New CPF Rates Are Fair And Reasonable

Source : The Straits Times, Sept 25, 2007

MANY Members of Parliament and fellow Singaporeans have argued that the CPF system should provide a better yield to its members. Justifications included comparisons with the returns generated by the Government of Singapore Investment Corporation (GIC).

It is human nature to want higher returns. However, we have to recognise that in administering a national savings programme like the CPF, it is the Government's duty to ensure that the system meets its intended objective, which is to see to the member's basic living needs when he retires. The CPF should not deviate from this basic objective.

It is, therefore, not possible to manage the CPF system like an aggressive hedge fund, taking on higher risks to secure higher returns (returns are always a function of risk). Trying to generate higher returns by adopting a more aggressive investment methodology would be unfair to members who prefer a risk-free environment for their CPF monies.

Also, what would happen to Singapore if the CPF collapses due to investment losses incurred while trying to deliver higher returns by investing in riskier instruments?

Members with higher risk appetites have the option to invest their CPF monies in equities, unit trusts and other investment instruments which typically yield a higher return but come with a higher risk.

It is also unwise to correlate CPF returns, which are risk free, to the returns generated by GIC. Many think that as GIC achieved higher returns than the CPF over the last two decades, the CPF could be managed in the same way. Others feel that if GIC uses the CPF monies either directly or indirectly to invest, then CPF members should be entitled to the returns delivered by GIC.

However, MP Liang Eng Hwa pointed out that if CPF Board places the money in a bank, and the bank lends to GIC, these are separate transactions and at different transfer pricings. It is not a case of the originator of the funds deserving the returns just because they provided the liquidity. It's a function of the risk that you undertake.

In running an effective government, governments need to ensure that their functional groups are all managed independently and ideally without complex crossed accountability. So, we should stop trying to link GIC with the CPF, as they are different entities with different objectives and different levels of accountability.

Therefore, I would agree with the Government that the rates offered are fair and reasonable.

Jason Soon Hun Khim