Extreme Makeover, CPF edition

I’ll avoid using the word “failure” to describe the predicament of the government is in with CPF. Not that I am a fan of the government and wanting to add to any gloss to the predicament.

The source of the predicament is frankly not due as Aaron to the longevity of the average CPF subscriber. It is a confluence of factor largely of the government’s, by extension PAP’s, own making. If the kind of “financial reserve” Singapore has is true, it could easily have funded the CPF adequately and still allow people to withdraw at 55. The point is the PAP won’t do it, and not can’t.

I won’t go into the details of the confluence but suffice to say, the predicament of CPF is largely due in part to its role, that the government has set it. The predicament could be change by simply clarifying the role but under this PAP or even alternative moderate parties, I can’t see that being change. It will take a revolution in Singapore for people to see the errors of the ways.

Let me enumerate the basic factors as I see it. It is by no means exhaustive but I think are pertinent:

(a) Is CPF a pension schema? No it is not because it was never intended as means of people pooling the money and then to be shared out when the times come. The PAP, now and for the foreseeable future, is definitely not likely to change to that CPF to a pure pension schema. It is too wedded to the philosophy of “individual” responsibility to even objectively contemplate the notion of a state pension as a possible solution. Hence this wayanging about annuity, which may be resolved if CPF was a pension scheme.

(b) Is CPF a mandantory saving scheme? On one level it seemed like it. You could say it is like a long term deposit scheme. If so, then why should a person not be able to collect its entire sum at maturity. Well the problem here is the you don’t have a choice because as ever, the PAP want to control everything. Instead of letting people save in private entities, such as the kind of schemes you find in the UK, they want to manage it themselves — i.e. CPF board. They then find that this meant that what they got is a one-size-fits all solution. Some people will be very good at investing by themselves and make good returns, others could be piss poor investor. So the CPF board now find it difficult to satisfy the diverse range of subscriber. For those that could potentially make better returns find their CPF as opportunity cost, so in effect view the cost as a tax. Since it is one-size-fit all solution, it must distribute evenly, so the poor gets of low return and in effect subsiding the people who can forgo their CPF and still live.

(c) Is CPF a kind of development bank? There is an adage that money has no value if it is not being used. So it seemed sensible to let people buy property and where should the money come from? Hmm why not let people use CPF. After all, the PAP, in the form of the government, can control the interest pay-back or not pay-back at all. The PAP can then be seen as effectively using cheap mean to fund the development of the country. Better still, by getting the subscriber or suckers to “volunteer” the money and if things goes wrong it is not the fault of the PAP. If the government had to borrow money from other source to build HDB flats, its subject to the whim of the market or lander be it IMF or private banks. Or worst still, having to tax the people to fund the HDB, which will give the impression of the PAP not fulfilling the policy of low direct taxation. Will the PAP stop treating the CPF as a development bank? Personally I think not.

(d) Is CPF a mechanism for redistributing wealth? The PAP would not like that to be the case but in effect it is being used to do. In the early days, when the employer contribution was higher at 25% it was as the case. Now that it realise that cannot be achieved, it has to scale this ambition down hence reduction in employers’ contribution. In any case, this Policy was likely to be unsustainable in the long run, especially for an economy that is do dependent on foreign investment. Expecting the PAP to explicitly make CPF a re-distributive mechanism would be asking for the sky frankly. If it wanted to, it could focus CPF to the poorer society by giving those higher payout and those who don’t quite need it forgo their payout. Is that going to happen under the PAP? Definitely not. Hence you see all these scary stories about CPF being squandered, even though it make be a very small number of cases.

There are more. But in essence if any makeover is needed, then the main starting point is defining what CPF is for?