The Truth About CPF? A MoneySmart Response on Why Roy Ngerng is Wrong

Ryan Ong



Analyzing the CPF is fascinating. It’s so opaque, you feel like an engineer trying to guess the workings of a flying saucer from a bad photograph. And if you keep trying for a year or more, you end up inventing whacked out conspiracy theories. I’m amazed we haven’t started blaming Yetis for the low interest rate, or trying to predict the next minimum sum raise by measuring the Pyramids. Here’s what we think about it, and about Roy’s observations:


1. The Whole Misappropriation Issue

I don’t understand how the CPF is related to the City Harvest case, because I didn’t study the City Harvest case (I break out in hives when I step near holy ground). So I’ll just skip to the bit about misappropriation:

There’s no evidence that the Prime Minister misappropriated the funds. Okay?

And frankly, I don’t think he would. Have you seen how much money the guy makes? It’s highly improbable that he’d risk outright crime – it’s about as likely as Richard Branson deciding to buy a ski mask and rob a bunch of banks.

Conspiracy theories are exciting, but let’s not turn our local blogosphere into the Salem Witch Trials.

(And to some people out there – you know who you are – please don’t e-mail me asking if the PM is really guilty. The closest I’ve ever come to solving a crime is losing three consecutive games of Phoenix Wright: Ace Attorney.)


2. The CPF Interest Rate is Too Low

Compared to other financial products in the market?

Let me put it this way: if my office ceiling were the returns of a moderately well performing hedge fund, the CPF wouldn’t even be the floor. The CPF would be a piece of hair caught under a PVC mat, in the office three floors below me.

Even endowment policies touted by insurers  project returns of 3.75% as a low estimate. And there are blue chip stocks that provide annualised returns of 5% to 9%.

Given a typical inflation rate of 3% (I am being generous), the CPF grows money at the amazing rate of NEGATIVE 0.5%. It’s guaranteed alright; guaranteed to provide crap returns.

However…this next point is important:


3. The CPF Should Pay Out It’s Full Returns, Because It’s Our Money That’s Being Invested

While I think the CPF interest rates are too low, I’m ambivalent about whether it’s truly “unfair”.  What’s unfair to me is that it’s mandatory, not the way its run – how can anyone judge the latter, when we can’t even see what’s going on?

Anyway, say we operate the CPF like a kind of mutual fund instead, where the returns to the investors are tied to market returns.  In that case, if the CPF investment makes 9% returns, then we should get 9% returns as well, right?

But what if the returns are negative that year? For example:

Imagine a mutual fund that’s pegged to the ST Index: If the ST Index goes up 5%, you get 5% returns (minus any fees). But if the ST Index falls to – 2%, then your returns are negative 2% as well (minus the fees, which just makes it worse).

The CPF doesn’t work like that. It provides its stated return of 2.5% regardless of market conditions. Even when things go downhill, you still get 2.5%.

Is that necessarily a bad thing? It’s subjective. Some people might not mind the poor returns, because they are psychologically assured by the security. After all, people still put money in bank fixed deposits, which have an interest rate even lower than the CPF.

Also, one possible reasons we don’t get the full returns (I am guessing) could be that excess returns are held in reserve. So on good months, the excess returns are saved up. On bad months, that saved up money is used to ensure the interest rate remains the same. Your insurer does pretty much the same thing with your endowment policy.


4. Raising the Minimum Sum is a Way to Trap More Money in Our CPF

Yep. That’s because the government seems convinced that we’re all stuck at the mental age of 12. If we have our own money, we can’t possibly resist blowing all of it on alcohol, cigarettes, 4D, etc.

That may not be the exact way they choose to express it, but let’s just call a spade a spade.


5. GIC and Temasek Have Used the CPF to Become Large Sovereign Wealth Funds

Once again, we’re playing “guess the engine without lifting the hood”. It’s a little unfair to make assertions about how the money is used, when we have no real details.

It might be better to complain about the lack of transparency, and fix that issue first.


6. Make the CPF an Opt-Out Scheme

In our opinion, the CPF should be opt-in by default. If you want to opt-out (and there are opt-out clauses, just not many), you should be able to.

Couple it with a consultation, that ensures the person opting out is capable of handling their own finances. And issue a test, the same way we need to pass one to buy complex financial products.

(There probably won’t be a massive rush to leave the CPF scheme, because people not interested in finance almost certainly won’t bother).

The fact is, there are people for whom the CPF is merely a mandatory and inferior financial scheme: People with multiple properties who don’t need a pension plan. People who manage million dollar portfolios as their job, but are ironically not allowed to manage their own retirement fund. People in their 50’s who worked hard and were diligent with their money, who have  saved up enough to buy most of Liberia, let alone provide for a quiet retirement.

Once again, there are opt out clauses, and situations where you don’t need to put down the minimum sum (we’ll explain those in a future article). But ways to escape from the CPF are few and far between.


How do you feel about Roy Ngerng’s blog post? Do you think he’s gone over the top? Or are there some valid points? Share your thoughts with us here.

Image Credits:
Ernest Chua

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

Comments (15)

  1. Hey Ryan, I am one of your “silent readers” and I generally like reading your posts. However, this one falls a little flatter than usual for me. In addition to responding to his general assertions, what I would like to see is really a closer examination of the numbers used in Roy’s post. Some figures used were quite dubious. I looked through some of his cited sources and couldn’t find the numbers he used. Hope you take this as constructive feedback! Looking forward to your future posts.

    1. hi Mr Chng, you were looking for the numbers which Roy used, and couldn’t find it?

      You know since Roy came up with the articles on CPF, he went back to those websites where he extracted the numbers/information, and he was shocked that they made amendments to the pages. So some of those numbers could have been edited out.

  2. Recently, OCBC came out with the new 360 savings account which still contributes higher interest compare to CPF.
    You can easily meet the 3 objectives that are laid out to earn the 3.05% interest and it is definitely better than what CPF is providing.

    1. OCBC 360 account pays 3.05% for the first 50k you put in it. After that for up to 200k it is 0.5%. After some simple calculation you will find that any amount above $63750 in your 360 account will give you 2.5% interest and any amount higher will give you less than 2.5%

      That said, the 360 account is definitely a good savings account for daily emergency fund and people should definitely try their best to use it as much as possible

  3. Really enjoyed this piece!

  4. Huh? Huuuuh?

    Why Roy Ngerng is wrong? Okay i may not agree with him all the way.. but this article.. is badly written, totally ignorant and unnecessary?

    You’re saying how he is wrong.

    1) So there’s no evidence, so hey somebody tell that guy with the Schrödinger’s cat experiment there’s no 2 ways about it. the cat is dead. or alive. but not in-between. i mean we can’t know for sure, but its really really dead. or alive. er.

    2) wait this points disagrees with him?

    3) okay this is somewhat sensible… but good + bad over time does it still average out to 2.5%? oh of course we have to pay the managers money to run things… and then? does it still average out?

    4) Huh? what’s your point? raise minimum sum so we don’t blow it all? oh ok, why not we just close the whole thing off, make everybody work till they die. and if and only if you can prove that you need more money, with loads of evidence, and plenty of begging.. we might give you access to it. only if you say please. (aka, don’t make your bed, because you’re going to sleep in it anyway?)

    5) Okay, he’s wrong because, we don’t know? That makes you right? Schrödinger’s cat again here. Why is this even a reason?

    6) Your suggestion on CPF is a reason why he is wrong? Whut? Have you written articles before? like ones that make sense. to sensible people. for realz.

    Other than the above issues, i believe its a well written article. Someone must really recommend you for a pulitzer or something. if that’s relevant. whatever.

    1. 1). Presumption of the innocence in criminal law dictates that you must find compelling evidence to prove what you are accusing. Burden of proof is on Roy, not anyone else.

      2). it doesn’t disagree with him, this articles states that this is what are some of the observation the author has on Roy’s point.

      3). It doesn’t average. But it doesn’t matter. 2.5% is the risk free rate. There is absolutely 0 risk of you losing any of your CPF money and they are guaranteed returns. It doesn’t matter how much the investments are making because they are the one taking the risk, not you. Profits made or losses sustained are theirs to bear. The banks invest all your money in your saving account and fix deposits to make much more than what they are paying you in interest but you don’t see people complaining about that due to the same reasons.

      In fact if you want to have more interest, you are free to move money from your OA account to your RA account, where the interest rate is 4% instead of 2.5%. As the OA account is slightly more liquid than the RA account (used for HDB etc), it has lesser interest.

      4). i have no idea what your point is so no response here.

      5). Back to point 1.

      6). I don’t even…

      1. 1) Huh?(er what? we’re in the court of law now? like this is an article.. so its opinionated, and the law has its quirks, requirements and this little thing they call precedence. whatever. but what i’m saying is… Roy hasn’t been there yet. he hasn’t presented his case, so we don’t know if he is guilty, there are just charges against him)
        2) What’s the title of this article again?
        3) I stand corrected.
        4) The author’s reasoning is that… Wait, re-reading it, i realised i made a mistake, and the author made a mistake of not making a point at all.
        5)Huh? (oh hey, why not read point #1, i think i made it clear there ^_^ )
        6) What? You don’t even what? Look at the bloody title, it’s suppose to be a response why this Roy guy is supposed to be wrong. WHAT IS A SUGGESTION DOING HERE? WHY ISN’T IT IN ITS OWN SEPERATE PARAGRAPH FREE OF BULLET POINTS. (i’m a little crazy, i think.)

        1. It doesn’t matter if this is the court of law. Roy if accusing the PM of criminal activities. He must have the evidences. Let me give you an analogy. What if your neighbour come up to you next day and told you, “I suspect that you sold $10k from me.”. Now he starts telling everyone in your HDB building that you stole $10k him. Obviously you would ask him to show proof but instead he asked, “can you prove that you didn’t steal from me?”

          Do you see how ludicrous the situation is?

          The other points I will leave it up to the author since I have no idea what is his point either.

          1. fair enough. i haven’t followed the Roy related issues very closely. i wouldn’t have commented except this article smacks totally of incompetence.

            I thank you for your time and replies to my comments.

            Good day 🙂

      2. Zheng Xuan, you are confused. “Presumption of innocence” applies to charges made against a DEFENDANT IN A COURT OF LAW.

        But Roy was simply writing blog posts, NOT pressing charges against PM Lee. It’s just talk – people can choose to believe it or not, based on evidence (or lack thereof). PM Lee isn’t being tried in court, so “presumption of innocence” doesn’t apply here.

        Since it is PM Lee who is pressing charges in court against Roy, the burden of proof should be on PM Lee to prove that Roy knowingly made false claims to cause harm. Or at least that’s how it should be, if we are to be consistent with the legal principle of “innocent until proven guilty”.

        Although I understand Singapore defamation laws don’t work this way (the burden of proof is on the defendant instead of the plaintiff – the opposite of “presumption of innocence”), so this is one area where our laws need to be reformed.

  5. I think you’re quite correct on some points, including the part on the need for CPF mechanics to be more transparent.

    I also have the opinion that part of the reason for the continuous raising of the Minimum Sum is to entrap people’s money. It’s a simple cashflow trick which all companies already employ, which is to delay payments as much as possible, except in the case of the CPF, it’s enshrined in law. Moreover, the terms of payment is, on average, a few decades later. In essence, it is an extremely cheap source of long-term financing for Temasek and GIC (try asking any bank for 2.5% interest on $100 million; it is way too low).

    However, I don’t think CPF should ever be operated on an opt-out basis. It’s a social security scheme and like it or not, it has its merits, which is to force people to save for their retirement.

  6. Totally agree with Point 4, 5 and 6. LHL should start walking the talk himself and stop giving all kinds of excuses including his invisible care for our old age because his care is absolutely not there !!! He cares more for his spouse and his party far and above all of us combined !!! So, please start to learn how to call the spade, a spade !!!!

  7. I might be slow on the CPF saga but I do agree that you would not accuse of anyone without proper evidence. Overall, I think Ryan has provided a lot of insights on the general view of the entire case and how the defamation case and the workings of the CPF is totally separated issue.

  8. Dear Ryan, perhaps you’re very ignorant of many things. Please don’t post such comments, probably just to get Plenty of Attention. Not Very Smart!

    Our CPF money is trapped not because of what our govt tell us, neither are you correct!
    Here’s the proof – our aging population. E.g. 1,000 55 year old withdraw $100K is equal to $100M. READ VERY CAREFULLY! 1,000 PEOPLE CAN REMOVE $100M IN A YEAR! Easily!!!

    It’s a Cash-Flow financial Problem! Our money is invested everywhere, tied up somewhere, which could easily become a cash flow issue for CPF board and the govt.

    Mr Tharman even informed us that he has invested CPF money in our OWN GOVT BONDS which I question the govt minister’s IQ. Investing our CPF money in our own govt bonds is basically passing money from our right hand to the left hand.

    Worse! Govt need to provide 2.5% at least on our CPF funds. What sort of smart logic is this! You don’t have to pay me $10k a month to tell you this. Why would Mr Tharman a minister be worth more than $10k for making such decisions?

    Should we continue to vote for such Over Paid so-called high IQ ministers???

Comments are closed.