Wednesday, May 28, 2014

The Obligatory CPF post.

I'm really upset with Roy Ngerng.

We could spend time have a constructive discussion about creating a career path for Poly and ITE students in the public sector, but instead, the entire discussion bandwidth was hijacked by everyone trying to say something about the CPF program.

So to just go with the flow, here are some of my thoughts on the system.

Before I raise my points on CPF, I need to qualify myself - If my CPF is  returned to me, my financial position would become much stronger. I have the willingness and capability to take bigger financial risks so I can achieve better returns. On my last calculation, a return of my funds would allow me to reach 5 digits a month in dividend income - more than enough to achieve my legal and start-up ambitions.

I would like to argue in this post that Singapore is better off having a CPF program.

a) Arguments need to account for the matching from tax payers.

There is a ridiculous argument that simply because the government can invest our CPF and achieve double digit returns, they can afford to do better  than the 2.5% in CPF-OA and 4% in CPF-SA. Assuming this were even true, these folks forget that the government matches your contribution when you make your monthly income deduction, this goes beyond the 2.5% and 4% returns and is a substantial transfer of taxpayer funds to Singapore workers.

[ All : A friend just told me that this argument is invalid. CPF matching is solely done by employers. I'm keeping this around for you guys to appreciating that blogging in anger does not lead to great argument ! ]

This matching is substantial, how many Singaporeans can claim to more financial assets than their CPF account ?

b) Public goods cost money too.

At the end of the day, what is even wrong with the government making an investment profit on your CPF?

I acknowledge that this argument is unique as it holds only in very few countries. Our government is relatively good at investing taxpayer money relative to the average citizen.

Some things just can't be handled well by the private sector, military and civil defense, maintenance of the courts to protect your property rights, construction of roads and schools. Excess in investment may not flow into your CPF account, but to stay in power, governments will have to maintain your infrastructure and invest these funds well. This means giving soldiers and firemen a decent livelihood.

Our government has enough for a surplus almost every year, so this means that we're not leaving a pile of debts for our kids.

c) You sacrifice your freedom to use CPF to gain the freedom of not being burdened by the  stupidity of others.

Another argument is that the CPF is your money, you want the right to use it anyway you want. For me, that would be awesome, I will buy more income generating assets. For some uncle, it would be even more awesome - more money to buy cigarettes, call chicken and drink more beer. Problem arises when uncle call chicken too many times, get HIV and can't pay his medical bills, then you, the tax-payer, will bear the burden.

So we don't live in an ideal world. People will call chicken and buy Toto with their spare cash, they will not plan for the future and they will inflict a cost on all taxpayers. Your taxes and GST will rise proportionately to the number of folks who will make the decision to let themselves go and have too much fun.

The burden to the taxpayer is non-trivial. Social workers need to be hired to provide help to those who drop out of the system. These social workers need to be managed - more scholars ! Call centers need to be set up. You have to pay for an entire agency to make things happen. Someone has to foot the bill. The result of this is government gets bigger, require more funds to maintain, our children become burdened by our excesses !

So for lack of a better term, CPF is protection money. Tax payers participate and give up some freedom. In return, they are protected from the flakes and losers that, unfortunately, exist in all societies. The damage these flakes inflict upon themselves is taken from their CPF first before you even get taxed ! ( How cool a system is that ? The assholes end up screwing themselves first before they get to screw you ! )

Now that being said, I do have some pet peeves with CPF - it's a system that can be fine-tuned :

a) Why separate contribution from monthly income and bonus ?

This rule baffles me, why not just allow CPF contributions to take place for $90,000 a year and not separate the bonus and monthly income pools ? An Accenture consultant who has a 12 month salary scheme contributes less than a public servant who has a 15 month scheme even though they may have the same income.

b) Do we really need a savings plan for home ownership ?

We can definitely rethink this sacred cow that Singaporeans must own their homes. In effect, we are forcing Singaporeans to save for home ownership except that with a 99-year lease, we don't really own our HDBs homes anyway. The CPF can potentially shrink if we decide to slay this sacred cow. I can definitely imagine myself buying a portfolio of stocks and REITs and using my dividends to pay my rent. I will enjoy the greater mobility and shift my family nearer to my daughter's school if I can afford to do so. I can also rent out a home in AMK to a more dynamic yuppie couple when I get older and rent a Semi-D in a rural area.

People who reach different stages in their lives may be better off living in different areas. Decoupling ownership with domicile may be good for Singaporeans.

c) Exposing Singaporeans to more market forces can make them tougher.

Singaporeans tend to be a little naive compared to Hong Kongers when it comes to investing. Yes, allowing folks to invest more of their CPF will result in more losses for many, but investing is a game where tuition fees would sometimes need to be paid. I thinking raising the CPF-IS to 50% will allow us to have more skin in the game. Having more citizens exercise their rights as capitalists will also make them more sympathetic to the efforts of the Government to manage their funds well.

It will also arrest the falling liquidity in the local stock market.

In conclusion, I think that many issues merit a more urgent debate than the CPF program. The CPF program can be improved, but it is generally sound and has served us for many years. It's purpose is not just to give us retirement income, a home or a means to send our kids to the University, it also protects us from the behavior of stupid and in incompetent people by limiting the economic burden they place on all tax payers.

Of course the intent of  this article is not to let the Government off the hook.

A good citizen should always challenge the investment choices made by the custodians of tax payer money. eg. Perhaps more money can be channeled to better Poly and ITE apprenticeship programs instead of building a new University. These are all worthy points of discussion which and can be done without committing libel against anyone.

Anotherwords, many political issues are actually investment problems in disguise.


  1. Folks will appreciate the power of CPF OA @ 2.5% as your investment war chest after 55


  2. Anonymous2:22 PM

    No not only OA. What about SA, MA, RA? Because you have these 3, it will affect the way you invest.

    The only problem is after 55, you still can not use the whole sum of OA to invest even you if you are qualified to withdraw the whole sum, if you wanted to.

  3. Are you paying over $5 / pack of cigs? I buy my cigs from Duty Free Depot and I'm saving over 70%.