While many Singaporeans recognize that they're getting poor
returns on their CPF deposits, few truly think the scheme is a bad
idea. Arthur Yeo, a 37-year-old engineer with around S$50,000 in
his CPF account, says he knows he's getting little for his money,
but figures that without the CPF he might have squandered it. "It's
a forced saving," he says. "If we didn't have this I believe it
would have gone somewhere, and I don't know where."
Singaporean citizens and permanent residents must contribute 20
percent of their wages to their CPF accounts. Their employers have
to kick in 12 percent, down from 20 percent in 1998, when the
government slashed employers' contributions to boost
competitiveness. The bulk of the contributions go into a
low-yielding ordinary account, with just 4 percent going into a
higher-yielding special retirement account, and 6 percent - 8
percent into a medical account. At age 55, members can move the
money into investment annuity accounts that pay monthly sums.
Looking ahead at a retirement crunch, the authorities realize they
will need to allow depositors to do more with their money.
In the past six years, they have allowed members to invest
in a limited but growing range of unit trusts and shares. But the
minimum cash balance needed to take advantage of this greater
freedom is S$60,000. The minimum will gradually rise to S$80,000 in
2003. (Members can use housing assets to account for part of the
sum.) The CPF's board won't say how many people qualify, but at the
end of 1998, just 16.5 percent of members had moved any money out
of the low-return part of their accounts.
That won't do, says Lim Hwee Hua, a ruling-party member of
parliament who heads a financial subcommittee for the government's
ageing panel. Lim, a strategic planner for Jardine Fleming,
recognizes that short-term interest rates are no way to build a
retirement kitty, but even so, her committee didn't recommend
raising returns on basic CPF savings, or pegging them to
fluctuating market rates. She figures Singaporeans wouldn't take
the risk, even though CPF rates have consistently been below what
people could get on other investments. "The risk aversion is so
high here," she says.
With a little savvy, Singaporeans could do much better than the
CPF. Ten-year US Treasury bonds currently yield an annual 6.47
percent while 10-year corporate bonds issued by DBS Bank yield 8.84
percent. Equities are riskier, but since January 1995 the S&P
500 Index has had annual returns of 38 percent; the Straits Times
Index has recorded annual returns of 3percent.
