TR EMERITUS

Higher returns on Central Provident Fund savings may not be as elusive as they seem ("Ways to improve CPF"; last Saturday). There are pension funds that have consistently achieved such returns. For example, the California Public Employees' Retirement System (Calpers), with 1.6 million members and a fund size of about US$285 billion (S$358 billion), has consistently exceeded its targeted yearly return of 7.5 per cent over the last 20 to 30 years. It does this through a conservative investment mix of stocks and bonds. The key advantage of a pension fund is the ability to invest over the long term. Liabilities for pension funds (the time pensions are paid out) depend on when members retire, and can stretch for decades. Thus, pension funds can invest in higher-return assets like stocks for the long term and not be affected by short-term swings in financial markets. By doing so, they avoid one of the most common causes of dismal returns - the tendency for investors to be overly optimistic during market upswings and overly pessimistic during downturns. Perhaps the mental block that CPF members have to overcome is the concern that stocks are far too risky for retirement funds. As Calpers and other funds have shown, investing for the long run goes a long way towards enhancing returns. While returns from stocks can never be guaranteed, CPF members choosing to keep their funds in safe but low-yielding assets will almost certainly not be able to grow their savings enough to fund their retirement. To enhance returns, the CPF Board could consider adopting a similar model to Calpers'. It could centrally manage funds to lower management fees, and get the best investment managers globally to bid for its mandate. Another change that could be considered is to limit the use of retirement funds for other purposes. Pension funds work best when they have the advantage of time. If funds are withdrawn earlier, the end result would be much lower investment returns and less money for retirement. Benjamin Ho * Letter first appeared in ST Forum, 6 June 2014, "Take long-term view when investing for retirement".  Read More →

(Photo: SKM) A "Kindness Cafe" has been set up at One Raffles Place by the Singapore Kindness Movement (SKM). It is part of SKM's effort to promote mutual respect and courtesy between service staff and customers. The idea is simple. If the customer greets the staff, he or she will get a discount for coffee. The going rates for coffee at the Kindness Cafe are: For saying "Good afternoon! One coffee, please. Thank you", the customer pays $2 For saying "Please" only, the customer pays $4 Otherwise, the customer pays $5 The first hundred customers to compliment the cafe staff will even get a free loaf of Gardenia wholemeal bread. The beverages are sponsored by Jewel Coffee. The media reported that one banker, Hwang Jien Lit, 31, said, "I tried to get a bigger discount by adding 'super please' but it did not work." "I usually do say 'please' to service staff but if they are rude to me, I do not say 'thank you'," Mr Hwang added. Dr William Wan Dr William Wan (Photo: ST) The SKM's general secretary is Dr William Wan. He is currently applying for the post of Nominated Member of Parliament. Dr Wan first came to public prominence during the Anton Casey saga in January 2014. Right after Briton Anton Casey belittled Singaporean commuters on the MRT, Dr Wan came out to defend him (‘SKM condemns ‘online lynching’ of Anton Casey‘). Casey had described Singaporean MRT commuters as “poor people”. He said, “Normal service (after getting his Porsche back from the workshop) can resume, once I have washed the stench of public transport off me FFS!” (FFS is an acronym for “for f**k’s sake”.) In an article, Dr Wan lamented that “something has gone wrong with us Singaporeans”. He said incidents like Anton Casey “reiterate the need for us to reassess our social media habits”. Defending Casey, Dr Wan surmised that he was perhaps “simply being thoughtless and careless” when he posted the offensive remarks: There exists within the virtual world a ‘CSI’ community which is prepared to name and shame you if in their judgment, you offend others. The online naming and shaming culture has been propagated and abetted by social media and citizenship journalism websites. When the fledgling CSI community here goes to work, social media denizens egg them on, and each time, they celebrate the successful naming and shaming of the offenders. The merits of such a culture are themselves debatable, but the celebration of it is just plain wrong. He said that judges do not exchange high fives for putting a rapist in jail for life. The Kindness Cafe will be at Raffles Place until tomorrow (11 Jun) and will move to the National Library Board Atrium this weekend (14-15 Jun).  Read More →

CPF requiem Since 1999, the CPF rate has not been adjusted regardless of inflation rate; it stands at a historical low of 2.5%. In fact, for years 2007 to 2013 our average CPF rate is at negative yield of -0.8% after inflation. (Chris K @ TRE May 26th) Consistent with the objective of having CPF as a retirement nest egg, initially the government had kept CPF rate at least above inflation (as per Chart 1). But in recent years, the inflation rate had been way above CPF rate. From Chart 2, it is shown that the CPF rate initially had been above POSB rate from conception, but from about 1973 the rates start to converge. And since 1986, the CPF rate tracks the POSB rate more closely. Chart 1 Chart 2 CPF was setup by the British colonial authority in 1955 as a compulsory savings scheme so as to allow workers to save for their retirement. From 1987, Singaporeans were required to set aside a portion of their income to their CPF until the age of 55 to provide them with a basic monthly income when they retire. Several milestones to take note: 1.  Inflation: Chart 1 shows that prior to 1989 the CPF rate is well above inflation. The formulation for CPF to track the bank rates since 1986 had closed the gap between inflation rate and the CPF rate. And until 2007 CPF rate had stayed above inflation rate, but from 2007 to 2013 the average CPF yield was negative. 2.  POSB rate: Until about 1973, CPF rate had been well above POSB rate. Between 1974 and 1985, although POSB rate fluctuated, on average the CPF rate is about the same as POSB rate. After 1986, CPF rate basically tracked the POSB rate. Initially, the CPF rate was above both POSB rate and inflation rate, but over time, first the convergence of CPF rate closer to POSB rate, than CPF rate eventually average below inflation rate in the last few years. This is not consistent with the fact that CPF is supposed to be a retirement nest egg for Singaporeans. Conclusion There are two things working against CPF rate as it stands. One is inflation which is domestic driven and this can be linked to the high influx of FTs. And the other is the low fixed income globally. But what is most curious for me is this: 1.  Why is it that in the 1960s and till the mid 1970s, although our nation was still developing, the government had deemed it important enough to keep our CPF rate about POSB rate? At times even 2.5% above POSB rate, there must have been a transfer of budget surplus to CPF members then. 2.  Why is it that since 1999, the CPF rate has been fixed at 2.5% for a total of 15 years till present? And what happened in the 1970s? Yes, there was an oil shock in 1973. But for me the most important development was Temasek in 1974. In 1974 Temasek was incorporated under the Singapore Companies Act to hold the assets and manage the investments previously held by the Singapore government. These were investments made in the first decade of nation building since independence in 1965." -  Wikipedia. Did the creation of Temasek and the need for capital re-prioritize the government’s redistribution policy from CPF to Temasek? But whatever it is, the government’s surplus burgeon so much that by 1981, GIC was formed to manage Singapore's foreign reserves. Something else happened in 1986 to 1987 that was out of the ordinary. The CPF rate fell from 1986 at 6.5% to 1987 at 3.31%, for a total dropped of 3.19%. While the Malaysian EPF rate fell from 8.5% to 8% for the same period. Competiveness: By the 1980s, Indonesia, Malaysia and Thailand liberalized their economies to attract foreign capital that compete with Singapore. But one of the biggest competitors is China, who opened Special Economic Zones in 1979. And part of Singapore’s economic strategy then was regionalization. The strategic intent of the regionalization programme is to build an external economy that is closely linked to and which enhances the domestic economy by participating in the growth of Asia. This programme seeks to form a network of strategic zones in key markets with emphasis on building good linkages between our regional projects and domestic clusters." -  SEDB 1995: 8 Examples: Source: Singapore Investment News (May 1998: 7) Location Start up year Investments (USD) Batam 1991 306m Bintang 1992 88m Suzhou 1994 2.86b Wuxi 1995 585m Ho Chi Minh 1997 312m Bangalore 1997 167m However, with the onset of the Asian Financial Crisis in 1997, the GIC was financially ‘struggling’. With most private investment houses openly declaring they were hurting as a result of the Crisis, there were rumours that the GIC was also in trouble. Furthermore, the GIC was named as a creditor of many investment houses, industrial enterprises and real estate projects in the region when these were declared bankrupt as a result of the Crisis. For instance, the GIC was named as a major investor in Guangdong International Trust and Investment Corporation (GITIC), which collapsed in 1999 (Singapore Straits Times 4 Nov 2000). In the same report, it was claimed that GIC was owed S$390 million dollars.” -  Revitalizing National Competitiveness: The Transnational Aspects of Singapore’s, Regionalization Strategy (1990-2000), Alexius A. Pereira. Was this the reason why after 1999, the CPF rate was stuck at 2.5%? Yes, there are many speculations between our SWFs to the low CPF rate. And can you blame us? In fact, can anyone tell me why was the CPF rate so much higher above POSB rate before 1974? And why since 1999 the CPF rate is stuck at 2.5% for 15 years? CPF as a retirement nest egg for Singaporeans cannot continue in this manner. And that is one reason why people want to take out their money now! And that is because inflation is eating away our spending power. Forget about accumulating surplus for our old age, in another 10 years we may buy a peanut for a durian now. If we have no confidence in CPF as our retirement fund, there is in fact no confidence in the future, which ultimately means we have no confidence in the government. BK * Submitted by TRE reader.  Read More →