Better Returns Aside, Relook CPF System

Source : The Straits Times, Sept 27, 2007

I REFER to the letter, 'New CPF rates are fair and reasonable' (ST, Sept 25), by Mr Jason Soon Hun Khim.

The question as to whether the new CPF rates are 'fair and reasonable' must not be considered in isolation.

How is the CPF doing benchmarked against its peers? In the 2000 World Bank study, 'Managing public pension reserves', between 1961 and 1995, Singapore achieved 1.5 per cent per annum in real compounded returns, worse than South Korea's 5.4 per cent and Malaysia's 3.2 per cent, although better than Peru's -44 per cent and Uganda's -33.1 per cent.

The point is, can more generous returns be achieved, while not deviating from the 'basic objective' as Mr Soon highlighted?

The answer is likely to be positive. The best indication of the capacity for higher interest rates is the very proposal to raise interest rates now. Nothing has changed recently except the Government now believes workers need better returns to meet their retirement needs. This suggests that perhaps an even higher rate of interest could be paid out.

Raising CPF returns is definitely a move in the right direction. But improving the CPF system should go beyond a one-off rate adjustment and involve a relook at the entire system.

The World Bank has suggested a public-private approach to managing pension funds. These funds remain public in that the government maintains control over contribution rates and withdrawal criteria while management of the funds is left to private financial institutions, subject to investment guidelines dictated by the government.

With over three million members and $128.8 billion in funds, I believe the CPF Board has the bargaining power to seek better returns for its members, with no additional risk.

Faye Chiam Pui Hoon (Miss)