Questions To DPM Tharman: How Much Has GIC Earned From Singaporeans’ CPF?

Yesterday, I attended the Forum on CPF and Retirement Adequacy, organised by the Institute of Policy Studies. At the closing dialogue with the Deputy Prime Minister and Finance Minister, I posed some questions. The full question and answer session was captured by the Channel NewsAsia:

The questions that I had posed: 

  1. Now that we know that the CPF is invested in the GIC, is it also possible to know what is the interest earned in SG terms since inception?
  2. Secondly, Temasek Holdings has said that they do not invest our CPF, is it possible to know if in the past Temasek Holdings had invested our CPF? Because the GIC was only set up in 1981, so prior to 1981, how was the CPF used and otherwise was it invested in Temasek Holdings?
  3. Thirdly, how much has the Government earned in absolute monetary terms from the excess returns of the CPF and will the Government consider returning some of them to Singaporeans?
  4. Finally, the GIC has said before June this year that they do not know if they invest our CPF because it is “not made explicit” to them – they said this on the GIC FAQ. But the Government made an about-turn in June this year and admitted that they do. So in the interest of public interest, is it possibly to know why the Government made an about-turn? It might also be intriguing because the Government is also on the board of the GIC, so it would be insightful to know why. Thank you.

(1) Temasek Has Never Managed CPF Funds?

The minister replied that the Temasek Holdings “has never managed CPF funds” and that it “started off with a set of assets which were transferred by the Government at time of inception (1974)” with “about $400 million dollars worth of assets in the form of a set of companies”.

But he also revealed that, “before we amended the constitution in 1992, is that CPF monies, which were invested in Special Singapore Government Securities (SSGS), could be used by the Government to finance infrastructure – such as road infrastructure, Singapore’s economic infrastructure and social infrastructure. Just like (other) Singapore Government Securities (SGS), the Government was allowed to use borrowings in addition to the revenues it got in its budget, to finance infrastructural investments.”

What are these “economic infrastructural and social infrastructural investments”? Were they part of the $400 million dollars worth of assets in the set of companies which were transferred by the government to the Temasek Holdings?

 (2) GIC Does Not Need To Know If They Manage Our CPF?

On whether the GIC knows if it manages the CPF, the minister replied that, “GIC manages … CPF assets – but not as CPF assets. It is managing Government assets: managing all Government assets put together,… And the GIC (hence) pays no regard to what the source of funds is.”

He went on further to say that, “If the GIC was just managing CPF funds as a CPF fund manager, it would be managed quite differently. To provide a guaranteed interest rate of four to five per cent of the Special Account, or 2.5 to 3.5 per cent of the Ordinary Account, capital guaranteed and interest rate guaranteed, it would be a very different fund that it would be managing.”

Finally, he said that, “So the GIC manages a pool of Government assets, irrespective of sources of the funds. It is the Government that then takes the risk,” and that, “we’re not just triple-A-rated, but we’re able to provide CPF members with a very fair return on a guaranteed basis.”

I find this answer very worrying because as I have written before, if the government is also on the Board of Directors of the GIC (the prime minister is the chairperson), then there needs to be transparent accountability on how our CPF monies are actually being managed by the government and the GIC.

(3) GIC Takes On The Risk For CPF?

Later on at the forum, someone asked about the triple-A rating of the government. He pointed out that the government had said that the CPF is guaranteed “secure” returns because the government has a triple-A rating, and asked if the government can guarantee the rating because of how it’s managed Singapore’s finances. The minister then replied that the triple-A rating comes about because the government has additional assets, which comes from years of fiscal prudence. He said that when the government sells land, they don’t spend it. Surpluses from land sales and investment income add to the assets, which allows the government to come to its current financial position, and explains the strong credit rating.

Which leads us to this question – if our CPF is helping the government to accumulate the assets, then isn’t it because of Singaporeans’ CPF that Singapore is able to have a triple-A rating? If so, aren’t Singaporeans guaranteeing the returns on our CPF by ourselves? Then, shouldn’t we get all the returns earned on our CPF back, and not just the 2.5% to 4% we are given back now?

In fact, Ms Wong Su-Yen had presented at the forum how the Singapore government has over-invested our CPF retirement funds in very low-risk bonds – 72% goes into bonds, when the other countries would invest between 49% to 69% in higher risk investments, which has thus resulted in one of the least adequate retirement funds for Singaporeans in the world.

CPF Investment Allocation vs World

Thus seen in this light, does the government’s rhetoric that, “If the GIC was just managing CPF funds as a CPF fund manager, it would be managed quite differently” does not quite hold water when the evidence from the other countries show contrary.

At the end of the day, the government still has not answered as to why they made the about turn and finally admitted in June this year that they do invest our CPF in the GIC.

 (4) Singaporeans Are Still Not Able To Know What The GIC’s Returns Since Inception Is

As to GIC’s returns, the minister said that, “The GIC publishes five-year, 10-year, 20-year returns. You can look at the returns, and they are easily computed into Singapore dollars. Over the last five years it earned 0.5 per cent in Singapore dollar terms, over the last 10 years it earned five per cent in Singapore dollar terms, over the last 20 years it earned five per cent in Singapore dollar terms.”

However, the minister still did not reveal the GIC’s returns in Singapore dollar terms since GIC’s inception (in 1981).

But what we do know is that Leong Sze Hian has found that “it was disclosed in 2006 that the returns for the 25 years prior to 2006, was 9.5 per cent”, and asked if the GIC’s returns since inception would be more than 6%.

Why is this important? If our CPF is invested in the GIC, then the interest earned on our CPF should be returned to us. The difference of 1 or 2 per cent is very significant, as that can translate into tens and hundreds of thousands of pension funds that can be returned to Singaporeans.

(5) Questions 1, 3 And 4 Were Not Answered

Finally, of the 4 questions that I had posed, the minister did not answer 3 of the questions – questions 1, 3 and 4. We still do not know how much the government had earned in absolute monetary terms from the excess returns that were earned from our CPF. And even though the minister answered question 2, his answer only throws up even more questions. Did the Temasek Holdings invest assets from companies which had used our CPF monies?

Since June, more and more truths are being revealed and admitted by the government. In June, the government finally admitted to the truth that they invest our CPF in the GIC. Today, the government reveals that the Temasek Holdings has never invested the CPF, but have used assets from companies, which could possibly have been invested with our CPF.

Yet, the government is still not willing to let us know what the GIC’s returns are since inception. If the GIC uses our CPF to invest, then Singaporeans have every right to know how it is performing and the government cannot hide this information from Singaporeans.

3rd Edition Of The #ReturnOurCPF Event: Why Singaporeans Cannot Retire Because Of The HDB

We have to keep up this fight, to demand for transparency and accountability from the government. The CPF is our money, so the government claims, and if so, it is the every right of Singaporeans to demand proper answers from the government.

On 23 August, we will be organising the third edition of the #ReturnOurCPF event. In the first edition on June 7, we revealed to you the truths that the government has finally admitted to how they are using our CPF to invest in the GIC. In the second edition on 12 July, we exposed further truths about the exact number of Singaporeans who were not able to meet the CPF Minimum Sum.

Join us at the third edition as we reveal even more glaring facts about how our CPF is being used by the HDB and for housing, and find out why Singaporeans are not able to retire adequately, because of the HDB.

You can join the Facebook event page here.

Also, my first court case will be held on 18 September 2014, at 10.00am. It will be a full-day hearing.

Return Our CPF 3 Poster Template with Text edited with Title

Return Our CPF 3 Poster Template with Text edited with Title@Chinese

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35 comments

  1. Xmen

    A few comments –

    1. Infrastructure investment returns – In the case of Changi airport, the build cost is tremendous. When it was sold to Temasek, it was sold at far below market value (see many articles on this sale in financial newspapers/blogs). As a result, the unrealized “profit” was transferred (from GIC) to Temasek. There have been many such sales of public entities at below market values to Temasek in the past. That is one BIG reason that Temasek has managed such a high return even Warren Buffett could not beat. That is also one BIG reason why GIC now claims to have 5% return for the past 20 years. Please note that 5% is far under the 8% long term return of a typical pension fund over similar period.

    2. Money is fungible – It is easy to “assign” funds after the fact. There is a good reason why the government wants low GIC return now that it claims GIC manages CPF investments. This is to temper public expectation for a higher CPF (retro) interest rate. However, unless this was made clear when the investment was made initially (which I seriously doubt since they did not know until June this year) it is easy to make such “assignments” with 20/20 hindsight.

    3, CPF investment objective – It is disingenuous for a Finance Minister to imply that the CPF members have been well served by the present GIC scheme. He knows better than that, If GIC were a pension fund manager, it would rank in the bottom 5% of public pension funds in the developed countries. The GIC board would have failed in its fiduciary duty to protect CPF members’ interest.

      • More Healthy Debates in Parliament

        If WP is too silent;
        Then we vote SDP and Chee Soon Juan into parliament.
        And just to double confirm.
        Let’s also vote RP, NSP and SFP

      • Alan

        Well, the opposition is smart to just let Prata Roy be a clown. If what this flipper said is logical, they will have blow it up to capitalise on the issue.
        Even CSJ is dead silent too!
        That tells how much grey matter Prata have!

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  3. The Oracle

    It is clear that Roy will never be happy and he’ll just keep misinterpreting or twisting the facts even when he does get answers.

    Simple fact: While the GIC earned 0.5% during the past 5 years, we still got paid 2.5-5.0% in our CPF – Singaporeans have been protected from the swings in the markets.

    Many Singaporeans could also choose to invest some of their ordinary account money under the CPF Investment Scheme (CPFIS) rather than take the standard return. But let’s look at how that typically works out for those that do this…

    @Xmen: Your 8% return number is BS – you have to look at Singapore based funds which will account for the appreciation of the Sing$ and you also must look at the actual range of fund returns, not just an ideal one. Facts: There are almost 1000 funds in Singapore, of which 400 or so are approved for investing under the CPFIS scheme. Looking at the performance of these 400 funds over the past 3, 5 and 10 years, the majority of the funds earned LESS than 2.5%! So, put simply, unless you are very lucky, you would be better off leaving your money in CPF. I work in the finance industry and I choose to leave my money in CPF rather than use the CPFIS scheme as I’m fully aware CPF is as risk free as you can get in this world but pays above risk free returns.

    Note: That fund return of less than 2.5% above is calculated on a bid-bid basis and does account for typical sales charges that can be up to 5% and thus the actual return received by an investor would be even lower.

    As ever, I recommend people should do their own research and not believe everything they read on a forum. Roy wants to stir discontent for his own political gain and so keeps spreading his half (not heart!) truths.

    • The Oracle

      Correction:

      Note: That fund return of less than 2.5% above is calculated on a bid-bid basis and does NOT account for typical sales charges that can be up to 5% and thus the actual return received by an investor would be even lower.

    • Xmen

      @Oracle,

      You are repeating the same points that have been answered previously.

      1. “Simple fact: While the GIC earned 0.5% during the past 5 years, we still got paid 2.5-5.0% in our CPF – Singaporeans have been protected from the swings in the markets.”

      This is the most disingenuous statement made by PAP. If GIC had return 0.5% since inception, how would it pay 2.5%-5.0% to CPF members? And you conveniently ignore the long term return by focusing only on the past 5 years. CPF members have been assuming investment risks without being compensated. Do I need to explain the risk-reward concept? Btw, 0.5% is pathetic compared to other pension funds or stock market measures.

      2. “Your 8% return number is BS – you have to look at Singapore based funds which will account for the appreciation of the Sing$ and you also must look at the actual range of fund returns, not just an ideal one. Facts: There are almost 1000 funds in Singapore, of which 400 or so are approved for investing under the CPFIS scheme. ”

      Why are you comparing CPF to the other 1000 funds that have very different investment objectives? CPF needs to compare to other pension funds, period. I don’ know of ANY pension fund that invests in “fixed” deposits returning 2.5%-5.0%. The CPF board is failing its fiduciary duty to look after its members’ interest. Over 95% pension funds in developed countries are achieving FAR BETTER long term returns for their members. Even STI has an annual return of over 16% since inception. Why is CPF only paying 2.5%-5.0% when GIC/Temasek are making over 10% long term?

      Currency appreciation does not matter here. The key to any pension fund is REAL return, i.e. return after adjusting for inflation. Almost all pension funds in developed countries beat inflation handily. Can you say the same about your CPF savings? It may well be losing value when inflation is taken into account.

      The 8% number is not BS. Many stock market indices beat 8% over long run. STI is 16%!

      Explain to a CPF member why he/she should be happy with the (non)return when other pension funds are returning 8%?

      • The Oracle

        @Xmen

        Are you getting your “facts” from one of Roy’s blogs or from a reputable source?!

        The STI has not produced anything like a 16% long term return! The real answer is nearer 5%. Want explicit proof? Look at this chart of the STI over the last 25 years or so:
        https://sg.finance.yahoo.com/q/bc?s=STI&t=my
        Back in 1988/1989 the STI crossed the 1,000 point mark and last night it closed at 3,353. It has had spectacular up years but also some spectacular falls. But all told the return averages 5% per year. Don’t believe me? Then calculate the following: 1000x(1+5%)^25. 1,000 dollars, earning 5% interest, compounding yearly, will be $3,386 after 25 years. Where’s your 16%?

  4. Chris

    Roy
    U wrote so much but all answers are already answered by DPM.
    If u cannot comprehend the answers, u should have ask again during the forum. Yes, it is ok to look and be stupid in such forum. Especially, DPM is so nice and patient to clowns like urself. Btw, did cna transcript show the full forum? Why didn’t u keep screaming “just return our cpf, I dun care, cpf is my money’ etc”? U should be acting like ur usual self instead of pretending to be a “student” asking normal questions even when answers are available….
    U r one strange fellow, online and offline, u show a different face…. Wayang king, is ur other name?
    If this is in a company, I’m sure ur boss will have a chat with u privately after such meetings. To tell u not to embarrass him again by asking such questions when the answers r already given.

  5. LC

    he has so much time to rant all his nonsense here. it is so clear that his questions are answered yet still go and organize another session at HL park. There is vincent and many people there also speaking. are these people with no knowledge? what are they trying to achieve? goodness me. thank god i don’t know you personally, or I will be so ashamed.

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  7. Advert

    Digging out history is to destroy or to build?
    Keep asking stupid questions is to demonstrate ignore or preverserance?
    Making so many bias comments against PAP or government is to build a better Singapore or simply trying to pull down a party on the expense of Singaporean?

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  9. Xmen

    @Oracle,

    The source of the long term return (since inception) of STI is from http://www.nikkoam.com.sg/etf/sti

    Your 5% return did not include reinvested dividends (note: all annual return must include dividends.) 5% long term return is pathetic for a developed market. Needless to say, 2.5%-5.0% return is beyond pathetic for a pension fund. The biggest stock market index S&P500 has a median long term return of 13% (wikipedia).

    • Xmen really

      Xmen,

      Do you realise the return is since inception of the fund, and do u know when is this fund incepted? Whether is at the peak or a trough. Seriously, r u professional?

    • Xmen

      When it says since inception, it means annualized return to date. It is NOT the total return since inception. Most mutual funds have the same information (1-year , 3-year, 5-year, 10-year, since reception returns.) Talk to your stock broker if you need help understanding the term.

  10. Isthisforreal?

    “Which leads us to this question – if our CPF is helping the government to accumulate the assets, then isn’t it because of Singaporeans’ CPF that Singapore is able to have a triple-A rating? If so, aren’t Singaporeans guaranteeing the returns on our CPF by ourselves? Then, shouldn’t we get all the returns earned on our CPF back, and not just the 2.5% to 4% we are given back now?”

    I recommend you this book “introduction to finance for amateurs” not just for Roy N, but for the all of you who thinks this even make the slightest bit of sense. Seriously, this is what happens when you get a lowly-educated person to write about something that needs brainwork.

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