W(h)ither Our CPF?

By Alec Tok

If you are reaching the age of 55 or have already passed this juncture, you may be now wondering where all your hard-earned CPF money has gone to over the years. Unfortunately, you are not alone.

Many other Singaporeans are waking up to the fact that the Central Provident Fund, which they depended on for retirement, will fail to meet their basic daily living needs in the decades ahead. If you are beginning to realise being employed during your retirement is the only way to survive, you are not alone in this, either. Our government has said so plainly – Singaporeans cannot afford to retire.

This chilling truth was confirmed by a study (conducted by Mercer Consulting), which covered 214 cities across five continents, measuring the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is acknowledged to be the world’s most comprehensive survey on the cost of living. It revealed that Singaporeans’ ability to replace their last earned salary at the point of retirement by accessing their retirement funds (CPF) is ‘particularly low.’ This highlights what many Singaporeans have discovered for themselves: our present CPF Scheme cannot provide a retirement income that can replace what we were earning while in the workforce.

Cast your mind back, and you will probably be able to pinpoint the exact time when our CPF Scheme lost its direction. In an attempt to subdue increasing resentment from voters reacting to the government’s authoritarian high-handedness and the fact that it seizes 40% of our incomes, a major change occurred. The government raised the amount of CPF funds that could be used to purchase first HDB flats and then private properties from 80% to 100%. This caused the prices of homes to skyrocket overnight. The situation was made worse by the government’s conflict of interest as the owner of 80% of the land (through the SLA), provider of 90% of the housing (through HDB) and provider of housing finance (CPF). It meant they had every reason not to take steps to rein in the growing bubble in property prices. This was exacerbated by their decision to expand our population at an exponential rate starting in the 1990s which put further pressure on the already limited supply. The rise in HDB prices (the resale index is up 342%) meant that Singaporeans commit themselves to decades of using their CPF contributions to pay for housing which started out as budget homes meant to house a young population in a developing young country. Furthermore most of household wealth became tied up in property. This results in a situation where the government has to keep prices rising if they are to avoid the kind of housing bust we have seen in the US, but on an altogether bigger scale. This is undoubtedly one of the reasons why the government continues to encourage massive immigration to Singapore because the implications of an end to their deliberately engineered boom are too horrendous to contemplate.

In addition the government further liberalised CPF usage to allow certain shares and equities to be bought and sold, medical bills to be paid for, and even children’s tertiary education to be financed, all with CPF money. No long-term planning was done for the health problems of an aging population with the result that we face a situation where ordinary Singaporeans will quickly exhaust their Medisave accounts to pay for medical treatment. Saddled by an incomprehensive Medishield coverage, many Singaporeans may have to go without the treatment they need, receive substandard treatment or face potential bankruptcy as well as the loss of their housing.

Underlying all this was a gradual erosion of the bond between the government and people which had been created by the government, thanks to its “High Pay For Government Ministers and Top Civil Servants” talent pricing scheme, and using the liberalisation of our CPF funds as a cure-all to placate Singaporeans’ anger and sense of outrage. In simple terms, the CPF was compromised by a need to stay in power at any cost.

Today, Singaporeans are paying the price for that decision – two incomes tethered to thirty-year mortgages, skyrocketing HDB prices which are out of reach for most and retirement becoming a luxury for the minority of generously paid Singaporeans.

What has made life worse is that amidst all that, our incomes have mostly stagnated or have even been reduced, resulting in our contributions to CPF lagging far behind the rising cost of living and inflation. The end result? Out of the 700,000 Singaporeans who were aged between 55 and 80 years old, when invited to join the CPF Life Scheme, only 30,000 signed up. I believe this is because Singaporeans have lost faith in the government, its policies and its direction. What’s more – a large number of Singaporeans will be retiring from work with insufficient savings in our CPF. A whopping 30% of us will not have the Minimum Sum of $40,000 in our CPF when we reach the age of 55, and thus, will be automatically excluded from the CPF Life scheme.

In response, our government tries to assure us that our assets have appreciated in value, we are richer than we were before and we are even better off than our neighbours. I do not believe this to be true. I see it as a case of asset inflation, where we pay a lot more for the biggest ticket item, leaving nothing for having or even bringing up children, starting a business or making retirement a possibility.

The Reform Party is convinced that nothing short of an overhaul of the CPF Scheme and a return to providing low cost housing to the average Singaporean by the HDB is going to solve the problems created by the indiscretionary depletion of our CPF funds. We propose keeping the growth in the prices of HDB flats pegged to the growth in median incomes by increasing supply, so that if we earn more, we can have better homes, and not vice versa. In the longer term we want to give the private sector a much bigger role in providing housing for the majority of the population so as to improve affordability and quality through competition. We propose that part of CPF be augmented and converted into a Basic Pension Scheme, in which every Singaporean who has worked in Singapore and paid CPF for twenty years or more is entitled to a pay-out. Part of the funding for this could come from our plan to give our citizens a stake in Temasek and GIC. We also want a Basic Universal Health Insurance Scheme to be funded out of CPF to replace the current inadequate Medisave and Medishield schemes. After providing for these two requirements the Reform Party believes that each saving decision should be an individual decision and not be determined by the government.

The Reform Party also intends to restore your ability to withdraw the employee contributions portion of your CPF savings at 55 if you so wish while still providing incentives to persuade you to buy an annuity.

However when making any decision we have to be sensitive to the past decisions of the incumbents which have created a situation where most of our household wealth is tied up in property. At the moment most of people’s CPF contributions is used to service their housing loans. Any attempt to divert part of CPF into paying for basic pensions may result in people being unable to service their loans and a precipitate fall in property prices. This could create a serious recession along the lines of what has occurred in the US. However the Reform Party believes that such a scenario grows more likely with every year that this government continues to stoke an unsustainable property boom. Our steps to reduce the rate of increase of prices and peg it back to the same as or less than the growth in median incomes are designed to achieve a reallocation of resources without causing any adverse consequences for the domestic situation.

If you have been feeling that your worst fears are coming true lately, you are not alone. We at The Reform Party feel the same way. So do many Singaporeans. The time to rescue ourselves from a bleak future is now. Vote us into Parliament, so that we can achieve a better Singapore for you confidently. Support us and ensure that we Singaporeans are heard, loud and clear. We want our CPF back to what it was meant to be: saving, day by day, so that when the time comes, we can stop working, look back and not have to feel as if our life’s work has all been for nothing. The time has come for us to stand up for a better Singapore.