Is CPF A Scam?

Is CPF a scam?
Yup, Yes, it is!

But it's the people scamming the Government.
Okay, that's an exaggeration.
But hey, now that we have baited you in, keep reading 😉.

---

1. What Kind of Scam is CPF?

It's a huge financial scam!
The people are "scamming" the Government!
The people are "taking in too much" from the Government in their CPF accounts.

Source: GIPHY

---

Recommended Read: If You Invested Right After DBS's IPO

---

2. Public Narrative on CPF

I  hear people say that the Singapore Government is using its people's money in CPF to earn big investment returns while paying low interest to its people.

LOW INTEREST? 0.o
Interest ranging from 2.5% to 6% is considered low?

Source: GIPHY

Money in our CPF is kept risk-free and backed by the only few AAA credit rated countries left in the world.
There aren't many countries in the world with that creditworthiness that's paying interest rates of 4%.

---

3. Our Take

The Singapore Government is actually doing a kind deed by letting Singaporeans have CPF.

Source: i.kym-cdn.com

Before you rage quit and close this article, read on...

The narrative is the Government is locking our money away in CPF, not letting us withdraw it out fully so that they can invest the money and make big returns, all while paying us low interest.

The key thing we will be debunking here is 'paying us low interest'.

We will use the Special, Retirement, and Medisave Account (SRMA) based interest rate of 4% as comparison and reference.

We will compare that against SG Govt 30-Year Bond yields since that is the bond that gives the highest return.

We are not using the 2.5% interest the Ordinary Account (OA) is giving because the OA has a lot more flexibility in how it can be used.
It is structured more like a shorter-term savings plan than a 30-Year kind.

The more appropriate comparison might be the 5-Year or 10-Year bond, which if you look at the chart below, we hope you can tell that the bonds' interest rates are not anywhere close to 2% at all.

Source: World Government Bonds

---

4. SG Government Bond Yields

This is the SG Govt 30-Year Bond yield for the past 8 years.

It has never passed 4%.

Source: investing.com

So if the Singapore  Government ever want to make bigger net investment returns, it can just issue more 30-Year Bonds at lower interest rates, invest it, and make more money.

It can achieve all these without

1. Paying higher interest to Singaporeans 
2. Listen to Singaporeans complain CPF is bad

Who loses if CPF stops paying high interest to its members?
The CPF members, aka Singaporeans.

Source: GIPHY

If you are thinking, "I don't care about the interest. I want to get the investment returns that GIC is earning using our CPF money!".

May I recommend the article below:

If GIC uses my CPF money to invest and makes 9%, why am I only getting 6%?

---

5. Conclusion

Singaporeans legit got a good deal in CPF - on the yield side at least.

The yield is good, just that unfortunately you can't withdraw the money any time you want.
But hey, that's the trade-off.

Just think of it as you bought an X-Year AAA-rated high yield bond that pays a compounding 4% interest every year.
And you can only redeem it at maturity - aka when you reach age 65 years old.

---

6. Side Note

We are not economists or politicians.
But interest rates are now at a record low.
It completely makes sense for our Government to raise long-term funds (30-Year bond) at current interest rates and invest them for the long-term.

Keyword being 'invest' and not 'spend'.
Raise debt to invest in infrastructure or financial assets.
Not raise debt to distribute to citizens (that's how Greece got into trouble).

But, our Finance Minister has already stated that the Govt will not borrow to fund expenditure.
You can see the exchange in the 2 links below.
Concerns raised over fiscal prudence and constraints
Parliament: Being prudent with finances a hallmark of Singapore system, says Heng Swee Keat

If the Government won't, hopefully, Temasek Holdings will? 🙏

---

Recommended Read: Answering 2 Common CPF “Complaints”

Hey You!

If you have a money related story about you or your relatives' that you want to share, let us know in the comments below or email us at investmentstab@gmail.com.
Alternative, you could fill in the form below for us to contact you.
Story Form

---

Dear Reader!
As we progress towards the next phase of our journey, we would like to find out what would make you like us even more.
We hope you could help us fill in a short survey of 8 questions (4 of them are MCQs) so that we can help tailor our content to you.
Survey

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?
Have feedback? Tell us now!

Follow us on Facebook and Instagram for more timely updates about finance-related articles and memes! 😁
Subscribe to our newsletter too in case social media platforms decide to stop showing you our content.