What does CPF Really Mean, and How Would it Change?

(One might want to read http://www.fivestarsandamoon.com/managing-money-for-retirement/ for some idea on retirement adequacy and then http://www.fivestarsandamoon.com/mandatory-savings-and-mandatory-taxes/ to have a basic idea on why Singapore decided to go down the path of a primarily savings-based social security system.)


Where do we stand today on the CPF issue? The CPF is primarily a retirement fund. Yet, it can be used for some key essentials, such at property, children’s education, insurance and CPF investment1. Do all really agree on these?

Let us start with the most contentious use of CPF: property. To buy a big house or not? That depends on who you speak to. Your relatives? They say it doesn’t matter, but deep down you wish to show them you have the cash to splash. What about the financial planner who knows you cannot invest? Oh please, no! Buy an affordable home, so that you don’t need to finance it in retirement2! This isn’t simply a CPF propaganda message; a house is a liability that one really doesn’t wish to keep on financing till old.

The verdict on property: If CPF is a retirement fund, buy a property that is just nice for your family. As far as possible, don’t dig up excessive CPF money to fund a house. This seems like rational advice; a family of 4 can live in a 4-room HDB flat just the same way as they can in a condominium. Why, then, are people drawing plenty of money from CPF, buying a house they can barely afford, and then complaining they have insufficient retirement coffers?

The reason is simple: CPF money is illiquid when young, so why not “borrow” from the retirement fund, and show relatives your affluence! However, all debts have to be returned, and someone who has had borrowed from the future has to suffer with a lower retirement coffer, or be able to return it by downgrading his or her flat. Either way: painful. The last resort in many of these cases is the monetisation of home3. In my opinion, these are measures reminiscent of a G that is sympathetic to financial mistakes people subject themselves too — classic cases of retirement coffers being locked in property.

The young one reading this should know better than to over-extend on property.

Another use of CPF lies in tertiary education. The premise: if CPF be allowed for tertiary education4, perhaps the person who benefits from this gets a worthwhile degree such that his or her earning power will more than replenish the CPF coffer. That way, isn’t it a win-win situation for both retirement and meeting the aspirations of the smart student who is just short on money? The reality is more complex: this assumes that the child is filial and that the child is capable enough to earn his or her keep. If this holds true, well and good. Yet, the hypothetical “what if” on these assumptions raise many cans of worms. These range from “what if the child’s degree becomes worthless” to “what if the child refuses to pay parents the money spent on his or her education”. The reality is that these problems are often the most difficult to solve: one involves an attempt at tempering expectation, which from the get-go is political suicide, while the other involves an attempt by the G at interfering in family matters. The stance today is, the G will be sympathetic to allow for such a noble cause, but risk be borne by the parents.

The possible usages of the CPF are a reflection of what Singapore society considers big-ticket items worth spending on. Yet politics has its limitations: what is given to the people cannot be taken back at serious political cost, which is understandable why any incumbent would be hesitant with deviating from the strict discipline in maintaining retirement coffers. The deeper questions to ask about CPF are these:

1.         If the CPF were loosened, and people misuse money, who picks up the tab?

The answer: Clearly few will agree to the G using taxpayers’ money to rescue people who deliberately game the system, or make mistakes at individual levels. Rationally, blame the individual. That will be one’s stance until one’s family runs into trouble and the one out of cash is in one’s family and starts begging for “bail-out” money. Take it as the G trying to stop people from playing with their retirement funds and trying to prevent the agony that plagues plenty of families: Money no Enough.

2.         How will the CPF system change in the future, and how will it affect me?

The whole point of the article! For starters: expect the Minimum Sum to go up. This is compounded by a longer life-span of the typical Singaporean. The retirement age might go up as well. But don’t feel too sad, it’s likelier that better healthcare standards will enable you to work longer to achieve the Minimum Sum. Hopefully society doesn’t squabble too much on freeing CPF; otherwise CPF would lose its purpose of being for retirement. Perhaps, if people’s housing aspirations get out of hand, there might end up being additional rules to make sure people do not overspend on housing! Maybe a smaller house also means that it’s possible to do without a maid: cost savings for the family.

If you were hoping to get your CPF money freed prematurely… don’t fret over the impossible. Why would the G even think of risking ill-discipline from the part of citizens, and then resulting in them requesting for help? As a future tax-payer, I would indeed express serious worry if indeed, my tax money ends up softening the impact of someone’s individual mistake. Won’t I be angry that my hard-earned money be used to save someone who lacked discipline in managing his or her own money? That goes back to Question 1: why would an ordinary citizen pay for someone else’s mistake?

The conclusion to the CPF debate? It matters not where one stands in the debate. CPF is, and will remain a retirement coffer. The foolhardiness of hoping for the G to release its grip on social security is plainly speaking, epic. Maybe the seemingly “draconian” methods on policing CPF, with the few “compassionate exceptions” is indeed too welfarist that people cannot appreciate that the G is even taking on the role of disciplining people on financial planning. For those who are utter idiots at managing money, the G really is doing all the work at no additional cost.


1 “What You Can Use Your CPF Money For” http://blog.moneysmart.sg/saving/what-you-can-use-your-cpf-for-besides-retirement

2 “CPF Board – Buying a House – my CPF 2” http://mycpf.cpf.gov.sg/CPF/my-cpf/buy-house/BuyHse.htm

3 “Stretching Our Retirement Nest Egg | Singapore Silver Pages” https://www.silverpages.sg/money_matter_article.aspx?FID=418&CID=1513&View=All&Title=The%20Need%20for%20Our%20Retirement%20Nest%20Egg

4 “Dr. Tan championed use of CPF for Tertiary Education” http://www.youtube.com/watch?v=1zfQxBJVC5k


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