A Free Hand For CPF To Create Wealth For Members

Source : The Business Times, October 10, 2007

MANPOWER Minister Ng Eng Hen is right that we should not malign the CPF as it has done a sterling job giving generations of members affordable housing and health care since its inception.

But, paradoxically, what is riling members in the current CPF debate is that, compared with the stellar returns of 18 per cent and 9.5 per cent achieved by the government's investment vehicles such as Temasek and GIC, their CPF return is woefully low. They are also not enamoured of the proposed compulsory annuity plan.

In 2006 the CPF paid 2.5 per cent for the Ordinary Account when inflation was running at one per cent. With a real return of only 1.5 per cent, it will take a stunning 48 years for their savings to double!

Even if the government increases the interest for the first $60,000 in the combined account to 3.5 per cent it will not make a significant difference as the forecast inflation at the upper end is 1.5 per cent.

This is the conundrum members face as low investment yields may seal their financial fate when life expectancy rises.

The government's reply is that the CPF rate is low because it is risk-free and guaranteed by the government.

But critics can argue that it makes no economic sense to shackle the CPF Board to a rigid, risk-free investment strategy and, at the same time, wax lyrical over the performances of Temasek and GIC which are not barred from taking measured investment risks with Singapore's foreign reserves.

The California Public Employees' Retirement System manages about US$246 billion for 1.5 million members and it has chalked up a respectable average return of 15.9 per cent a year in the last four years.

Even China's nascent US$53.3 billion Social Security Fund has announced a profit of 15.2 per cent for the first half of 2007.

And for the year ended March 31, 2007, the net profit of Singapore's central bank more than tripled to S$3.08 billion due to higher interest income and investment gains.

In my opinion, the CPF should have a free hand to exercise its fiduciary duties to diversify and grow into a world-class, multi-billion dollar Sovereign Wealth Fund which can also invest directly in Temasek or GIC to earn a market-competitive yield and create wealth for members when they retire.