MPs offer ideas to improve CPF

[Drizzt]

Retirement is a way which man marks the end of a person's working life.
It is defined by age, which is total rubbish.
There are people who passed 70 and still physically and mentally more alert than people in the 30s/40s.

therein lies the problem. if you see all the me and my money articles, almost all say they dont want to retire. retirement is actually sometimes fatal because you lose that sense of direction.

[Temperament]

Nah, I would rather have the money now.
Having cash is always very very useful, even though I have no immediate use for it now.
When opportunity arises and there is no cash. Then it is no opportunity.

Pardon my extreme view but people ought to be more responsible for their own lives.
Forget about cpf(yes, I know it is a significant part of our money), work hard and do something now
to earn sufficient for you/your family's current needs and future needs. Sounds like a no brainer but not a
lot of people know where they are heading/have a plan for it/working hard in the right direction/getting what they want in life.
If a person is not earning a lot, at least be in a job that they enjoy doing.

Spending an excessive amount of time debating about CPF and retirement is pointless.

Yes, people ought to responsible for their own life. But not everyone is "gifted" (and Blessed). In fact, looking at CPFIS's ROI historical data (in equity) tells you a minimal % of the investors make more than 2.5%. So can the G do something or not for the majority of working class who can't make more than 2.5% is basically why people is talking about CPF.
Of course, please don't ask G to shoulder the risk of investing your money if you want higher return. Higher return will be higher risk. There is really no free lunch in this world. No G in the world can give you free lunch. Please don't dream of FREE LUNCH.

[Temperament]

Retirement is a way which man marks the end of a person's working life.
It is defined by age, which is total rubbish.
There are people who passed 70 and still physically and mentally more alert than people in the 30s/40s.

therein lies the problem. if you see all the me and my money articles, almost all say they dont want to retire. retirement is actually sometimes fatal because you lose that sense of direction.

Yes, retirement sometimes can be fatal. So blessed is he who has found "investment" as one of his lifetime callings. It is really a very challenging & thoughts provoking "hobby" for life. If not most probably, i will kill time as a security guard or may be doing some charity work or what?

[Freenasi]

"Ask any of your friends in Singapore who work as wealth advisors, or walk up to any of the financial planners who hang around kiosks near MRT stations. They will agree that proper asset allocation is key to any retirement portfolio. Most pension systems around the world allocate assets appropriately. The CPF system is the only exception, as I said earlier, which allocates 100% in local govt bonds regardless of your age. This essentially means that you are forced to lend all your retirement money to the govt, -censored-. It's only fair to want/demand to opt out of such a non-performing scheme. Not sure if a protest is the best way to go about it, but it's a way to bring it to the PAP's attention."

Something that caught my eye quite related to the topic here. Just to share w the buddies.

[cywong76]

Retirement is a way which man marks the end of a person's working life.
It is defined by age, which is total rubbish.
There are people who passed 70 and still physically and mentally more alert than people in the 30s/40s.

therein lies the problem. if you see all the me and my money articles, almost all say they dont want to retire. retirement is actually sometimes fatal because you lose that sense of direction.

it depends on how you view retirement. Are you working for the sake of money or because you really love what you are doing now? Ask people around you and you know the truth.

Retirement to me is work for what I like to do and money is not a concern anymore, it doesn't mean I have to stop working at all.

[specuvestor]

Lets do a simple work example on how an investment yielding 6.25% (slightly below GIC's 20 yr return) will fare against a 4.5% pa investment plan.

Let’s say we have a graduate who enters the workforce at 25 years old and decides to make a yearly contribution of $5,000 to his investment plan. Using the 4.5% return, when he is 65, he will have approximately $559,000. If the return is 6.25% instead, the individual will have $820,000 at age 65. This means a staggering $261,000 difference between the two.

This is similar to a real life example we experienced when we do investing
Note: Apologies for not being able to elaborate further as I am bound to a certain "code of conduct".

There is a staggering difference between a constant absolute return of 4% and say 6.25% that is punctuated by at least one crisis within a decade. Timing becomes important. Psychology of greed and fear becomes important. Explanation of short term performance becomes important, especially politically. People remember Temasek's $40b loss in 2008 but forgot (conveniently?)she made almost the same from chinese banks.

If your logic is correct then it makes asset allocation between bonds and equity irrelevant. Everyone should just do 100% equities

Agree. We need to have a balanced view of what CPF can do and what it cannot do. Indeed what it is designed to do. And like i emphasized earlier, the primary principle is retirement needs. If one doesn't agree with this principle, or don't think govt should be paternalistic and force people to save for retirement, there is no scope for argument. It will always degenerate to "give us back CPF" or "CPF is stuck" or "you will never see all your CPF monies while alive"

Yes agree. Most people are fair not to ask for the sky from cpf board. Since the figures have proven that in a given time frame the GIc can get a return of 6.5%, it is not unreasonable to have a return closer to 6.5% (rather than 2.5%). Some may claim that the money is "guaranteed", but also many in reality does not buy the idea. The restriction of not being able to mobilise the cpf money is a greater concern. It does not help too that our "guaranteed" money is strinking every year, towards our old age.

Well, in the same notion, is it fair to ask the people to tolerate if there is a negative -3% return for any year?
I suppose you are familiar with unit trust. Is there a unit trust that guarantee future gains?(link please). Even for insurance company, it is always about guaranteed gains and projected returns. No one in the investment industry will up the guaranteed ROI to the limit of the past performance.
And.. ain't the following sentence familiar
"Past performance is not an indication of future results"

The special account return is 4% or 4+1% for the first 60k which is reasonably closed to the historical return. If you want, you can transfer your OA to SA and get to enjoy the higher return.

The restriction of not being able to mobilise the cpf money is a greater concern

By the way, it have been explained that in so many posts that the 2.5% account is simply very usable for investment and if you are really want to try to beat the 2.5%, you are welcomed to do that.

And, in the past, the OA account can be used up to 100% for stock investment. Perhaps, you are smart enough to guess what had happened and why it was reduce to 30%.

This thread has not answered what many of us are saying: are CPF holders willing to take negative returns in a down year? I think it would be a very interesting study to ask those who had lost money in CPFIS, which is a large sample size, whether they still think they can beat CPF returns GOING FORWARD

And do go and see your life insurance return profile. The returns in the first 90% of tenor is pathetic. The returns jump only when your policy is maturing.

Nonetheless I think give us the flexibility to invest the balance when OA and SA is above MS does makes sense.

Yet, when we use the OA to buy shares, the dividends is not used to calculate returns.

The board will use the purchase price against the current price to determine the difference and this will indicate if you 'owed' money to your OA account.

So, it is based on capital gains and not return on capital.

Our govt is known to make very simple rules so you can do the maths with a calculator without a spreadsheet. I agree with that principle that we dont need to ask a finance or accounting guy to explain how the value is arrived at.

Nonetheless I might be wrong but I think the calculation is based on the cashflow from CPFIS to your OA and vice versa to determine if you "owe" money to OA. CPF is not gonna keep track of the fees and dividends and what not, but just the cashflows, based on that aforementioned principle.

[Drizzt]

Retirement is a way which man marks the end of a person's working life.
It is defined by age, which is total rubbish.
There are people who passed 70 and still physically and mentally more alert than people in the 30s/40s.

therein lies the problem. if you see all the me and my money articles, almost all say they dont want to retire. retirement is actually sometimes fatal because you lose that sense of direction.

it depends on how you view retirement. Are you working for the sake of money or because you really love what you are doing now? Ask people around you and you know the truth.

Retirement to me is work for what I like to do and money is not a concern anymore, it doesn't mean I have to stop working at all.

good definition there.

[cywong76]

People are already screaming that 2.5% is low, I doubt most people can stomach negative returns.

Perhaps they can package different risk models for people to choose, just like how the annuity plans are designed. However, it could be pretty complex, esp. if people keep on changing the models based on economy.

I believe there are cases where people make use of the OA "investment" to "withdraw" money, although at a loss. Or people makes use of the OA investments to prevent HDB from deducting all their OA money when they bought a new HDB flat.
This could be one reason why the investment returns are pathetic.

[nsengkia]

^^^ in theory our kids should strike out on their own with no help from the parents when they are of working age

In theory people should take care of their own retirements and not be swayed by Batam

In theory we shouldn't really care if the streets are littered with young and old vagabonds. To each his own and they probably deserve it

In theory each should take care of their medical needs and if thou should be stricken by a disease then all the best.

Until the society can come to peace and agree to being indifferent to the plight of fellow citizen, the govt should perform some social duties. Then again if that day comes when we are indifferent, probably humanity has become irrelevant.

In general, I agree that policy making should strive towards practicality. But my problem with the interactions between existing CPF schemes and other government policies is that it incentives behaviour that I believe will cause long term societal problems:

a. CPF interest below inflation rate (which is the upside down way of looking at the problem) drives non-investors into attempting to become (mainly property) investors.
b. Allowing bank loans to rank before CPF repayments (when properties are sold) encourages lenders to supply lots of cheap debt.
c. Cost of mortgage debt below CPF interest rate encourages borrowers to maximise leverage.
d. Rental returns are cash flow today whereas dividend returns are locked away.

The net result is over-consumption of property and mal investment into (mickey mouse) investment property. This in turn contributes to insufficient retirement savings and (if my worse fears come through) the coming destruction of home equity as a possible alternative retirement pot. Even worse is that the whole system generates its own feedback loop because one of the main drivers of inflation is too much property investment in the first place.

Having said all the above, I do note that the government has introduced macro prudential measures to reduce the amount of money flowing into property (mal?) investment. But I am afraid that it maybe too late to save some of the citizens' retirement pot (see http://www.stproperty.sg/articles-proper...lassifieds)

[specuvestor]

A. Negative real rates is not a uniquely singapore phenomenon. Hopefully when interest rates normalise, whenever that might be, starting with the tapering of QE, the distortion in price of money can be resolved

B. it started because some segment of society was clamouring for a choice to get low interest pte loans for HDB flats, just as now people clamouring for more investment returns for CPF. Hence rules had to be changed for banks to have first lien on proceeds. Big mistake. Prior to this I have never heard HDB flat being auctioned. To be honest sometimes people really dont know what they are asking for

C. Negative real interest rates are always positive assets.

D. Agree people trying to extract out the CPF locked by using CPF to buy house and rent it out to get cash flow

The common solution is actually what I've been saying: to back peddle and reduce CPF used in property deposits and monthly mortgage payments. However the scheme is too entrenched and likely way forward is implement in phases for new acquires. You can thank ESM Goh for this property centric ideology