Why so unhappy with CPF now?

CPF has been around since 1955. Lately, there is unhappiness surrounding CPF.

“As a compulsory savings scheme, CPF ensured that workers could support themselves with dignity in retirement.” (Source: CPF’s write-up on the History of CPF) This mandate seems remote for some members. So what happened?

Property prices shot through the roof

To retire with dignity, there must be a roof over our heads first. I was reminded this morning that my father-in-law, who raised a family of four on a single-income as a bus conductor on a public transport, could afford to pay off a three-room HDB flat in Toa Payoh in the 70’s. My third brother, who held blue-collar jobs, could afford to pay off a three-room HDB flat in Bukit Batok Central, also on a single income raising a family of four. Back then in the 70’s and 80’s, HDB prices were not that frightening.

Now HDB prices escalate and some resale HDB units in popular locations can compete on prices with the private properties. The asset enhancement policies of the 90’s got citizens excited over property ownerships. Instead of just one house to stay in, CPF members were also using CPF funds to buy investment properties. (Remember the slogans: “More Good Years“ by the Government; “creating a nation of shareholders” with Singtel shares). Property price bubble formed and it was brought down with the Asian Financial Crisis in 1997/98. Now property prices went back up again because of prolonged cheap credit after the Global Financial Crisis (2007/2008).

As a result more CPF monies were withdrawn for purchasing residential units by CPF members. If only CPF kept to the basic long time ago and restricted use of CPF monies for property purchase and leaving more for retirement purposes, things would not have reached this stage. With less CPF monies for property, there would be less impetus to chase the property prices.

Another contributory factor is land scarcity in Singapore and the population shot up to 5.3 million. This drives up land prices and hence property prices go up in tandem. Strong economic growth hurts the citizens ironically.

Inflation shot up in recent years

Inflation was 24.2% over six years from 2007 to 2013, averaging about 4 per cent each year. With this kind of inflation, money shrinks for workers. Prices of food went up significantly. Because inflation is up, the CPF’s Minimum Sum has to be adjusted upward and now touched $155,000 this year. This is hard to stomach as more cash has to be retained in CPF. With higher land cost, higher transportation cost, higher wages, it would lead to higher business costs. When business costs are passed on to consumers, inflation then spikes. If the Government cannot control inflation in the future, then retirement becomes harder and people’s apiration to retire earlier may not be fulfilled.

Use of CPF Investment Scheme (CPFIS) entails risk

In 1997, CPFIS was set in place to allow investors to invest their CPF funds in wide range of investment options. But experience was that most CPF members could not obtain superior returns and some lost their principal amount of investments. This reduces CPF funds and there is a need to build up the retirement funds again. A better and safer investment scheme is required.

Concluding Remarks

It is true that CPF needs to evolve to take into account the current environment. But the above three reasons have serious impact on retirement planning. All need to be tackled before we see a better future in our retirement years.

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