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CPF: A good deal?

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CPF: A good deal?

Postby singapore eagle » Wed, 21 May 2014 3:34 pm

As an economist, and a newly enrolled member of the CPF, I find the Roy Ngerng controversy very interesting.

Leaving aside the issues of libel, his attention-seeking posting style and his frankly poor grasp of economics in certain articles, his central question strikes me as a good one: why does the average Singaporean get CPF credit interest of 2.5% to 4% per annum if the government is using his savings to earn 6% to 16% per annum?

I wouldn't put up with this in my defined contribution scheme back home!

More generally, there must be a brewing issue with Singapore's obsessive saving. Is your average Singaporean better off if Singapore plc carries on as a net saver and acquires yet more companies and assets overseas? Or would the older generation, in particular, not prefer to cash in on some of the assets that past saving has built and enjoy some cold hard cash?

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Postby Primrose Hill » Wed, 21 May 2014 4:10 pm

So what do you do with your defined contributions then if you wont stand for the rates given here?

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Postby PNGMK » Wed, 21 May 2014 4:23 pm

What I know is this;

I am far more 'cash rich' than my 'asset rich, cash poor' colleaues in Australia. I'm always astonished at how in debt they are and how little cash they have available (And we earn typically the same amounts pre tax).

Singapore's doing something right and CPF has been a winner for me so far. 4% solid interest might not sound like much but when there's no tax going in (in fact a tax deduction in some cases), no tax on gains and no tax going out it's hell of a lot better than 'super annuation' where you lose 15% going in on tax and some variable coming out to tax.

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Postby sundaymorningstaple » Wed, 21 May 2014 4:41 pm

I'm in agreement with PNGMK on this. Risk on Risk you cannot find a safer investment and add to that, the returns are pretty good. 2.5 & 4% are pretty good regardless of where you park your funds today and add an additional 1 % on the first 60k in CPF and it's looking even better. As to the fact that they are earning more than they are paying, that's good for the country as it keeps the reserves pumped up, allowing them to spread the wealth where they deem it necessary or keep in in the reserves for bad times.

One always has to remember that Singapore has no hinterland so therefore doesn't have any natural wealth resources of it's own other than the port. Therefore, they are wholly dependent on trade/tourism middlemen and financial centres. Therefore have a huge reserve is essential for the long term viability of the country in a recession/depression. Add to that, you can get to it for residential housing purchases among other things (although I think they made a big mistake on allowing so much to be withdrawn for housing as that partially fueled the housing price escalation on HBDs and as a knock on effect, private housing.

Roy is an idiot. He tried to relate non-related items to create friction and in the end he makes a fool of himself. The bad part is that there a sufficient number of genetic idiots here that don't have the common sense to see the truth therefore egg him on.

"enjoy some cold hard cash?" How so? Give the average person here a couple of hundred thousand and they go out and spend the whole lot on holidays/cars/casino, etc. and inside to 24 months it's all gone. Now, who's supposed to take care of these older folks after they have shot through all of their CPF savings (most haven't saved a dime on their own nor do they have things like 401K's and other types of annuities that they have invested in years ago. And with the fertility rate of 1.19 there is a good likelihood of zero children to look after/support them. So should the Government support them for 20 more years on their own nickle after they blew their own wad?

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Postby Beeroclock » Wed, 21 May 2014 5:42 pm

I also agree it's a good deal. 4% is basically risk free, if you convert your OA into SA or RA.

Considering the woeful deposit rates in SG (<1%), it's a great opportunity for people to get a decent interest rate over the long-term to compound their savings. For higher risk / higher return, there is nothing stopping people having a share/property/other portfolio separately to try and make high rates of return and fast track their retirement pot on top of the CPF.

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Postby JR8 » Wed, 21 May 2014 8:01 pm

sundaymorningstaple wrote: 2.5 & 4% are pretty good


Not after you take into account inflation*, which you have to to arrive at real income figures.

During the 'risk-on' stage of pension accumulation, people should and tend to take on a higher level of risk. Yes it can have it's ups and downs but in the long term it yields much better than the zero risk/zero real return strategy as apparently exists.

I don't know what the 'pumping the reserves' and helping the poor people is. It sounds like an indirect tax.



*Singapore's headline (CPI-All Items) inflation averaged 2.4 per cent for the whole of 2013, down from 4.6 per cent in 2012.
http://www.channelnewsasia.com/news/sin ... 70328.html

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Postby sundaymorningstaple » Wed, 21 May 2014 8:32 pm

So you are saying that drawing .025% in a savings account or 1.5% in CDs are keeping up with inflation better? :roll:

At any rate, you shouldn't keep all your eggs in one basket. Therefore your savings you would want in a safe place (Risk wise). Then take the rest and put it into property, as you have done, or into the stock market where you made yours. Much higher risk factors in both but of course the rewards are higher (providing the economy doesn't tank completely). Trolling again? :P

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Postby singapore eagle » Wed, 21 May 2014 8:49 pm

I think CPF is fundamentally a very good idea. But I can't help wondering if Singapore hasn't got to a point where it is accumulating additional reserves unnecessarily.

If you think of a median earner on circa S$3,000 a month, are they really better off as GIC takes the excess return it has earned and goes and reinvests it in, say, a S$3.5 billion acquisition of office blocks in London when GIC could just as easily put that money into Sinagporeans' CPF accounts?

And I feel quite uneasy with the idea that 2.5% is good because the banks only pay 0.25%. Have people forgotten what a cosy little deal the local banks have here?!

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Postby sundaymorningstaple » Wed, 21 May 2014 10:05 pm

My suggestion? If you find it too tight for your way of thinking, don't take up PR and if you are a Singaporean, immigrate and renounce so you can withdraw all of it (including all that interest) and blow it any way you see fit. Not you specifically, but anybody who thinks the shoe is too tight. Personally, I'd like to see it bumped back to the original contribution levels and not decrease the contribution levels upon hitting the age of 55, 60 & 65.

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Postby sundaymorningstaple » Wed, 21 May 2014 10:08 pm

I am not, like most people, an astute investor, and as having been bankrupted way, way back in 1973, I'm pretty risk adverse today. So I tend to go for slower growth and safer havens. As to not keeping up with inflation, if I had it in my hands, I probably wouldn't have it to lose to inflation at all. :?

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Postby JR8 » Wed, 21 May 2014 10:31 pm

sundaymorningstaple wrote:So you are saying that drawing .025% in a savings account or 1.5% in CDs are keeping up with inflation better? :roll:

At any rate, you shouldn't keep all your eggs in one basket. Therefore your savings you would want in a safe place (Risk wise). Then take the rest and put it into property, as you have done, or into the stock market where you made yours. Much higher risk factors in both but of course the rewards are higher (providing the economy doesn't tank completely). Trolling again? :P


No, of course not. But I am saying that with a little personal effort it's not hard to make more. After all, CPF, local Cash Deposits, and CDs effectively yield zero or negative returns.

Agree re: 'eggs in one basket'. I sought to grow my basket via property (the given of 75%+ financing is something no one should overlook). Now I'm slowly shifting away from that into an invest+forget stock portfolio. That is our pension, and I'm happier to do it myself, and retain control, than pay someone anonymous to do it for me.

Sorry, no idea what your comment about 'trolling again' refers to :???:

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Postby Beeroclock » Wed, 21 May 2014 11:02 pm

singapore eagle wrote:I think CPF is fundamentally a very good idea. But I can't help wondering if Singapore hasn't got to a point where it is accumulating additional reserves unnecessarily.

If you think of a median earner on circa S$3,000 a month, are they really better off as GIC takes the excess return it has earned and goes and reinvests it in, say, a S$3.5 billion acquisition of office blocks in London when GIC could just as easily put that money into Sinagporeans' CPF accounts?

And I feel quite uneasy with the idea that 2.5% is good because the banks only pay 0.25%. Have people forgotten what a cosy little deal the local banks have here?!
there are a lot of risk averse people, especially closer to retirement age, who will more than happily take 4% and forego the higher returns.

Also if GIC must giveback excess returns, then they will also withdraw money from cpf accounts in years when the markets fall like 2008?

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Postby singapore eagle » Wed, 21 May 2014 11:04 pm

The CPF investment Scheme lets you invest your personal CPF in shares, unit trusts, etc. if that's your thing, so my point wasn't really about lack of options.

I just think, amidst all the noise, there is a serious point in this recent news story. If CPF monies have earned or are earning Singapore Plc serious returns, shouldn't some of that return go into Singaporeans' CPF accounts rather than into yet more foreign asset purchases?

I'll stop now otherwise I will start to sound like that Roy Ngerng chap!

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Postby sundaymorningstaple » Wed, 21 May 2014 11:10 pm

You mean continue to sound like........ :lol:

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Postby singapore eagle » Wed, 21 May 2014 11:22 pm

Check back here tomorrow and I'll reveal the SHOCKING TRUTH about SMS's links to the PAP!!!!


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