Just overheard a group of young men discussing The Heart Truths article on CPF and HDB and getting upset, thinking it is true.

Before I could talk to them, they left. Very disturbed and very sad so I feel compelled to summarise the 3 main clarifications again.

1) Why does one have to pay back accrued interest to CPF if one sells his HDB flat?

This is because CPF is a personal retirement fund that can only be used before retirement for very few things, one of which is to buy a home.

Because of this, once you sell your home, you have to put the money back into CPF including the interest of 2.5% that you would have earned if it wasn’t taken out to buy a home.

If the sale price is not enough to cover this, CPF will NOT force you to top-up.

The point is to ensure that you have enough funds for retirement.

Also, there is no double interest charged!

The Government pays you 2.5% if you leave the money in CPF but charges you only 2.6% if you borrow from HDB. Thus the effective interest rate is only 0.1%. Try saving and borrowing from a bank and see what the difference is.

2) CPF is not a ‘tax’.

Critics are saying that because GIC and Temasek invests and makes much higher returns than 2.5%, it’s a implicit tax on Singaporeans.

This is false.

Firstly, CPF is invested in Singapore Government Securities which like US Treasury Bonds are as safe an instrument as it gets.

It is true that the money goes into general reserves that are than invested by GIC, but GIC and Temasek investments are far riskier than Singapore Government Bonds.

To those who think that CPF returns should follow GIC returns, are they happy to bear the losses that GIC makes in bad financial years like during the Global Financial Crisis?

Of course not.

CPF returns are guaranteed.

To those who say that CPF underpays, I challenge you to find me another similar investment opportunity that pays a guaranteed 2.5/4%.

Guaranteed please.

3) Why does the minimum sum and retirement age keep rising ?

The Government is not trying to cheat us nor is it a scam to get more money for investments.

The minimum sum and retirement age keep rising because we keep living longer!

When the minimum sum was lower and retirement age was 55, Singaporeans were living till about 68 for men and 72 for women. Now both sexes are living well into the 80s.

If the minimum sum and withdrawal age don’t increase, people will run out of money before they die.

It’s that simple.

Calvin Cheng

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