Top 8 SHOCKING Facts About The Singapore CPF

Here’s a list of top 8 facts that some of us never knew about our CPF!

FACT #1: Your CPF interest rate used to be higher at 6.5%.

Do you know that our CPF used to earn higher returns? The interest rates had rose to 6.5% between 1975 and 1986, before dropping again. Those were the golden years of our CPF (Chart 1).

The CPF interest rate of 2.5% that we are getting on our Ordinary Account (OA) now is the lowest and is what we were getting between 1955 and 1962. In fact, from 1963 to 1986 (for more than 20 years), the interest rate that we were earning from our CPF had been above 5% – higher than what we receive on even the 4.5% on the Special and Medisave Accounts (SMA) now.

Slide1

Chart 1

FACT #2: You will earn higher retirement funds in the 10 years between 1976 and 1985 than now.

Let’s assume that a person was earning $3,000 every month in 2004 and he continued to earn $3,000 for the next 10 years. In the last 10 years, between 2004 and 2013, using the OA interest rates of 2.5%, a person would earn about $142,000 by 2013. Based on the SMA interest rates of 4%, a person would earn about $155,000 by 2013.

But do you know that in the 10 years between 1976 and 1985, a person who had earned $3,000 every year would be able to earn $202,000 by 1985 based on the contribution and interest rates at that time – $50,000 more than the Singaporean living in the present time (Chart 2)!

This means that Singaporeans were obtaining better returns in the mid-1970s to mid-1980s than today!

Slide2

Chart 2

FACT #3: You are paying up to a 12.5% tax on your CPF.

Right now, Singaporeans are earning only 2.5% and 4% on our CPF. However, our CPF is being used to invest in the GIC and Temasek Holdings, which are earning 6.5% and 16% respectively.

If we look at our the portion of our CPF OA (earning 2.5%) which is invested in the Temasek Holdings (earning 16%), do you know that the returns of 13.5% (16% minus 2.5%) which we are not getting back on our CPF is actually an implicit tax that we are paying to the government? Assuming that we need to pay an administrative charge of 1% to the CPF for managing our CPF, this means that we are paying an implicit tax of 12.5% (Chart 3).

Because the government isn’t returning the full earnings from our CPF to us, this 12.5% that is not returned to us is effectively what we pay to the government as tax on our CPF.

Slide3

Chart 3

FACT #4: We can only use 15.5% of our CPF funds for retirement.

Do you know that Singaporeans use about 75% of our CPF for housing? Up to another 9.5% is set aside for Medisave.

This means that we are left with only 15.5% (Chart 4).

This means that we can only retire on 15.5% of our retirement funds. So, Prime Minister Lee Hsien Loong might say that, “each poor household has on average $200,000 of net wealth in the HDB flat“. So, what is PM Lee’s solution for poor Singaporeans who would need the $200,000 to use for retirement? Sell their homes? Then what would happen to the children who live in these homes with their parents, or the parents who live with their children? Become homeless too?

Slide4

Chart 4

FACT #5: If we get the full returns back on our CPF, we would be able to retire with 50% of our CPF.

Assuming that you would be able to obtain the 15% interest returns from the Temasek Holdings (16% minus 1% administrative charge), and assuming that the funds in your CPF is managed by the Temasek Holdings, do you know that you would only need to use only about 37% of your CPF for housing, instead of the 75% now?

The 2.5% to 4% interest that we are earning now means that we have to spend 75% of our retirement funds on housing. But if we are able to get the full returns of our CPF back, we need to only pay as low as 37% to housing (Chart 5).

If we are able to get the full returns of our CPF back, we would be able to retire with 50% of our CPF savings, instead of the 15.5% now!

Slide5

Chart 5

FACT #6: Singaporeans earn the lowest interest rates on our CPF as compared to the other countries.

Since 2000, Singaporeans have been earning 2.5% to 4% on our provident funds. Some commenters had said that this interest rate is “guaranteed” and is high. Let’s take a look at the “guaranteed” interest rates of the other countries.

Do you know that when compared to the other countries with social security or provident funds, we actually earn the lowest average returns since 2000 (Chart 6).

Quite obviously, 2.5% to 4% can hardly be considered high at all! The commenters who had championed the high “guaranteed” interest rates might need to check their facts again.

Slide6

Chart 6: The Heart Truths SHOCKING Facts About Our CPF in Singapore! (Part 2)

FACT #7: Singaporeans earn the lowest CPF returns because we start off on a lower base – we earn the lowest wages.

Also, some commenters had said that CPF is “your money” because it’s money that we earn and keep for ourselves.

But as I’ve mentioned above, we earn the lowest interest rates on our CPF, and because interest rates are the lowest now in Singapore’s history, we actually earn a lower amount than what we would used to be able to earn in the early 1980s.

So, because we pay the highest contribution rates but earn the lowest interest rates, we have one of the least adequate retirement funds in the world.

Simply put, the government is not returning to us into our CPF what we should rightfully earn from our CPF.

But more importantly, do you also know why our CPF can hardly grow as much as it should?

Do you know that even though Singapore is the richest, if not, one of the richest countries in the world, and do you know that even though we have one of the highest prices in the world, Singaporeans are actually paid the lowest wages among the high-income countries (Chart 7).

Slide1

Chart 7: The Heart Truths Singaporeans Earn The LOWEST Wages Among The High-Income Countries

If our wages are on par with other countries with a similar level of income and price level, the median wage in Singapore at this moment should be about $4,500, instead of the $3,000 now.

Assuming that we had used the example in Fact #2, if Singaporeans are to earn a wage that is on par to that of a high-income country and we are able to earn the full returns on our CPF, Singaporeans would have accumulated a CPF savings of up to $500,000, or more than 3 times as much as what we are getting now (Chart 8).

Slide11

Chart 8: The Heart Truths Singaporeans Earn The LOWEST Wages Among The High-Income Countries

FACT #8: Our CPF of $230 billion has helped to earn $1 trillion. 

Do you know that in 2012, the total CPF members’ balances is $230 billion? The Singapore Financial Reserves is close to $1 trillion dollars, or $1,000 billion.

Do you know that our CPF of $230 billion has helped to earn $1,000 billion?

And do you know that this $1 trillion is more than 4 times what we have in our CPF?

If so, where is the rest of the $770 billion that our CPF has helped to earn, if the money we helped to earn is not coming back to us (Chart 9)?

Slide7

Chart 9

Slide8

So, finally, if you can pull back and see the bigger picture – if you can see that Singaporeans are paid the lowest wages among the developed countries, we have to pay for one of the highest prices in the world, our retirement funds earn the lowest interest rates, and we have one of the least adequate retirement funds in the world, then you will understand why Singaporeans are trapped in a poverty and disempowerment cycle (Chart 10).

We are simply squeezed on all sides and Singaporeans genuinely have to struggle to make ends meet!

Slide9

Chart 10

This is no wonder why Singapore has the highest poverty rate among the high-income countries and even when compared to the middle-income countries in the region (Chart 11).

Slide10

Chart 11: The Heart Truths Poverty in Singapore Grew from 16% in 2002 to 28% in 2013

Does it thus make you wonder why even though Singapore has such a high rate of poverty that we have the 18th largest billionaire population in the world (Chart 12)?

GLOBAL Billionaire COUNTRY LIST cropped

Chart 12: Wealth-X and UBS Billionaire Census 2013

And that we have the 5th largest billionaire per capita population in the world (Chart 13)?

Top 10 Countries by the Number of Billionaires Per Capita cropped

Chart 13: Wealth-X and UBS Billionaire Census 2013

After knowing all these, do you agree with PM Lee when he said had said that, “if I can get another 10 billionaires to move to Singapore and set up their base here, my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs, and I think that is the attitude with which we must approach this problem.“?

Slide8

Can you agree with PM Lee when 69% of Singaporeans had said that they would “expect to continue in full-time or part-time work during so-called retirement” – which is the highest in the region and higher than the average of the 55% in this region.

Do you think this is right when Singapore is also the richest country, if not, one of the richest country in the world, with one of the highest reserves, the highest reserves per capita and one of the largest surpluses in the world? Do you think this is right that there is still so much poor and where people cannot afford to retire because they earn the lowest on their retirement funds?

Many Singaporeans feel helpless at knowing this information. Some of them ask, “but what can we do?”.

The question you need to ask is this – if the situation is already so stark in Singapore, will another government be able to do better? If so, what can you do?

This article is written as a third-parter to the first two parts of this article. You can read Part 1 and Part 2 of the articles here (Part 1) and here (Part 2).

44 comments

  1. Nick

    Thanks Roy, for these illuminating articles on CPF. Makes me wonder why no Singapore economist/academic has spoken out so cogently on this subject thus far, except for a foreign academic, Prof Balding.

    • justin

      To all the people below who say this article is misleading, please read again. These charts are the hard facts and solid data. The only misleading thing is how you want to interpret the data. To me, it is crystal clear that CPF is not doing its job to ensure that Singaporeans have adequate money for retirement. It is also clear that Singapore has the highest proportion of old people clearing tables at hawker centres. Seeing is believing. Enough of crap from naysayers below.

  2. Rick

    There are just so many misleading statements here it is hard to correct them all. The whole CPF system is based on market principles. Govt issues bonds. Many insurance co like AIA etc are buying 10 yr bond at less then 3% so if CPF gives you 4% then you should be happy. Mortgage rates are below CPF saving rates. Which other country has that unique situation? Please share.
    That gic gets a higher return is justified by the risk they take. CPF is risk free. Big difference

    • HT

      GIC gets higher return due to the risk they take? u are so cute.. they take risks on other-people’s-money (i.e. our CPF) .. so that’s justifiable ? why not u give me ur money I help u invest and take risks and reward myself handsomely for it.. 😉

      • No scandal

        But they are NOT taking risks with your money! They are guaranteeing you a 2.5-4% return, with principal. It is RISK FREE to you! What don’t you understand about this?

      • john

        No scandal, there is no such thing call risk free; Bad judgement on their part will put Singapore at jeopardy; They are afterall borrowing money from u & me to invest. They take your money to invest, this is a fact.

      • No scandal

        If you take your own money and stick it in an investment instrument, say a company bond issue, or a unit trust, you have taken your own risk that the value of the bond will fluctuate, the value of the trust might fluctuate, the company might go bust and you lose all your capital. YOU have assumed that risk, on the account of pursuing returns. Here, the government of Singapore has taken SOME of the pooled CPF funds, and invested it in higher yielding instruments to get some return. If you are familiar, tell me, how much are the so-called ‘safe-haven’ instruments like US treasuries yielding these days? 10 year bills are yielding 2.6%! That’s all! Tell me, on your own, investing in ‘safe’ instruments, how much yield can you get on your dollar?

        In spite of that, thanks to and backed by our reserves, the S’pore g’ment has guaranteed 2.5% to 4% yield on your CPF funds, GUARANTEED, and your principal back. Does not fluctuate like a bond or stock price, or unit trust. They have assumed that risk, taken it off YOU, the individual investor. Short of the country going bankrupt, which it will it if it decides to adopt Roy’s harebrained idea of returning 16% p.a. on CPF accounts, the money is as good as gold.

        How is that a bad deal in today’s environment when savings gives you 0.1% interest? When long term bonds barely creep over 3%?

        The fact is a lot of people I know rather keep their money in CPF than pay off their housing loans. You pay LESS interest on a HDB or condo loan than you receive in a CPF account, for doing nothing other than being fortunate enough to live in Singapore where the g’ment has got it’s finances in order.

  3. Adrian

    This is a very misleading article which only covers half the story. Interest rates were 6-7% back in the 70s ad 80s because that was the bond rate then. Did the author also mention that interest rates for mortgages was also much higher back then? It is all linked, although the CPF rate is low now, we are also enjoying record low interest rates on our housing and other financing rates. We should be relieved that Temasek is actually getting higher returns from their investments, that gives me confidence that they can actually payout the 2.5%. Like what rick mentioned, CPF is risk free, imagine If Temasek had a bad year like another financial crisis, how would you like if they had to withdraw 20% from your CPF account because they lost money. Just doesn’t make sense to me. To all those who are reading this article, please take it with a pinch of salt and go find out more facts before you make your own conclusions.

    • No scandal

      Exactly. Completely misleading article which fails to take into account obvious differences in prevailing interest rate environment 30 years ago, the fact that investment environment for Temasek is volatile, and subject to losses as with any investment.

      Roy, I cannot believe that you do not understand this. I want to think that you have good intentions, but if you go on purveying half truths and distorted information, then I can only say you have an axe to grind and are not a sincere or credible critic. You are only pandering to your audience, some of whom unfortunately swallow your stuff hook, line and sinker.

      • Jo

        I’m no economic student in fact I terribly bad at it and as much as I distrust our gov in certain matters, I too felt that this article is distorted expecially on the comparison between now and decades ago. However can someone care to explain on Fact #3 on the returns. Why can’t we have non guarantee bonus interest (similar to insurances) based on the performance of the investment on top of the guarantee rate. After all temasek holding is an arm of the govt and according to wiki their profits is a whopping 83billion.

      • Roy Ngerng

        You have your answer there – Temasek Holding is an arm of the government and the government manages the CPF. So why aren’t don’t we get non-guarantee bonus interest?

  4. Anonymous

    This is so frustrating. There are so much inaccuracies and misstatements in this article. It is indeed shocking on the things that the writer don’t know and then claim to know. Do you know SGP was not borne this prosperous – we went through this phase called “GROWTH” where you see even double-digits GDP growth year-on-year; which is why interest rates/ cpf rates were higher.

  5. No scandal

    Chart 6 – Let me quote to you from your own source: http://www.jekomilev.com/davis_investment_pension_fund.pdf , page 58; “On the other hand, as pointed out by Asher (1998), the investments of those individuals allowed to allocate their own excess-balances with the CPF as they desired have been even more disappointing. Over 1994-7, only 20% of investors achieved returns in excess of those available from leaving the money in the CPF, and aggregate losses in nominal terms of those investing exceeded gains; and this before the financial crisis in South-East Asia began. This is a sobering illustration of the capabilities of individuals to manage long term investments.”

    Later in that write-up, page 59; “In Australia and Switzerland, asset returns have been rather lower than that in the most remunerative OECD pension systems. In each case the real portfolio return was estimated to be just over 1.5% over 1970-95; this compares poorly with 5.9% in the United Kingdom and 4.6% in the Netherlands over the same period – sectors which have prudent man rules for asset allocation and where funds are largely defined benefit”

    How come you exclude Australia and Switzerland from Chart 6?

    “In Sweden, the returns have been comparable to Switzerland and Australia, with a real return of only 2.0%, only just above wages growth and with a standard deviation of 13.1% in excess of that in the Netherlands”

    Why you exclude Sweden?

    Are you cherry-picking data?

    Also,
    I find your Chart 20 on your Part 2 about CPF to be completely misleading – https://thehearttruths.files.wordpress.com/2013/10/photo-3-3.jpg

    Here is the link to the English language paper – http://info.worldbank.org/etools/docs/library/245642/Dimitri%20Vittas200803Improving%20Inv%20Perf%20of%20PPFs.pdf

    I excerpt from the introduction section;

    “This paper reviews the experience of four such OECD countries: Norway, Canada, Ireland and New Zealand.2
    After a brief synopsis of the past record of the investment performance of public pension funds, the paper discusses the creation of new public pension funds, and then reviews their structure and performance in terms of their objectives, funding sources, institutional structure and fund governance, executive management, formulation of investment policy objectives and determination of strategic asset allocation, implementation of investment strategy and, last but by no means least, investment performance.”

    As far as I can tell, the paper only speaks of returns that the investment fund GENERATES, not RETURNS to the contributors!

    Page 16 – “All four pension funds have achieved positive investment results with excess returns over
    their respective benchmarks.”

    By putting on one hand, CPF returns to contributors, and THEN, return on investments for other countries, on the SAME chart (Chart 6), aren’t you being somewhat disingenuous? It’s comparing Apples and Elephants.

  6. Roy Ngerng

    To all readers, please also read Part 1 and Part of this article to draw your own conclusions:

    https://thehearttruths.com/2013/11/04/shocking-facts-about-our-cpf-in-singapore-part-1/

    https://thehearttruths.com/2013/11/05/shocking-facts-about-our-cpf-in-singapore-part-2/

    Understandably, some of us are uncomfortable with the realization of these statistics. They key now is to envision how you believe that the CPF can be made better as a retirement fund, and what policy reforms you believe need to be taken.

    With that, we can decide for ourselves how these reforms can take place, and what we need to do ensure that Singapore transits into a form of governance that allows the necessary CPF reforms to take place to happen.

    Our civil service, which has been in existence for a while now, and which would continue to exist in the event of such a transition, will help ensure that such reforms occur in a smooth and stable manner for Singapore and Singaporeans.

    • No scandal

      The sad thing is that a discussion on the form that CPF takes is actually a critical question, with a lot of hard decisions and trade-offs that need to be made as our population ages and the investment environment remains uncertain. However, your distortion and obfuscation of the data to support your leading contention (CPF should be paying 16% p.a) completely discredits you in the eyes of anyone who takes this seriously. The only shocking thing is really the lack of rigour you have put into understanding and presenting the data you have now perverted to support what is honestly a hare-brained notion.

  7. Johanathan

    Another point of view is that the PAP government has lost its plot. It is offer uncreative and unsustainable economic solutions such as building 2 casinos for economic development; one which borders on moral permissiveness. There is also this stereo typecasting of saying without some of these policies such as 20% CPF or minimum sum, the low-income citizens would not be able to earn their flats as they would spend it all in a poof. I also wonder why the government pays our CPF at 2.5% below the inflation levels of 3-5% each but chooses to have a minimum lump sum raised every 2-3 years to factor in inflation. Why was the payout of 2.5% interest not raised to counter inflation? REAL(factoring inflation) INTEREST must be included instead of paying mere INTEREST without considering inflation. Why raise the minimum sum at age 55? Why not pay REAL INTEREST and set the floor for the minimum sum? That way, citizens would be secured. By increasing minimum sum every 2-3 years, would eat into the trust levels of many CPF citizen members as most believe the government is locking up their life-savings…and perhaps they may be right about that.

  8. auntielucia

    Your article is wholly misleading. Let me point to just one: You say, CPF members are left with little in their CPF for retirement, the bulk of which went into housing. Hello, you can’t have your cake and eat it. You are free to buy your home without touching your CPF, if you so choose. There’s no rule in the housing market in SG which says you must pay for your home with your CPF. Obviously, if you use your CPF for housing then you would have less in your account at retirement. But you would have saved on years of rent you wld otherwise have to pay if you rent — and you can set that money aside for your retirement, if you are wise. Also, if your home appreciates you or your children would benefit, from the capital appreciation when the property is sold.

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  12. thedividedman

    “In accordance with the GSA, all proceeds raised from securities issuance, including T-bills, and any investment returns derived from the proceeds are paid into the Government Securities Fund. Payments from this fund are limited to the payment of interest and repayment of principal and are a statutory obligation. This framework ensures that the Government’s borrowing are not used to fund the Government’s expenditures and the interest payment and principal repayment are not subject to parliamentary approval.”. The government isn’t pocketing our cpf monies. The low interest rate might be just them being prudent. Afterall if they gave a higher interest rate and investments turn sour, where are they going to finance the lost? The returns that have accumulated over the years act as a buffer for sour investments. The government guarantees our monies. With a small buffer or no buffer… who finances the lost? It will definitely be us, govt expenditure is financed by taxes afterall. I give the government the benefit of doubt that they have done their calculations and set such prudent interest rate.

  13. Stupid,dumb or just retarded?

    Please, those of you out there who know nothing of economics or finance, just shut the fuck up. You are making every foreigner out there who chance upon this website think that our entire population is a fucking joke. Though this website and its retarded author has already done that…

  14. TT

    I had contributed CPF since 1973 and I had never sign and document entrusting my money for investment by others.
    If this the CASE then we as a contributed should demand the percentage of profit they gain and not pay us the peanuts interest.

  15. amitaba

    I really agree with TT & Roy, if you & I don’t get the returnof more than inflation rate, how can we as Sin still let the cpf board invest our$$$ ? That is our $$$ .If you don’t care about your $$$ it’s ok for you BUT not for me!
    The cpf board has to review their own performance just like your boss review your work performance annually .If cpf board not performing well in investment return whose should tell them what to do? If you&me not performing well during yearly assessment, your boss definitely will ask you to improve next year, not tell you do the same next year!
    Same go to cpf returnrate, how can we as so call world well educated Nation accept the same rate of 2.5_4% for the past 13year, even
    the return worst than our neighbors. So your accept this rate my fellow Sg? Are we dump ?
    Are we really doesn’t matter?

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  17. WHY YOU NOT BRAIN

    ALL DREAMING WANT THE MONEY FALL FROM SKY………YOU THOUGHT MONEY SO EASY TO EARN? 16% RETURN PER YEAR?
    IF YOU CAN MAKE A RETURN OF 16% PER YEAR CONSTANTLY…….THEN YOU NOT NEED WRITE A STUPID BLOG HERE

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  19. patriot

    I guess by now pple sld know this site has strong political agendas and anyone with a decent iq can see many of these data are presented to show what the author wants to bring across. Too can many pple will still fall victim to it. Its good to use a bit of common sense sometimes.

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