Singapore needs to relook and adjust its economic
model because what we have neither sustainable nor conducive for future growth. I took data from here Singapore Average
Monthly Wages from 1989-2017, Labour,
Employment, Wages and Productivity and Singapore
Statistics: Employment and Labour.
Assuming an average wage from the period of 1980 to
2010, a period of 30 years, which is one generation. And assuming a CPF contribution of 4%,
instead of 2.5% because I am assuming that, like most Singaporeans, the
Ordinary Account is used for housing, leaving the Special Account. Thus, I am being conservative here, and
assuming a best-case scenario, disregarding a weighted average. This means the average Singaporean worker
earned just over $800,000 in wages, and contributed just over $270,000 in CPF. With the accumulated interest on the CPF,
that is a total just shy of $500,000.
In this scenario, the CPF functions as a forced
savings mechanism. Even at 4%, it does
not keep pace with inflation, meaning that the average Singaporean, keeping his
money in the CPF, is actually making a loss in the long-term.
The accumulated funds in the CPF, the CPF monies, are
invested by the CPF Board in Special Singapore Government Securities, SSGS11,
that are issued and guaranteed by the Singapore Government. As per Government
Investment Corporation of Singapore FAQ, GIC, along with MAS, manages the
proceeds from the Special Singapore Government Securities (SSGS) that are
issued and guaranteed by the government which CPF board has invested in with
the CPF monies. So, while the CPF monies
are not directly transferred to GIC for management, one of the sources of funds
that goes into the government's assets managed by GIC is the proceeds from
SSGS. The coupon rate of this is between
2 to 3%. I am doubtful that all our CPF
is invested in these bonds; the numbers, even assuming 2.5%, do not add
up. There is a lot of secrecy here, much
of it for good reason, but I believe it is safe to assume that all our CPF
monies are invested through GIC.
Now, I have no doubt that GIC is competently run. The average long-term investment has a return
of between 6.5 to 8% cumulative. If we
take it at about 7%, converting the GIC reported numbers from USD to SGD, the
average Singaporean would have earned about $800,000. That is $300,000 more than what he saved in
that period through the CPF. So, all
these average Singaporeans are now in deficit of $300,000. They saved $500,000 in that 30-year period, and
GIC invested that money and earned $800,000 from each of them. If we take it as “management fees” for accumulating
and investing that money on behalf of us, that is 37.5%. Hedge funds do not charge that.
A system has been created here where the average
Singapore worker is effectively subsidising government investments. The worker is the commodity, a source of
cheap capital. This structure is
inefficient. The problem with this cheap
capital is that it is not cheap in the long-term. A lot of money has been locked away in a
lower yield investment that did not keep up with inflation, impoverishing a generation. Over time, these funds have been siphoned up,
creating a wealth gap. Perhaps it is
time to consider scrapping the CPF as we know it, and allowing Singaporeans to
be direct shareholders of the GIC. This
would effectively remove one layer of management cost, put more liquidity into
the system, and create greater flexibility in how Singaporeans manage their
money. If the government expects us to
trust them, they should also trust us.
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