Tuesday, November 10, 2009

The Central in CPF: How about C for Choice?

For as long as I can remember, I had always been well acquainted with the acronym CPF. It stands for the Central Providence Fund. But till today, I know so little about CPF - it's confusing and difficult to justify.

My parents will just say that it is just "forced savings".

What is "forced savings" to us, is revenue for the government to spend, invest and in some cases of bad business decision-making, squander (it is interesting to note that the core competency of any democratic government is not to make money).

I spoke with my mum recently and she told me about this minimum sum policy, where people are expected, if possible, to "top up" their CPF to meet the minimum sum in their CPF accounts. (Well, from here on, I'll just make references to the CPF ordinary account)

The purpose for this is so that retiree citizens will be able to have a healthy monthly allowance/pay-out into old age. Family members could also contribute to "top up". Imagine taking the money you have in your hands and putting it in a safebox, the password of which is only known to the government, and you'll have no access to it whatsoever.

CPF for me is almost like a double-edged sword, because one side cuts deeper than the other. Citizens get the blunt side, of course.

The good thing, among a few, about CPF is that you can buy (you actually rent) public housing and do other investments with money you cannot already touch. The bad side of it is when you are in need of money and you sell your HDB home, you probably cannot get much out of it. You can struggle and starve until you reach the age when the government starts paying you with your own hard earned savings.

I see CPF in another light. CPF is "tough love" shown by the compassion-less state. A government's job is to take care of its people. However, since welfare is relegated from the Singaporean state to non-government organisations, CPF (and also the Ministry of Community Youth and Sports) is probably one of the few excuses of a government initiative that actually strives to look after Singaporeans.

To arrest what it sees as widespread Singaporean financial illiteracy (oweing to the Singaporean past-time of gambling, and poor individual financial management), CPF seems the most pragmatic approach. After all, by controlling the money of citizens, the government need not spend much of taxpayers' money on welfare. That way, the government can consolidate taxpayers' money do the traditional Chinese thing that is wealth accumulation, and paying top talented yes-men servants (Lee Hsien Loong does appreciate his men servants, i mean yes-men servants, doesn't he?)

The government has moved on with the times, and realised that the cost of living is up and people need to have more savings for old age. There is no denying this. This is thus translated into policy and a higher minimum sum in your CPF.

However, that only addresses the economic aspect of "the times". People are generally and increasingly financially savvy. With information going around like omnipresent aggressive pesky hardselling banking and investment representatives at MRT stations, people are in a better position today to make more informed financial decisions. We are generally more financially literate.

At the same time, there are those who are in need of money and are struggling on a daily basis. If you are struggling every day or month, would you bother more about the prospects of struggling after you retire? These are the ones who will need help and I think having compulsory savings might be harmful in the short term.

Financially literate people are the bigger losers when it comes to CPF. Retirees are not able to withdraw all of their money from CPF. I guess the government does not want people to squander their own money (and ironically, it is probably the state who would be in a better position to do the squandering). This measure minimises demand for social welfare in the event people do squander their money. However, the thought of this minimisation is unsettling, because I believe that the state is also responsible for "irresponsible" citizens. It is your right as a citizen to gain protection from the state. However, the protection that is welfare appears to be outsourced. For instance, look at our charities. They are private, although regulated/monitored.

It seems the central control of money is essential to social stability. But in a time when people are a little bit more financially literate, why can't the government allow them to access to their own money? The state should not in any way prevent any one from gaining full access to the full sum of their money, but the different policies in CPF are contrary to that.

The implementation of CPF is microcosmic of life in Singapore. There are certain compulsory things that you just cannot and do not question. There are no alternatives, and the only choices you have are the ones provided for you by the state. There is no reward for compliance, but there is punishment for non-compliance, unless you consider the absence of harassment and punishment as rewards.

I think we can do without the state paternalism, from which we have so much benefited. It is time to move on with the times and give people choices on how they would like to handle their own money.

On the one hand, the government promotes ideologies like meritocracy, and embark on different campaigns of social engineering, so that a social environment is created in which deviance and failures are isolated and reduced to individual laziness and character flaws. This is a system that protects the state, by creating distractions away from the flaws of policy and politicians. On the other hand, (and I am speculating) the state does not want people to squander their money and start seeking welfare, even though the said system is already in place.

The value in saving is the preparation for the future, where you are giving yourself an additional choice or two in the event you encounter financial difficulties or make certain financial decisions. I cannot understand why the government has to enforce the CPF policy across the nation, because people have different ways of preparing for their futures. Yes, people have different futures and more importantly, different "present"s and daily realities, especially those whose savings are far less than their CPF ordinary account.

There will be many perspectives on CPF. Personally, I would not mind having the government take (care of) my savings, because I still save as much as I can. But I would probably want to have access to all the CPF savings when I retire and do the "rationing" of allowances for myself.

I think there can be more tweaking and personalising that can be done, so that the different people can at least have some needs met. Of course, CPF is not the only issue, but it would be great if people are given more choices. After all, the PAP wants to stay in power, and to do so in a democratic country, you have to be in the business of making everyone happy, so why run Singapore like a bloody primary school?

I think life in Singapore is best summed up in the following sentence: You either get fucked or go fuck yourself.


Charles said...

I still do not understand the gripe Singaporeans have with CPF probably because in France more than half the pays goes into the govt pocket, and is redistributed (never to be seen again).

The problem with CPF is not that the govt controls it, neither is it an issue of choice, but that there is little redistribution.
If you are poor you have your own poor CPF, if you are rich you have your rich CPF (and if you are very rich you have your rich CPF and your equities/bonds, etc.)

Can CPF remains be passed onto the children?
How much is inheritance tax in Singapore?

Alan Wong said...

The fact here is the PAP Govt has robbed us of our very basic right to withdraw our CPF contributions at age 55 as originally implemented, just as they have robbed us of our basic right to freedom of speech as guaranteed under our Constitution.

This fundamental choice as to how we would like spend our CPF savings at age 55 should not be taken away from us contributors just like that with a change of the regulations decided by our Govt alone. They should have at least seek our consent as to whether we are agreeable to such change of such regulations governing our CPF withdrawal.

If the Govt is really concerned about our welfre during our twilight years, may I ask how about the welfare of those Singaporeans who cannot set aside a single cent for the minimum sum at age 55 eg. those who have never worked or contributed to CPF at all or have a HDB flat to pledge as the minimum sum.

Is our Govt prepared to guarantee that the welfare of this group would be taken care of until they die so that everyone of us Singaporean equally have something to fall back on ?

If not, it will only serve to show the hypocrisy of our Govt that they are actually interested to limit and delay our CPF withdrawal of funds for reasons which only they themselves are aware of.

Sam Ho said...

unlike most countries in europe, i don't think singapore is one where most citizens will be entirely happy for the redistribution of resources to help the lesser fortunate fulfill their basic needs.

after all, ours is a culture of selfishness and personal material/wealth accumulation

according to certain schemes, the CPF can be passed on to children. and apparently, if you choose one scheme but pass away within a period of time stipulated, no one gets any of the money but the government.

to be extreme, it defeats the purpose of having children knowing that you cannot provide fully for them and that the government wants to take a cut.

that's the plight of being singaporean. if you are a foreigner, you could withdraw your CPF when you leave.

wayHOW said...

I can see how our culture can be described as selfish, but doesn't CPF play nicely to that image? You save your own CPF, for yourself.

The only alternative I can picture would be we don't have CPF, and the government foots the bill of the less fortunate using taxpayers' money. Therefore, if citizens prefer personal wealth accumulation, CPF makes more sense.

To shed some light on the schemes you're referring to, CPF LIFE is an annuity where members get to choose between four plans, of which only one leaves no bequests for beneficiaries.

All other plans provide a refund upon death, of at least the full principal less payments given to the member in his lifetime, assuming there is any amount left over. Logically speaking, if you have children to provide for, you should not be choosing the plan that leaves nothing behind when you pass on.

CPF LIFE offers monthly payments to retirees for the rest of their lives. Even when the total amount withdrawn exceeds the original principal placed in CPF, the payments will continue.

The reason this is possible is because CPF LIFE, like any other annuity, works on the basis of pooled risk. Interest earned from the participants' savings (including monies left behind by those who chose the no bequest plan) is redistributed to surviving participants after their own principal savings have been depleted.

This is really quite different from the "if you ... pass away ... no one gets any of the money but the government" impression you have of the scheme, and in a twisted way, it makes the selfish Singaporeans in your vision less happy about the redistribution of resources.

Seelan Palay said...

Readers might also want to check out this related article by sgpolitics.net, 'Stop the wayang, just return us our CPF': http://www.sgpolitics.net/?p=3433