Singaporeans Do Not Have Enough inside Our CPF because of Low Wages, Low Interest Rates and Too Much Spending on Housing
“In 2010, however, the average balance per member was Singapore $57,000 which was approximately equivalent to the per capita income. (Today, this is only $72,000.) This will not finance the 2 decades of retirement expected as the population ages in the next 20 years.”
“There are several reasons why the average balance in the CPF is low. First, the wage structure in Singapore is highly unequal, and this is reflected in the contributions made by the CPF members. Thus, in 1999, 51.4% of the contributors had monthly wages less than S$2,000, while only 6.3% had wages higher than S$6,000. (By 2011, 55.9% of contributors had monthly wages of less than $3,000 (or the median wage). 2013 figures are not available as the PAP government has removed them from public records.) Second, a high rate of pre-retirement withdrawals tied to the centrality of the real-estate sector reduces the amount available for retirement. Third, average balances are low as the real rate of return is low due to implicit tax on CPF wealth. Finally, high transaction costs due to restricted competition and the limited size of the unit trusts market have also contributed to low balances.”
“While the gross contribution to the CPF have been impressive, existence of a large number of pre-retirement withdrawals, particularly for housing, has meant that net contributions has been rather low. Thus, during the 1987-99 period, about 70 percent of contributions were withdrawn during the year (for housing). Such high level of withdrawals for non-retirement purposes, particularly for housing, has adversely affected accumulation of balances. This also helps to explain as to why in spite of high contribution rates and rapid economic growth, the retirement balances are inadequate.”
The typical household in Singapore has the bulk of its wealth invested in housing. Despite the high savings rate, over-investment in housing and over exposure to the risk of a decline in housing price affecting the retirement (and healthcare) financing of an aging population has become issues of policy concern, especially since the bursting of the real estate bubble in 1997. Lim (2001) projects that 60 to 70 percent of the 50-55 years age group will not have sufficient funds in their account to meet the government stipulated minimum sum needed for retirement of S$80,000 in 2003.”
Again, the imbalanced diversion of the CPF into housing is also because of the PAP government’s pursuit of their homeownership programme, which has caused housing prices to escalate, in part due to the PAP government’s monopoly and direct manipulation of prices upwards, and trapping the CPF inside where no other big-budget items could be used for except for housing, and thus the over-commitment in housing mortgage.
The CPF Minimum Sum was Increased Several Times to Trap More of Singaporeans’ CPF Inside
Yet, on top of the insufficient funds inside the CPF for Singaporeans to be able to retire on, the government also imposes the CPF Minimum Sum, an amount which Singaporeans have to maintain inside our CPF to be able to withdraw any excess monies otherwise. According to the PAP government, “The Minimum Sum Scheme was introduced in January 1987 to help CPF members set aside sufficient savings to support a basic standard of living during retirement. When the scheme was first started, members were required to set aside a sum of $30,000 in their Retirement Account when they turned 55 years old.”
“On 1 July 1995, (the CPF Minimum Sum) was (then) revised and members were required to set aside a MS of $40,000 … (which would be increased) by $5,000 a year until it reached $80,000 in 2003.” According to then-Prime Minister Goh Chok Tong in 2003, “This will fund a monthly payment of only $252 from age 62 to 80,” computed from the $40,000 cash component of the Minimum Sum (as the other half of the $40,000 “can be in a property pledge“).
However, he said that as the monthly payment is low, “We will, therefore, increase the Minimum Sum (yet again) to $120,000 in today’s dollars. As before, half of this can be in a property pledge. The other $60,000 in cash will yield a monthly payment of $378. This is still not much, but more adequate than $252 presently … The CPF Minimum Sum will be raised by $4,000 a year, and adjusted for inflation, starting 1 July 2004. It will reach $120,000 (today’s dollars) by 2013.“
I know that the changes to the CPF withdrawal rule will upset many plans. Older Singaporeans are looking forward to a tidy sum of money at 55, to do what they have yearned for a long time. Some will use it to pay off outstanding mortgages, or their debts. Others will use it to go on a holiday, or to invest in business ventures.
Therefore, we will not make any changes to the withdrawal rule for the next five years. We will not upset the plans of those who are over 50 today.”
But what about elderly Singaporeans today, just a few years on? Our CPF is now stuck inside, and for what?
We will start to phase out the 50 percent withdrawal rule only from 1 January 2009, and then do so over a further period of five years. From 1 January 2009, members turning 55 can only withdraw 40 percent of their Ordinary and Special Accounts, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Minimum Sum requirements. This percentage of withdrawal will go down by 10 percentage points each year. In other words, 30 percent in 2010, 20 percent in 2011 and so on.
Come 1 January 2013, CPF members who reach 55 can withdraw the balances in their Ordinary and Special Accounts only after setting aside the CPF Minimum Sum and the Medisave Minimum Sum.
Today, the CPF Minimum Sum is $155,000 and as I have calculated, nearly 90% of Singaporeans will not be able to meet the CPF Minimum Sum because we would not have enough inside our CPF. As can be seen from this article thus far, this is because most of our retirement funds have been channelled towards paying for ever-increasing HDB flat prices, which has sapped up our CPF savings.
Also, I had calculated that the median CPF balance is only $55,000, which means that half of Singaporeans would have less than $55,000 inside our CPF.
Which means that half of Singaporeans only have 35% of the CPF Minimum Sum inside our CPF!
In fact, 73.5% of Singaporeans would have less than half of the CPF Minimum Sum of $77,500!
Which then begs the question – why did the government keep increasing the CPF Minimum Sum since the mid-1990s, when they know that the majority of Singaporeans simply wouldn’t have enough inside our CPF to be able to save enough to meet the CPF Minimum Sum at all?
In effect, since the mid-1990s has been locking up Singaporeans’ CPF monies but why is the government doing this?
Not only that, this lock-up came in phases:
- 1995: CPF Minimum Sum raised by $5,000 every year until 2003
- 1995: Required to set aside cash (of $4,000) to meet CPF Minimum Sum until 50% is reached in 2003
- 2003: CPF Minimum Sum raised by an additional $4,000 every year until 2013
- 2009: 50% withdrawal rule phased out
- 2013: Excess CPF monies can only be withdrawn upon meeting the CPF and Medisave Minimum Sums, and $5,000
There are yet further discrepancies with the PAP government’s explanations of why the CPF Minimum Sum had to be increased.
According to the PAP government, the CPF Minimum Sum is “adjusted yearly for inflation“. However, when you compare how much the CPF Minimum Sum has grown, it has grown by an average of more than 6%, but inflation has only grown by 2%!
Also, you can see that the increase in the CPF Minimum Sum resulted in a sudden sharp rise in the CPF Minimum Sum in 1995, but interestingly, there was another sudden increase in 2008 which cannot be attributed to any policy changes with the CPF Minimum Sum.
Some people have linked this to the $58 billion loss that Temasek Holdings had made from the end of March 2008 to November 2008 and the $59 billion loss the GIC made in Financial Year 2008, and since it was speculated then (the evidence wasn’t available yet) that the GIC and Temasek Holdings invest our CPF, the CPF Minimum Sum must have been increased to make up for these losses. The government has however claimed that, “transfer of funds cannot be used to hide investment losses” and the convoluted reasoning that “The issue of whether the investment of the reserves results in gains or losses over time is therefore distinct from the question of whether there is a draw on Past Reserves.”
Now, the total losses than the GIC and Temasek Holdings made in 2008 was a total of $117 billion. And if you look at this as a percentage of the CPF balance of $151 billion in 2008, their losses made up 77.5% of the value of the CPF itself! If indeed the PAP government took our CPF to freely give to the GIC and Temasek Holdings to use, this has major implications. And if indeed the CPF Minimum Sum was spiked up due to this, then there is a major issue of trust and accountability that we would need to hold the PAP government to.
Increasing the CPF Minimum Sum to Delay CPF Withdrawal
According to Linda Low, “In 1984 the government tried to increase the CPF withdrawal age from fifty-five to sixty. The attempt was very poorly received, as people viewed the government as having broken a promise.” So, “One way of getting around this problem has been to institute a scheme minimum sum, which softens the impact.” Slowly, “The government is beginning to get people to accept the idea that the withdrawal age might have to be increased. When it will be politically expedient to increase it is another issue.”
The retirement age was then raised from 55 to 62 in 1999, right in between the two increments to the CPF Minimum Sum in 1995 and 2003. Today, “the statutory minimum retirement age is still 62, but employers are now required to offer re-employment to eligible employees who turn 62, up to the age of 65“. Also, “The Government is finalising plans to extend the re-employment age from 65 to 67, with details coming up later this year.”
So, you can see that there are different benchmarks that the government is using to increase delay the retirement of Singaporeans and the withdrawal of the CPF. Again the question – why does the government wants to lock up our CPF?
To delay the withdrawal of the CPF, Paul Yip had said that, “An alternative and perhaps better policy option is to extend the retirement age of Singapore labour which would imply less, and delay of, CPF withdrawal as well as more and continuing CPF contribution by the affected labour.”
Yip also believed “that economic considerations will sooner or later induce or force the Singapore government to extend the retirement age to, say 62 or 65. The important thing is that the appropriate policy body should respect, and be more ready to change, with such kind of economic pressure.”
Yip’s recommendation is economically sound, but when viewed in light of how the government continues to raise the CPF Minimum Sum, in spite of how Singaporeans are unable to save enough inside the CPF, then the question isn’t so much about whether the government has the political will to increase retirement age, but whether the government has the intention of helping Singaporeans save enough to retire at all.
Evidently, the government has no lack of political will to delay retirement – the fact that the CPF Minimum Sum is now used in place of retirement, to ensnare our CPF funds inside the CPF, before it is allowed to be withdrawn at age 65, is already a clear sign of that.
But where the only way to actually grow the CPF is to increase wages and the CPF interest rates and the government has stridently refused to do so, then where does the government’s allegiance lie? It is clear it is not with Singaporeans.
The PAP Government’s Reliance on Foreign Workers is Aimed at Stumping the Tide of CPF Withdrawals
Indeed, Yip had also explained that another way that the PAP government could reduce CPF withdrawals could be to relax the “immigration policy for foreign workers (as this) might also reduce the net CPF withdrawal at that time.” The government can also encourage “higher birth rate now (to) also mitigate the problem (by increasing CPF contributions later on).” However, Yip believed that “it is not advisable to just rely on this policy… because the decision of having a child involves costs and considerations that will be far much greater than any possible tax incentives provided by the government. As a result, the impact of encouragement policy is likely to be small although effort along this line should be encouraged.”
As can be seen, the PAP government’s half-hearted attempts in recent years to increase the fertility rate of Singaporeans has also been guided by such thinking.
Thus “Since the mid-1990s,… the wages of low-income Singaporeans were tied to the wages of those countries with a huge labor surplus such as China and India. Consequently, the income gap has been widening in Singapore” and has resulted in a depression of wages at the lower rungs. “If, for example, the foreign labor supply is set at a high level, that increases the overall supply of unskilled and semi-skilled labor which may depress the wages of Singaporeans in that particular labor market.”
In fact, if you trace the growth of Singapore’s migrant population, you can see how it also coincided in the early 1980s and 1990s with the periods of housing boom.
And when Lee Hsien Loong became prime minister, two key policies were introduced under his premiership where individuals with high-net worth were invited under the EntrePass scheme to set up business or the Global Investor Programme to become permanent residents. As can be seen above, this resulted in a dramatic escalation in housing prices, which also resulted in Singapore becoming the most expensive place to live in, in the world.
But was the housing boom (and bust) due to the sudden influx of foreigners under this scheme, or was the policy decision to invite the foreigners in, to drive up the market? Either way, the result was that property prices were driven up and because private and public housing prices were pretty much linked, this resulted in Singaporeans having to pay more for the HDB flats, and lost even more from our CPF. Perhaps it was the naivety or greed on the part of the PAP government, but their addiction to quick money and the pursuit of high-net worth individuals had the consequent effect of depleting Singaporeans’ CPF retirement funds even quicker.
Looks like we are seeing a trend here, where first the PAP government got addicted to cheap money via the CPF and when that wasn’t enough, fast money via importation became the chosen route.
And how does the sudden influx of migrant workers depress wages in Singapore? From 2001 to 2011 (before CPF started omitting this information from their annual reports), the number of CPF members who earned $1,000 kept increasing even as Singapore supposedly became more wealthy.
And from 2004 when the spike in migrant inflow occurred, there was also a spike of the proportion of Singaporeans who were earning less than $1,000.
Yet, Lee Hsien Loong remained unapologetic to the effects of rising cost and CPF depletion. He had said, “In fact, 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.” I think it is perhaps sad and worrisome that the prime minister of Singapore does not realise the social implications of his short-term policies.
Thanks (or no thanks) to policies under Lee Hsien Loong’s premiership, Singapore has the highest concentration of millionaires in the world today.
We also have the 4th largest concentration of billionaires in the world.
However, Singapore also have the highest poverty rate among the developed countries as well, and even higher than regional developing countries (as you will see later).
Asher also pointed out that on the lower-paid foreign workers, “Singapore has been able to sustain its economic growth by relying on foreign workers, so their retirement income needs merit discussion. In 1980, the government introduced a levy on unskilled and semi-skilled foreign workers; it does not apply to foreign skilled professionals.” Now, “The total foreign worker levies collected were S$2.5 billion for the Financial Year 2011 and S$1.9 billion for the Financial Year 2010,” or an estimate of possibly more than $3 billion today. Asher explained that, “It is also a reasonable assumption that much of the economic burden of the levy is on the workers themselves as they have little market power; they therefore contribute significantly to fiscal revenues in Singapore. Foreign workers are not, however, members of the CPF, they are not eligible for social and community benefits, and they do not receive the healthcare subsidies and health benefits that residents do.” Thus to the extend that foreign workers are not returned the levies they have had to pay, means immorally taking away the benefits that should be rightfully accorded to them.
Indeed, how are these levies channelled back to Singapore as a whole? Has this been accounted for by the PAP government, if at all?
Importantly as well, in the PAP government’s eagerness to import cheap labour to substitute the local economy, does this thus explain why it has become more difficult over the years for Singaporeans who have been made redundant from work to gain re-entry back into employment?
Does it also explain why it is taking a long time now for Singaporeans to secure a new job?
Indeed, one important aspect of the CPF is that its relevance is only as great as the employment situation of the country. However, “when full employment is no longer the basic assumption underpinning the CPF model”, and more and more Singaporeans are becoming unemployed in the long term (due to cheap labour substitution and unfair employment practices), and it has become increasingly difficult for Singaporeans to regain employment, the CPF system thus becomes problematic as a standalone pension fund.
Indeed, as compared to the other countries, Singapore’s pension system relies solely on the CPF and this is starting to prove inadequate.
The question on many people’s minds is, “in the PAP government’s incessant and compulsive want to replace the working population with cheap substitution and high-net worth individuals at the top, have Singaporeans indeed been relegated to being second-class citizens in an elite-comes-first “meritocracy”?
And if you can also understand how the PAP government has to go out at all costs to prevent the withdrawals of the CPF to sustain their parasitic system, you will understand why the PAP government refuses to allow dual citizenship and makes it a path of no return if a Singaporean chooses to renounce his/her citizenship. And how a permanent resident (PR) “cannot withdraw the CPF monies unless he or she gives up PR status and leaves Singapore and West Malaysia permanently, with no intention of returning for further employment or residence” so that this threat would prompt second thoughts about leaving, and thus allowing the CPF to be entrapped inside.
The PAP Government’s Policies Have Depressed Wages and Increased Inequality
Wages have also been depressed via another mechanism by the PAP government – “The share of wages in GDP has declined from 47 percent in 2001 to 41 percent in 2006, while the share of capital has increased corresponding. Public policies, particularly centring on a reduced tax burden on capital income and reduced mandatory contributions by employers to the CPF, have been partially responsible for the declining share of wages.”
Thus “Singapore’s (growth-at-all-costs) strategy has also come under scrutiny (as) The strategy rests on policies that include keeping the wage share of income below capital’s share at around 42 per cent of national income; relying extensively on foreign workers at both low- and high-skill levels; and giving greater weight to commercial concerns over the provision of social amenities.”
And when you compare Singapore with the other developed countries, Singaporeans shockingly earn the lowest wage share, in spite of how Singapore has become the most expensive place to live in, in the world.
Indeed, this “growth strategy of creating an environment for the MNCs and the state enterprises to earn high profits has contributed to significant inequalities in the wage structure and income distribution. Singapore had an overall Gini coefficient of 0.43 in 1974, and 0.48 in 1999”, as has been repeatedly stressed in this article.
Today, income inequality is even higher.
But in an article I had written earlier this year, the PAP government has actually been pushing down the income inequality statistics over each reported period, to create the perception that income inequality is not as high as it actually is in Singapore!
And on the other hand, the income share among the richest 10% in Singapore has grown from 30% in 1995 to 42% in 2011.
And as can be seen, the change in income share among the richest 10% also follows the Gini coefficient (or the measure of income inequality), which means that as the income inequality increases, so does the income share of the rich – which brings to question, is income inequality thus artificially pushed higher by paying inequitable salaries at the top (similarly to how it can also be artificially deflated in the reports?)
Also, the dramatic increase in the share of income among the richest had actually coincided with whence the PAP government decided to increase their own salaries in 1994 by pegging the salaries of the ministers to “two-thirds of the average of the top 24 people in 6 professions”, to earn million-dollar salaries and the highest in the world.
Is the income inequality that is occurring now in Singapore a coincidence or has it been in the planning for the last 20 years at least?
Indeed, today, the richest in Singapore earn one of the highest salaries in the world.
They also pay one of the lowest taxes in the world.
Meanwhile, Singaporeans earn the lowest wages among the highest-income countries.
Low and middle income Singaporeans also have to pay higher tax and CPF contribution rates than the richest.
The Prime Minister now belongs to the richest 0.1% in Singapore while the PAP politicians belong to the richest 5%.
Indeed, the rich-poor gap has only kept widening since Singapore’s independence.
Asher had also estimated that the poverty rate is very high – at between 27% to 35%.
This is in line with the estimates of up to 26% by the Lien Centre for Social Innovation and SMU School of Social Sciences, and my previous estimate of 26% (which could have gone upwards to 28%). In fact, Singapore now has the highest poverty rate among the developed countries and even among regional developing countries.
In spite of this, the PAP government has refused to define a poverty line, erroneously claiming that this would caused a “cliff effect“.
Worse still, Professor Tilak Abeysinghe had highlighted that “Singapore’s bottom 30 per cent of households spend more than they earn” where they would “spent 105 per cent to 151 per cent of their income last year and the main cause of rising expenditure was housing.”
Abeysinghe explained that, “despite the substantial growth of the economy, the lower income quantile has seen a drop in their real lifetime income. As for housing affordability, our index shows that past episodes of house despite the substantial growth of the economy, the lower income quantile has seen a drop in their real lifetime income. As for housing affordability, our index shows that past episodes of house.” He also affirmed how there is the “presence of a negative and significant ‘price effect’ of house-price escalations on consumption expenditures, leading to a fall in the average propensity to consume”.
He also warned that, “it is important that property prices do not escalate to erode housing affordability” and that “Although it is difficult to avoid property price cycles, policies could be devised to reduce the amplitude of these cycles. In this regard, it is worth questioning why one should let the private housing market—that accounts only for about 20 per cent of the housing stock—dominate the price trends of the entire housing market and erode housing affordability.”
However, once again, the warning sounded on the over-escalation of property prices was fervently “disputed” by the PAP government. But of course, when you are sitting on a massive cash cow and your salaries depend on growing this cash cow to grow the GDP, denial would be the order of the day.
Things are not just bad for the poorest 30% in Singapore. A survey by The Straits Times had shown that even for the middle-income in Singapore, more than two-thirds of Singaporeans do not even have enough to buy for anything else, other than the basic necessities that they need.
But this widening income inequality has major social implications.
Because Singapore has the highest income inequality among the developed countries, the prisoner rate has also become the highest in Singapore, after America.
Because of the high inequality, Singapore also has one of the lowest social mobility among the developed countries – the ‘elites’ are able to protect their positions and it is difficult for lower-income Singaporeans to move up the social ladder.
Because Singapore has the highest income inequality among the developed countries. this has also resulted in the highest level of self enhancement in Singapore among the developed countries, where people are likely to view themselves as being better than another person.
And the highest levels of income inequality in Singapore has also resulted in the lowest levels of trust in Singapore, after Portugal.
And because of the low levels of trust, Singaporeans have become the second least likely people in the world to help a stranger.
Singapore’s lopsided growth, fuelled by the pursuit of cheap and fast money clearly clearly caused major social undesirables, which can compromise on the livelihoods and social compact among Singaporeans, and the people who reside here. The recent strikes, riots and protests are only symptomatic of the deeper underlying tensions that are simmering beneath the surface. It is thus dangerous that the PAP government’s tendency has to be to deny the existence of such social blips which threaten to become full-fledged menaces if not dealt with adequately. Unfortunately, it seems like the PAP government’s approach of dealing with the situation is to further suppress what they deem as non-compliant troublemakers, as can be seen from their management of the Little India riots.
Thus without a doubt, the PAP government’s growth-at-all-costs strategy which relies on the manipulation of CPF contribution rates to reduces wages and a further wage depression via competition with lowly-paid foreign workers is a recipe for disaster. This, coupled with the government’s upward cost pressures fuelled by their own Government-Linked Companies has created an unsustainable income inequality, which is threatening to tear up the social fabric of Singapore.
However, the PAP government remains blissfully ignorant to this plight and continues to bury their head in the sand, to manipulate income inequality figures, instead of actually enacting policies such as minimum wages, to reduce the income inequality.
Such a government with an attitude of denial towards the problems that Singapore currently faces is disasterous for the longevity of Singapore.
Until now, we are still none the wiser as to how the PAP government has calculated the CPF Minimum Sum and CPF payouts. There is no transparency whatsoever on this calculation.
However, what we are able to clearly ascertain is that the growth of the CPF Minimum Sum has gone overboard, when its said intention of ensuring that Singaporeans are able to save enough cannot be met at all – 90% of Singaporeans cannot meet the CPF Minimum Sum.
Indeed, when I had questioned about how many Singaporeans are actually able to meet the CPF Minimum Sum in only cash and what the CPF median balance is, the Manpower Minister Tan Chuan-Jin had refused to shed light on this.
When an estimated 90% of Singaporeans are not able to meet the CPF Minimum Sum and the median balance would only be $55,000, it would of course be politically a disaster if the PAP government admits to the truth now – then why even set a CPF Minimum Sum that the majority of Singaporeans can only smell and not even touch?
Truth be told, should Singaporeans sit down and allow the government to run us over with such an apparent lack of transparency? If Singaporeans are not able to meet the CPF Minimum Sum, how exactly does the government want us to be able to, without actually increasing wages or the CPF interest rates? And if not, why do they want to lock up our CPF?
What are the PAP government’s real intentions?
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