At its introduction in 1955, the objective of the CPF was for the providing of retirement funds when an ordinary wage earning individual reaches age 55. The government of the day was to be entrusted with that task of managing an individual’s savings towards that objective.
What could have been the possible reasons for the state to have taken up that role instead of simply leaving it to an individual to save for his own retirement? Many reasons could be cited. But one very possible reason would be that an average citizen would be too limited in his knowledge and access to avenues for investments. The savings had to be invested responsibly for the long term in order that its purchasing power does not get frittered away by vagaries like economic cycles.
The state would be in a position to pool the retirement funds of the citizens who are under employment to acquire critical mass, an important feature for large scale investments. The size of the funds does play a pivotal role in how these funds could be effectively managed. Large investment funds could be diversified across countries, industries and types of instruments. The unit investment costs too could be minimised with entry and exit prices better negotiated. Over the long term these should collectively afford better returns for all the individual contributors, according to global benchmarks.
The critical mass had been garnered by ordinary individuals with each of them forgoing a portion of their meagre salaries all those years. Should not the returns produced as a result of that critical mass be made attributable to those individuals rather than the government, however effectively and efficiently it may have performed its role?
The difference between the accumulated funds using the average returns of 6% and the guesstimated weighted average CPF interest returns of 4% would be large. From the various responses recently obtained to questions on the CPF matter, the following appears to be the summary of the stand taken by the government:
If you had invested your retirement funds on your own the returns obtained would probably only be measly and therefore just accept what we give you and leave the rest in the state reserves, which are still yours. Leave it to us to use it for your purposes.
Would not such a stance adopted by the government render the difference to be retained as an implicit tax? And exercised exclusively on its wage earning citizens? And further too, consider that it is weighted against the low wage workers as the high salary earners would have their contributions capped, effectively lowering their contribution proportions?
In order to paint a clearer picture, a mathematical model using a spread sheet would be made available in the next part to this article. With a better grasp of the magnitude of that difference we can look at a possible plight of a low salaried 60-year old.
An estimation of what he could have contributed and what could possibly be attributable to him would perhaps be more persuasive in terms of numbers rather than words.