Minister for Manpower Tan Chuan-Jin published a defence of the CPF scheme on the MOM Blog yesterday. It was logical, factual, and puts paid to many of the rumours and gripes about the CPF scheme out there. Many, but not all. Bottom line, though, is that the minister merely repeated stuff from the CPF website and other repositories of G information, quashing only the most outlandish and uninformed speculations.
There’s plenty of ground left to be covered, really, but even at this stage (and even ignoring a lot of the content on Roy Ngerng’s site), gaps remain in the CPF scheme and the communication thereof.
1) Minimum sum and the shifting goalpost
Minister Tan said it himself in the blog but didn’t show how CPF addressed this. The minimum sum is designed to “meet the expenditure needs of a lower-middle income retiree couple” who will be turning 55 in that year.
It’s a problem of poorly managed expectations again, from what I can tell. We’re looking at 20 or 30 more years of disappointment for me as the minimum sum goalpost keeps moving further and further away with each year closer to retirement that I get.
Honestly, the retirement plans from major insurance companies are much more well-presented, giving you a proper hard target based on some fair assumptions for whenever it is you turn 55 or 60 or whenever you want to “retire”. You know that if inflation goes off-track, you’ll have to re-jig the plan, but not by very much. You know how much you should be saving. You know that you can do whatever you want with your lump sum payment, including investing it to match inflation.
What do we have instead? A target made for people turning 55 THIS YEAR, which doesn’t increase in line with inflation, which means that I have not a bleeding clue how much money I’ll be getting every month when I turn 55, or if I’ll have to make any alternative plans for retirement, which I should be doing when I’m 25, not 55.
2) What retirement?
When will I retire? (Personally I hope I never do). Perhaps in 10 years, given the fact that we’re living longer and being supported by fewer youngsters with each passing year, we will only get to unlock some of our CPF monies at age 65. Or ‘retirement’ will only be allowed at age 75. What the heck is retirement anyway?
Everyone has a different expectation of what their silver years may be like, and the fact is that CPF won’t be able to make all these dreams come true. People have their own ideas of what their retirement savings should be used for. CPF isn’t really a retirement fund per se. It’s the “welfare” system that we don’t want to have – the thing that will keep you financially alive when everything else goes to hell in a basket.
It would be nice if we could hear that more often.
3) Why is minimum sum still a bridge too far?
If, according to the Ministry, 50% of “active CPF Members” cannot meet the minimum sum (needed for a semi-decent retirement) today, then the CPF scheme has failed to provide for Singaporeans. The burden for the shortfall may have to fall on the G’s current account, which means taxes.
With a 50% success rate, might we have been better off trying to implement a national pension plan funded by taxation? Trade one drawback with another? We could have a whole other debate about what really causes national pension funds to succeed or fail.
If CPF is the backbone of our national retirement plan, then I’d say that an estimate of 70% is pretty dismal. 50% is a nightmare. This is for basic living standards here, and mind you, CPF payouts don’t increase with inflation. $1,200 may seem decent today, but what will it buy when my dad turns 85?
Looks like the minimum sum is best used as an indicator of how screwed you will be if you stop working now.
4) “My money”, but out of my hands
The G has always been selling CPF as “your money” (and the blog post says so), but we don’t have flexibility to spend it even after we retire, let alone before. Sure, we have a couple of options like pre-approved shares and housing, but with that ever-increasing minimum sum in place, we can’t depend on “our money” to get us out of a fix. In other words, it’s “my money” with a long, long list of caveats and miles of fine print.
Take this old blog post from Gintai, for example. If you run into financial trouble, and need cashflow to staunch or prevent short-term financial loss, you can’t use your CPF, even if it is a very savvy long-term financial move, and would help secure your retirement. This means that we should plan our lives remembering that CPF money is all but untouchable, but since that is the case, PLEASE don’t go around telling people that it’s “your money” – they’re going to get the wrong idea.
5) This comment:
ZY Ong: “Hi Mr. Tan, I am curious why does CPF invest all the money in Singapore Government Securities? Why can’t part of it be invested with fund managers? Investing all our money in bonds (even if they are AAA-grade) for the long term is simply not what any good financial planner tells his or her client.”
Why is the CPF board going 100% into government bonds? Sorry, 100% into government bonds from only one country. Perhaps there will be an explanation down the road, but I don’t think it will be convincing. Triple-A? There’s many other Triple-A investments out there – diversification is advisable.
Still, 2.5%/4% interest hasn’t kept up with inflation over the last decade, but the minimum sum is sure hard at work staying out of reach. Maybe that’s also what people are upset about.
6) Mismanaged expectations
The G has always touted CPF as the best solution for a retirement fund. It has never in my living memory ever really said anything bad about CPF, which is a bad thing because it raises expectations WAY too high to be met.
Face it – CPF is a system. It may even be a good system. We hope it is the best system. But even the best system has its weaknesses and limitations. The G doesn’t talk candidly enough about these limitations. Even the Minister’s blog post talked up the CPF and its sub-schemes to no end, with no criticisms of the scheme. No acknowledgement that it is a “nanny state” system that locks up your money, presumably for your own good. No discussion of alternatives.
A robust defence of the CPF scheme must include a comprehensive and honest evaluation of its failings and weaknesses, so that everyone doesn’t have inflated expectations about what we can or can’t do with “our money”.