TR EMERITUS

From The Newsroom Team Recent headlines splashed across the mainstream media on the Singapore civil service seems to give one the impression that it is the "most efficient in Asia". (read article here) An unsuspecting reader reading the headlines alone without delving into the details will be misled to believe it. However, on closer look, the survey is conducted among expatriates living in Asia. The views of locals were not taken into consideration. The only reasonable conclusion we can derive from this study is that Singapore civil servants are most efficient in serving the expatriates in Asia. To reflect the real sentiment on the ground, Singaporeans should be invited to partake in the survey. After all, the civil service is funded by taxpayers' monies to serve primarily the citizens of Singapore and not the expatriates. Morever, the study is conducted by a business-based foreign organization -Political & Economic Risk Consultancy (PERC) which is skewed towards the interests of the business community. The Singapore civil service should be judged on its integrity, efficiency and responsiveness by the citizens. Only then will we get a full picture on whether it is the most "efficient" in Asia. It is meaningless to quote surveys done by foreign organizations to create the erroneous impression that our civil service scores high in terms of 'efficiency' and thereby deserving of its exorbitant salaries. Besides, 'efficiency' is not the most important attribute of a capable civil sevice which must also be well-tuned to the concerns and aspirations of the people. The boasting of an extravagant cooking trip to France last year by a top civil servant in the midst of an economic recession shows that the Singapore civil service still has alot to learn in terms of empathy.  Read More →

By Fui K. Soong, For the Straits Times THE results of the contest between the conservatives and the 'Erdogan' or moderate factions in the elections of Parti Islam SeMalaysia (PAS) will determine its direction as well as that of the opposition coalition Pakatan Rakyat. The results of the recent by-elections in Bukit Gantang and Bukit Selambau were telling. They indicate that the Malay electorate is still split down the middle, divided equally between the ruling Barisan Nasional (BN) coalition and the opposition. The BN's support among Indians has improved somewhat, rising by 15-17 per cent since last year's general elections, but its support among Chinese voters has been further eroded, falling by 10-15 per cent. Older Chinese voters have shifted away more than younger Chinese voters. The loss of Bukit Gantang is significant for BN because the constituency's racial mix is a microcosm of the country's. Given that 36.1 per cent of all parliamentary seats in the Malaysian peninsula are similar to Bukit Gantang's, its loss should be a matter of grave concern for BN. PAS' emphasis on justice and fairness is finding considerable traction among non-Malays. The issues of hudud laws and PAS' commitment to creating an Islamic state have ceased to be of concern to many minorities. PAS flags were posted inside homes in the Chinese fishing village of Kuala Sepetang. Fishing boats and jetties were decorated with PAS flags. Flags of the largely Chinese-based Democratic Action Party were also present but less visible. Chinese and Indian voters openly wore PAS T-shirts at ceramahs. PAS volunteers, campaign workers and members approached ordinary Chinese voters directly, taking the trouble to explain to them the concept of a fair Islamic state. Despite their differences, PAS' fundamental belief in establishing an Islamic state remains the common denominator among all its different factions. If the 'moderates' were to emerge the victors in the coming party elections, that would merely indicate that new approaches have taken root in PAS, but its ends would remain the same. In the 1990 general elections, PAS' support base stood at 375,867 votes. Last year, it reached 1.14 million, an almost threefold increase in 18 years. The huge increase in PAS' support in last year's general elections came mainly from its new supporters - the non-Malays. By comparison, BN's votes increased from 2.98 million in 1990 to 4.1 million last year, an improvement of only one-third. This brings us to the next question: Is Pakatan leader Anwar Ibrahim still an important factor in the opposition's equation? Umno's obsession with the man is understandable, since many of its current leaders are acquainted with his brilliant strategic mind, having worked with him for many years when he was part of Umno. His eloquence and the reach of his network among Malaysia's business and political elites are plus points for the opposition. He stands heads and shoulders above the other opposition leaders in terms of his experience in government and in his skills as a communicator. However, the reality is that Datuk Seri Anwar's own party - Parti Keadilan Rakyat - is structurally weak and is heavily reliant on PAS' machinery. Mr Anwar's recent re-shuffling of portfolios in his party shows that he recognises this weakness. Besides, under the leadership of Prime Minister Najib Razak, the BN will not play along with Mr Anwar's strategy of pushing for by-elections to create momentum for the opposition. It will be interesting to find out if PAS, having the superior party organisation, would insist on its own leader becoming Malaysia's prime minister if Pakatan were to win the next general election or allow Mr Anwar to lead. What began as a protest vote against the BN government in March last year may well be consolidating into a mandate for the opposition. It is uncertain if Malay votes have decided definitively between the BN and Pakatan at this stage. Given that Indian voting patterns are still fluid, what may decide the BN's fate is how Chinese voters react to the new PAS moon in the Malaysian political firmament. The PAS election results will tell us if this is really a new moon or just the return of the old one. The writer is the CEO of the Institute of Strategic Analysis and Policy Research, a research organisation of the Malaysian Chinese Association. Source: Straits Times  Read More →

By Ironic, Guest Columnist   Let us start with some explanation and a brief overview of how our CPF return is calculated. Basic Info: Your CPF is broken down into 3 categories: -Ordinary (2.5%) -Special (4%) -Medisave (4%) From: http://mycpf.cpf.gov.sg/Members/Gen-Info/Int-Rates/Int-Rates.htm From 1 January 2008, savings in the Special Account, Medisave Account and Retirement Account (SMRA) is pegged to the 12-month average yield of the 10-year Singapore Government Securities (10YSGS) plus 1%. To help members adjust to the floating SMRA interest rate, a 4% floor for the SMRA rate will be maintained for the first two years (2008 – 2009) This means the 4% interest currently is not permanent.  Now the next question would be on what are the yields on the 10YSGS? Year Yield (%) 2006 3.05 2007 2.68 2008 2.05 2009 2.64 Data taken from: http://www.sgs.gov.sg/sgs_data/data_hprices.html The average yield for since 2006 is 2.73%. Using this as an average, we would get 2.73% +1% spread which would be 3.73% interest for our Special and Medisave account in 2010 when the floor expires.   On a side note, yields are correlated to the inflation rate and if inflation remains constant or remain at current levels, yields generally do not change. Another point to add, with a higher inflation, your value of money diminishes faster overtime and any increase in yield/return would only compensate for it. Hence, you will not benefit from a higher yield resulting from a higher inflation. Bank deposits generally work the same way, any financial instrument will adjust for inflation rate. It is how those things work. From:  http://mycpf.cpf.gov.sg/CPF/About-Us/Intro/Intro.htm In addition, an extra 1% of interest will be paid on the first $60,000 of a member's combined balances, with up to $20,000 from the OA. The extra interest from the OA will go into the member's Special or Retirement Account to improve his retirement savings. This basically means up to your first $40,000 in Special/Medisave , you would get an extra 1% interest. This is also true up to the first $20,000 in the Ordinary Account.   Below shows the percentage contribution to CPF TABLE A For (1) Private Sector Employees   (2) Government Non-Pensionable Employees   (3) Non-Pensionable Employees in Statutory Bodies & Aided Schools   (4) Singapore Permanent Resident (SPR) employees from their 3rd year onwards   Employee Age (years) Contribution By Employer (% of wage) Contribution By Employee (% of wage) Total Contribution (% of wage) Credited Into Ordinary Account (Ratio of Con) Special Account (Ratio of Con) Medisave Account (Ratio of Con) 35 & below 14.5 20 34.5 0.6667 0.1449 0.1884 Above 35 - 45 14.5 20 34.5 0.6088 0.1739 0.2173 Above 45 - 50 14.5 20 34.5 0.5509 0.2028 0.2463 Above 50 - 55 10.5 18 28.5 0.4562 0.2456 0.2982 Above 55 - 60 7.5 12.5 20 0.575 0 0.425 Above 60 - 65 5 7.5 12.5 0.28 0 0.72 Above 65 5 5 10 0.1 0 0.9   Alternatively, for every $100 you earn: Employee Age (years) Contribution By Employer ($) Contribution By Employee ($) Total Contribution ($) Credited Into Ordinary Account ($) Special Account ($) Medisave Account ($) 35 & below 14.5 20 34.5 23 5 6.5 Above 35 - 45 14.5 20 34.5 21 6 7.5 Above 45 - 50 14.5 20 34.5 19 7 8.5 Above 50 - 55 10.5 18 28.5 13 7 8.5 Above 55 - 60 7.5 12.5 20 11.5 0 8.5 Above 60 - 65 5 7.5 12.5 3.5 0 9 Above 65 5 5 10 1 0 9   How CPF interest gets added: Under the CPF Act, the Board pays a minimum interest of 2.50% per annum. CPF interest is computed monthly and, compounded and credited annually. Take note of the bold and underlined words. What this means is that your monthly interest will not be added to your account until the end of the year, this means your 2009 interest will only earn interest from the year 2010 onwards.    Where does the money from the CPF contribution go to? http://www.asiaone.com/Business/My%2BMoney/Building%2BYour%2BNest%2BEgg/Investments%2BAnd%2BSavings/Story/A1Story20070924-26743.html There was no clarification on this issue. Singaporeans were never told where all their funds go. What we are told is that the CPF Board invests CPF funds in deposits and Singapore government bonds, and earns modest risk-free interest. From http://www.singstat.gov.sg/stats/themes/economy/ess/aesa44.pdf It can be seen that the government has a debt of $210 billion from Singapore stocks and bonds in 2008. Exactly how much comes from our CPF investment is unclear but it is highly probable that our CPF money would make up a significant portion of the government’s debt.   CPF, Temasek and GIC: Dr Eng mentioned in parliament in September 2007:   "The relationship is not so simple. Let me give an example. You put money in a bank and you agree that you put it there and you get 2 per cent. The bank publishes a report and says of all its earnings, it earned 8 per cent. You go to the bank and say, "I want 8 per cent". It doesn't work" Of course this is true if we are dealing with a bank. However, this is a compulsory scheme determined by the nation without any alternatives. The main question is that, what is the aim of CPF is the focus on retirement planning for Singaporeans so that we can retire comfortably? If this is so, the CPF should be focused on maximising returns for Singaporeans. GIC averaged 8.2% in Singapore dollar terms over 25 years [1]. Temasek averaged 17% shareholder returns over 30 years [2] .   Most people only have their money in their Ordinary Account because money that gets transferred to Special account cannot be transferred back. So, although the prospect of 4% (3.7% soon, according to current 10YSGS yield) is tempting, generally people would tend to leave their money in the OA. Hence not a majority of our CPF funds would benefit from the Special Account interest. There is an undeniable fact that over the past 25 years, our CPF was and indeed a cheap source of fund which generated high returns. The huge spread between the CPF interest and their rate of return over 25 years casts doubts on the effectiveness of our CPF maximising our returns. Since Temasek and GIC model seems to be much better, shouldn’t we let them manage our funds instead? There cannot be any close comparisons because there are no other competitors and thus the only rate we are given is the one set by the CPF board.  So in truth, no one knows if we are getting the maximum benefit from our CPF investment.  What we can do is to compare the return on investments on our CPF, GIC and Temasek over a 30 year period and compare their rate of returns. To maximise our CPF return, we assume we start off with an initial $60,000, $20,000 in the OA, and $40,000 in the Special account so we can qualify for the additional 1% interest. Incoming cash flow every month is assumed to be $600, with 60% ($360) going to the OA and 40% ($240) going to the Special. OA ($360/mth) Interest (Yearly) 0.025         Interest (Monthly) 0.0020833                 Cashflow 360       Initial 20,000                 Year Opening End Interest Total 0 20,000 24,320 770 25,090 1 25,090 29,410 897 30,307 2 30,307 34,627 1,028 35,654 3 35,654 39,974 1,161 41,136 4 41,136 45,456 1,298 46,754 5 46,754 51,074 1,439 52,513 6 52,513 56,833 1,583 58,415 7 58,415 62,735 1,730 64,465 8 64,465 68,785 1,881 70,667 9 70,667 74,987 2,037 77,023 10 77,023 81,343 2,195 83,539 11 83,539 87,859 2,358 90,217 12 90,217 94,537 2,525 97,062 13 97,062 101,382 2,696 104,079 14 104,079 108,399 2,872 111,271 15 111,271 115,591 3,052 118,642 16 118,642 122,962 3,236 126,198 17 126,198 130,518 3,425 133,943 18 133,943 138,263 3,618 141,881 19 141,881 146,201 3,817 150,018 20 150,018 154,338 4,020 158,358 21 158,358 162,678 4,229 166,907 22 166,907 171,227 4,443 175,670 23 175,670 179,990 4,662 184,651 24 184,651 188,971 4,886 193,858 25 193,858 198,178 5,116 203,294 26 203,294 207,614 5,352 212,966 27 212,966 217,286 5,594 222,880 28 222,880 227,200 5,842 233,042 29 233,042 237,362 6,096 243,458     Special Account ($240/mth): Interest (Yearly) 0.04       Interest (Monthly) 0.0033333                 Cashflow 240       Initial 40,000                 Year Opening End Interest Total 0 40,000 42,880 2,109 44,989 1 44,989 49,309 2,730 52,039 2 52,039 56,359 2,906 59,265 3 59,265 63,585 3,087 66,671 4 66,671 70,991 3,272 74,263 5 74,263 78,583 3,462 82,044 6 82,044 86,364 3,656 90,020 7 90,020 94,340 3,855 98,196 8 98,196 102,516 4,060 106,576 9 106,576 110,896 4,269 115,165 10 115,165 119,485 4,484 123,969 11 123,969 128,289 4,704 132,994 12 132,994 137,314 4,930 142,243 13 142,243 146,563 5,161 151,724 14 151,724 156,044 5,398 161,443 15 161,443 165,763 5,641 171,404 16 171,404 175,724 5,890 181,614 17 181,614 185,934 6,145 192,079 18 192,079 196,399 6,407 202,806 19 202,806 207,126 6,675 213,801 20 213,801 218,121 6,950 225,071 21 225,071 229,391 7,232 236,623 22 236,623 240,943 7,521 248,463 23 248,463 252,783 7,817 260,600 24 260,600 264,920 8,120 273,040 25 273,040 277,360 8,431 285,791 26 285,791 290,111 8,750 298,861 27 298,861 303,181 9,076 312,257 28 312,257 316,577 9,411 325,988 29 325,988 330,308 9,755 340,063     GIC ($600/mth): Interest 0.082         Effc. Interest (Month) 0.0065892         Cashflow 600                     Year GIC Contribution Interest Total   0 60,000 7,467 4,920 72,387   1 72,387 7,467 5,936 85,789   2 85,789 7,467 7,035 100,291   3 100,291 7,467 8,224 115,981   4 115,981 7,467 9,510 132,958   5 132,958 7,467 10,903 151,328   6 151,328 7,467 12,409 171,203   7 171,203 7,467 14,039 192,709   8 192,709 7,467 15,802 215,978   9 215,978 7,467 17,710 241,155   10 241,155 7,467 19,775 268,396   11 268,396 7,467 22,008 297,871   12 297,871 7,467 24,425 329,764   13 329,764 7,467 27,041 364,271   14 364,271 7,467 29,870 401,608   15 401,608 7,467 32,932 442,006   16 442,006 7,467 36,245 485,718   17 485,718 7,467 39,829 533,013   18 533,013 7,467 43,707 584,187   19 584,187 7,467 47,903 639,557   20 639,557 7,467 52,444 699,468   21 699,468 7,467 57,356 764,291   22 764,291 7,467 62,672 834,429   23 834,429 7,467 68,423 910,319   24 910,319 7,467 74,646 992,432   25 992,432 7,467 81,379 1,081,279   26 1,081,279 7,467 88,665 1,177,410   27 1,177,410 7,467 96,548 1,281,425   28 1,281,425 7,467 105,077 1,393,968   29 1,393,968 7,467 114,305 1,515,740     Temasek (600/mth) Interest 0.17       Effc. Interest (Month) 0.0131696       Cashflow 600                 Year Opening Contribution Interest Total 0 60,000 7,745 10,200 77,945 1 77,945 7,745 13,251 98,941 2 98,941 7,745 16,820 123,506 3 123,506 7,745 20,996 152,247 4 152,247 7,745 25,882 185,874 5 185,874 7,745 31,599 225,218 6 225,218 7,745 38,287 271,250 7 271,250 7,745 46,112 325,108 8 325,108 7,745 55,268 388,121 9 388,121 7,745 65,981 461,847 10 461,847 7,745 78,514 548,106 11 548,106 7,745 93,178 649,029 12 649,029 7,745 110,335 767,109 13 767,109 7,745 130,408 905,262 14 905,262 7,745 153,895 1,066,902 15 1,066,902 7,745 181,373 1,256,020 16 1,256,020 7,745 213,523 1,477,289 17 1,477,289 7,745 251,139 1,736,173 18 1,736,173 7,745 295,149 2,039,068 19 2,039,068 7,745 346,642 2,393,454 20 2,393,454 7,745 406,887 2,808,087 21 2,808,087 7,745 477,375 3,293,207 22 3,293,207 7,745 559,845 3,860,797 23 3,860,797 7,745 656,335 4,524,878 24 4,524,878 7,745 769,229 5,301,852 25 5,301,852 7,745 901,315 6,210,912 26 6,210,912 7,745 1,055,855 7,274,512 27 7,274,512 7,745 1,236,667 8,518,924 28 8,518,924 7,745 1,448,217 9,974,886 29 9,974,886 7,745 1,695,731 11,678,362     Overall Comparison: Year CPF GIC Temasek 0 60,000 60,000 60,000 1 70,079 72,387 77,945 2 82,345 85,789 98,941 3 94,919 100,291 123,506 4 107,807 115,981 152,247 5 121,017 132,958 185,874 6 134,557 151,328 225,218 7 148,436 171,203 271,250 8 162,661 192,709 325,108 9 177,243 215,978 388,121 10 192,189 241,155 461,847 11 207,508 268,396 548,106 12 223,211 297,871 649,029 13 239,306 329,764 767,109 14 255,803 364,271 905,262 15 272,713 401,608 1,066,902 16 290,046 442,006 1,256,020 17 307,812 485,718 1,477,289 18 326,022 533,013 1,736,173 19 344,687 584,187 2,039,068 20 363,819 639,557 2,393,454 21 383,429 699,468 2,808,087 22 403,530 764,291 3,293,207 23 424,133 834,429 3,860,797 24 445,251 910,319 4,524,878 25 466,897 992,432 5,301,852 26 489,085 1,081,279 6,210,912 27 511,827 1,177,410 7,274,512 28 535,137 1,281,425 8,518,924 29 559,030 1,393,968 9,974,886 30 583,521 1,515,740 11,678,362   Conclusion: The mathematics behind this is accurate; the reason for such a massive difference between CPF and Temasek is because of the way compounding works. For example $1 with 100% interest would give you $32 after 5 years and $1024 after 10 years. On the other hand $1 with 90% interest would give you $24.8 after 5 years and $613 after 10 years.  Obviously in real life, we do not start with a $60,000 account and putting in $600 every month without using it to pay for our housing, children’s education etc. This model is just an example to show how 60,000 together with $600 paid every month over 30 years would accumulate to, under CPF, GIC and Temasek. This was done to maximise the rate of return from the CPF account as stated before. Nevertheless, this shows the fact that over the last 30 years, assuming GIC existed for 30 years and invests your CPF for you while paying you the guaranteed rate of 2.5-4%, for every $1 in your account; they earn $1.6 as profits. If Temasek invests your CPF while paying you the guaranteed rate, for every $1 in your account; they earn $19 in profits. I am not manipulating the numbers here to create an illusion. All these are modelled upon given facts. In fact, there was bias given to the return on CPF because we assumed that we started out with the additional 1% interest. What you see is the effect of compounding; a 5% or 10% interest might not sound as much in the short term, but over a long period of time the effect is huge.  Due to the fact that our CPF is over 40 years of time, a minor interest rate difference does and will have a significant impact on your final amount. Hence, every bit does and will count. Of course we all know that because our CPF has an assured return, thus we should not expect to share the profits while not being liable for losses. However, like the title says, are we paying too much a price for a guaranteed rate?     End Notes: [1] - http://www.gic.com.sg/aboutus_story_milestone8.htm [2] - http://www.temasekholdings.com.sg/our_portfolio_financial_highlights_tsr.htm  Read More →