This is why I love the CPF!

(The following article is a contribution by a Jon S Loh, 37, in the education sector, married with 3 children!)

In the past year, I have noticed an increase in discussion about our Central Provident Fund (CPF) system. While supporters and naysayers, including the opposition parties, have all jumped into the fray, I would like to zoom in particularly on the criticisms raised by the Chee Soon Juan-led party, Singapore Democratic Party, and explain my own view that overall the average Singaporean actually benefits from CPF.  

Chee Soon Juan

In July 2019, Dr Chee Soon Juan of the Singapore Democratic Party (SDP) released a video criticising the CPF by implying that elderly can neither obtain proper housing nor meet the cost of living, because they cannot access their full CPF savings after turning 55 years old.

In October 2019, the SDP uploaded another video which featured a single senior Singaporean who complained that he was unable to withdraw his CPF savings and use it for more immediate purposes, such as reducing the financial strain experienced by the children by helping them establish businesses and so on. 

Finally, in November 2019, Dr Chee claimed that elderly residents in Bukit Batok are forced to continue working and “cut down their meals” to pay for the high cost of living due to their inability to access their CPF.

Besides these anecdotes whose profiles were typically unidentifiable for follow-up and further investigation, Dr Chee did not provide any statistics to support the SDP’s claims. From my own experience and interaction with people on and offline, it is unlikely that these sentiments are shared by a majority of Singaporeans. Let me explain why.

Other than the lack of or obviously weak evidence for such claims, the facts also show that the CPF does help Singaporeans prepare for retirement. Firstly, CPF allows Singaporeans to earn steady returns on their savings, thereby setting them up for a comfortable retirement. Many people underestimate the power of compound interest.

According to professor Benedict Koh, associate dean of the Singapore Management University Lee Kong Chian School of Business, Singapore’s CPF is actually one of the world’s most effective retirement plans. Professor Koh explains how the CPF functions like an insurance agency’s normal retirement plan whereby you “don’t take the money out early, and when you reach the age of 55 or 60 if you don’t take out a lump sum they pay it out as an annuity”. 

Mature workers can share their experience and skills honed over many years.

Professor Koh also argues that the CPF scheme achieves a good risk-reward balance in managing the savings of Singaporeans. The “4 – 5% interest rate” ensures that Singaporeans gain substantial returns on their CPF savings so as to have comfortable retirement. The fact that it is guaranteed by our government with a AAA (the highest possible) credit rating also minimises any possible risks when investing this money in order to achieve such high returns.

This is echoed by Dollars and Sense , one of the leading financial advice websites in Singapore, which emphasises how the CPF system functions as a “pension fund” which simultaneously ensures good returns and minimises risk. The website even calculates that with CPF interest returns, individual Singaporean couples can have a combined net worth exceeding $1 million within 30 years, without even directly saving money. All this proves that by storing their savings within the CPF, Singaporean are improving their financial situation rather than compromising it.

Of course, some may argue that it matters little that Singaporeans become so “CPF-rich” if they cannot withdraw their money whenever they please. The SDP may even argue that we should be able to withdraw our CPF so as to prevent elderly from having to work to pay for living costs.

In response, I argue that the CPF is not unique in this.

As stated by professor Koh, receiving a monthly payout of your savings from your mid-50s on is a hallmark of any effective retirement plan.

Moreover, Manpower Minister Josephine Teo noted in January 2019 that Developed Nations such as Denmark and Germany have set their own pension withdrawal age at 65 years old and are even raising it to adjust for their increasing lifespans. Hence, this limit to the CPF withdrawal age is not unique to our government but is necessary for an effective retirement plan which takes into account our changing demographic trends and lifespan.

Of course, this may not be of comfort to the elderly who still have to work to meet the rising cost of living.

Still, it is important to remember that the cost of living is due to factors beyond the government’s control (ranging from healthcare inflation due to the ageing population, housing inflation from our limited land, food inflation due to global warming and the trade war and so on). This is not due to any fault of the CPF system per se and the government is trying their best to reduce living costs in other areas.   

Third, in response to the elderly in SDP’s videos who may want to withdraw their CPF for more immediate purposes such as setting up businesses for their children, it is also important to ask “Will I be able to support myself if there is an emergency in the future?”

We have already established that the cost of living has been rising due to external factors. If an elderly withdraws their CPF for such purposes and the business does not work or the children distance themselves from their parents, will the elderly still be able to care for themselves and pay their medical bills?

As covered above, the CPF is a retirement/pension fund and should be treated as such. It even has sub-sections such as ‘medisave’ and ‘eldershield premiums’ which help ensure that the elderly have sufficient funds to pay for their healthcare. Sabotaging one’s long-term healthcare and retirement to pay for their short-term expenses would be unwise.

If the elderly is still anxious about their child’s long-term financial security, they can take comfort in the fact that they can nominate their CPF savings to go directly to their children when they pass on. The final (ridiculous) criticism is that the CPF allegedly mismanages the savings of Singaporeans while investing them in order to generate profitable returns. This was most explicitly asserted by politicians such as the Reform Party’s Jeyaretnam, who claimed that “missing funds may have been lost covering up bad investments”.

This is highly unlikely because as we have already established, our government guarantees our CPF payouts and has a AAA credit rating. Investments are necessary to generate returns and increase retirement funds and by global credit standards, our government is very reliable in managing funds.

Taking all of these in, while CPF is not a perfect system and we should tweak and refine so that it stays relevant vis-a-vis an average Singaporean’s life, the criticisms raised by some fractions of the opposition are not just unsubstantiated, they also do not make much sense.

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