Big Issue in CPF is not the Minimum Sum or lump sum withdrawals. It is low balances, period.

The Big Issue in CPF reform isn't the Minimum Sum, the CPF Life annuity payouts or even allowing lump sum withdrawals.
The Big Issue in CPF reform isn't the Minimum Sum, the CPF Life annuity payouts or even allowing lump sum withdrawals. ST PHOTO: DANIEL NEO

Changes to the Central Provident Fund should have dominated the week's news agenda and online discussions.

After all, criticisms of the CPF had reached feverish point last year, with rallies organised to protest the mandatory savings system.

But it did not.

Instead, reports and videos of a Thaipusam procession went viral. Globally, news of the Islamic State of Iraq and Syria burning a Jordanian pilot alive in a cage grabbed attention online and in mainstream media, with analysis aplenty.


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Why might this be so?

To be sure, the CPF changes were discussed by analysts.

University don Walter Theseira looks at the governemnt's dilemma: to be more flexible or not?

My colleague Lydia Lim looks at whether the government was caving in to populist pressure.

But by and large, the CPF changes were met with calm acceptance, or indifference.

As some netizens noted, the changes had already been raised in the Prime Minister's National Day Rally speech last year. Manpower Minister Tan Chuan-Jin had also hinted that people would be given more options when it comes to how much to put the Minimum Sum. The CPF panel's proposals were aligned to these earlier suggestions and thus did not surprise.

Another reason for the lacklustre response to the CPF panel's proposals is that this week's proposals are really just the first part of a more prolonged process of reform.

The Big Issue in CPF reform isn't the Minimum Sum, the CPF Life annuity payouts or even allowing lump sum withdrawals.

It is that most workers have low balances in their CPF accounts, period. This is even after working decades.

No matter how you slice it up, a small pie is not going to yield a very filling meal.

How to grow the pie?

One way is to divert more funds from property purchases to CPF balances which can be used for retirement. Benedict Koh, a finance professor, cites a 2008 report he co-authored, that found that 44 per cent of cumulative CPF savings had been invested in properties.

Second, help workers raise wages. This is best done when workers improve their skills. Those who can't, can get wage subsidies like Workfare.

Third, raise CPF rates of return. The government can do this by fiat, by increasing the interest it pays on CPF balances. Or, as some have proposed, it can allow CPF members to invest their savings themselves in hopes of getting better returns.

But I doubt this latter option is what most Singaporeans want, given that only 12 per cent of CPF Ordinary Account balances are now invested.

As Prof Koh noted in his commentary for The Straits Times last year, of those who invest, only 18 per cent made net profits higher than the OA interest rate, which is now 2.5 per cent. 47 per cent lost money. 35 per cent made net profits of less or equal to what they would have gotten under the OA.

In other words, 82 per cent of those who invested might as well have done nothing but left their money with the CPF.

There is of course a third, middle way: create several large funds which members can opt to buy into, depending on their age and life cycle. A young worker in her 20s can opt for a higher risk fund; a man in his 40s go for a balanced fund; and someone in his 50s can go for a conservative fund.

CPF members must then understand that this means potential for higher returns - but it comes with higher risks too.

Opinion Editor Chua Mui Hoong blogs weekly on notable commentaries and issues.