The decision to make some form of annuity compulsory has certainly resulted a feeling of coercion among some Singaporeans. After all, once the amount is paid out, if you happen to pass on before the age of 85, your family doesn’t get anything back in return. It goes back into the pool to help other Singaporeans who are live beyond 85.

In theory, annuity is probably a good thing, but I’m not so sure about annuity that’s “forced” onto people. It seems like a pretty blunt instrument, at least to me, by implementing it across the board. I think we need more data to understand what is the projected number of people who are likely not to have enough for retirement and how much are people expected to set aside to pay for the annuity. The phrase “only a small part” doesn’t quite cut it for me. My concern is that we might actually be attempting for a solution to a problem that will not affect many people, although when it does affect some people, they usually become headline news. I think more numbers are necessary to convince people that a compulsory annuity is indeed necessary. Otherwise, I still think it’s better for the individual to have the annuity to be voluntary, although it will not be in the interest of the government, considering that they, instead of whoever is underwriting the annuity, have to fork out money to keep those whose CPF minimum sum have run out alive.

While the government has decided to increase the CPF OA interest rate by 1 percent, interest rate for the Special Account is going to be pegged to long term bond rates. I don’t have a problem with the theory that in the long term, the rate of return is likely to be higher. However, the question is, what bonds will the rate be pegged to? If it’s Singapore government bonds, I think we are going to get lower returns instead of higher returns. Looking at the nominal rates of returns of Singapore government bonds at Fundsupermart, the long term bonds almost all give a return of less than 4%. Add in the impact of inflation and the actual yield is going to be much lower. Looking at the US Government bonds on Bloomberg.com, the yields on their long term bonds are all above 4%, hitting almost 5% for a 30 year bond.

At the end of the day, whether the SA earns higher interest depends on what bonds the government chooses to peg the rates to. Also, there lies the question of what are the conditions which the peg is allowed to change. If it’s relatively easy to change the peg, therein lies the possibility of enjoying better returns when the opportunity arises, but there is also the risk of lower returns if the government wants to reduce its financial liability. So, at the end of the day, it all boils down to whether the government genuinely cares about Singaporeans.

I can accept that no financial institution gives a guaranteed 4% interest rate year after year because it is just plain stupid for a profit seeking organisation to do that. However, I don’t like the government to invoke private, profit seeking institutions in making their case to change the CPF SA interest rate from a fixed one to a variable one. A government is not a private company, so stop comparing to profit seeking financial institutions. The whole Singapore Inc bullshit is being taken a little too far for my liking. Singapore is a country, not another Stanchart or Goldman Sachs.