire on such a plan that
no financial advisor will ever recommend for retirement. We should be
thankful for such challenges as it is chance to strengthen our work
ethics to the point we don't ever have to retire. Retirement is a
awful thing anyway we lose the chance to contribute to Singapore Inc
wasting our time instead on walks in the park and looking after our
grand children.
The GIC does not need our CPF money for its investments. It is
reluctantly using it as a form of service to Singaporeans and giving
them this return that is "as good as it gets"....although they get
better returns, we should begrudge that it is not returned to the CPF
account holders. We do see a small fraction of it just before General
Elections to encourage us to make the right decisions and keep the
status quo. All this is done for our own good, we have to believe what
is good for the PAP govt is also good for the people of Singapore.
.
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